21 Jan

5 mistake we make when making a budget

There are different budgeting styles like the 50-20-30 budget, 0 budget, No budget budget and etc.
Every one of them has the goal to hold with a good grip the loose cannon you turn into when your money hits your bank account. Here are the 5 common mistakes we do when budgeting. They sabotage our efforts and sometimes make us drop budgeting altogether.

1. Not counting annual and seasonal expenses.

When jotting down the monthly expenses we arrive at a pretty lean number. Then we calculate what is left for our goals, investments and emergency funds. But what we often forget is that there are annual expenses which we need to sum up and then divide by 12 to have an idea how much is our monthly budget. By not planning for our seasonal expenses we are left unprepared and always behind. Very often we reach to the emergency fund for the annual insurance of the car or the extra eye check up, month full of birthdays and other events, which are not emergencies.

2. Not budgeting for opportunities.

Opportunities knock on the door very often. If you, like me have a champagne taste but a beer budget, you want to be prepared for them. Like that, when the opportunity knock on your door, you can welcome it. I am lucky to know what I want my home to look like. My mood board, color scheme and concept are on my phone all the time with me. I have done many purchases of high quality items which were a steal deal, and even I can sometimes hardly believe how little I have spent on them. 

Very often I enjoy bragging that I got my Dyson vacuum cleaner, my Dyson cool fan heater, portable Bose speaker, a slow cooker and a Kercher power wash all together for less than 600 eur. The opportunity arose when a very sweet couple who were relocating offered them to me. Something I am not proud to admit though, is that I had to ask a friend to lend me the money as I was not prepared. All the items were on my wish list for months, and I was hating the fact that I was not prepared for the opportunity. If you are on a tiny budget, but have a taste for good quality, you need to have an opportunity piggy bank.

3. Being too ambitious with your goals

If you are too ambitious with your goals, you will not achieve them and will feel utterly disappointed. There is nothing more discouraging than feeling a failure. We need to be able to achieve and celebrate our achievements. I received a notebook from a friend of mine which randomly had achievement certificate pages. I make sure to give myself a certificate for achieving a goal or a milestone in the path to final goal

4. Extracting your personality from the process 

You might have poor budgeting skills but it does not mean that you do everything wrong. The essence of you should be taken into consideration when budgeting. What makes you thick? Are there certain expenses which are really important for you – like short recharging trips, books or a pair of shoes as a reward for hard work? Make a list of the things, which make you happy and how much you spend on them. Ask yourself what is the emotional need this things satisfy, and is there a cheaper way to satisfy it. 

I, for an instance love hosting parties, but I know that I go overboard, and I can not go about it any other way. That is my personality-  ENFJ and a leo star sign who loves being a host. So in order to not break the bank I stopped hosting parties altogether – I extracted my personality from my budget. That is a recipe for very unbalanced and and not so fulfilling life.

I had to ask myself what emotional needs do I meet with hosting an event, and how can I go about it. I discovered that for me it is important that we have an unforgettable experience. Instead of spending a lot on a buffet for kings and queens I’d rather use my creativity. An unforgettable experience can be created with an atmosphere which can fit into my budget, by using my imagination instead of my wallet.

5.Mixing too many budgeting styles

It is good to experiment with different budgeting styles and to alter them to your current situation and needs. But there is a trap – a budget is a solid structure, which is there to guide us and we lean on it. Most of the times when we start budgeting, we start from a very chaotic place, and very often very bad set of habits. I would advise to stick to a single budget style for at least half a year, to have some yield of it, and then to see if you want to improve, or change your strategy all together.

When I started my budgeting I didn’t have any debt actually – so 50-20-30 was a great starting budget for me. It was easy and not too elaborate, so I could get the momentum of it. The budget was really easy and I wholeheartedly recommend it to people who do not have debt and are just slightly overspending and want to have any tangible effect. Was using this budget for about 8 months before I got my car, for which I had the good luck to borrow the money which I was short of from a dear friend.
Had I been using only my savings, the car was going to be way more expensive down the road. So the math justified going over my means and creating a bit of dept.

Extra tip: Change the budget according to the situation

8 months down the road, I am following Dave Ramsey’s getting out of debt program. And that will be most probably be my program for the next 3 years till I pay off the property I purchased. There is a small twist to it – I do have my investment portfolio parallel to the first baby steps. I do realize it is a very thin thread, and compromises and side hustles are needed to keep it going. But that is part of my character-  I like to push boundaries! Which brings me to N 4 again – don’t erase your personality from your budget.

You can track my net-worth growth and dept management here

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