Budgeting is a process that many people undertake in order to get their finances in order. While budgeting is one of the most often given pieces of financial advice, many people still find themselves struggling with making it work for them. This can happen due to one common pitfall of budgeting that sometimes gets overlooked – the fact that budgeting is more than just a spreadsheet, it’s a state of mind. Let’s learn more about this pitfall and how to avoid it.
When creating a budget, many people list their income in one column and their expenses in another column. They then add up all of their income and subtract their expenses from it. If the income is more than the expenses, a person knows that they at least have enough income to pay their debts. If the income is less than the expenses, this is where many simply give up on budgeting and feel like it won’t work for them.
Avoiding this pitfall requires the ability to change your spending habits. When you first create your budget, it will give you an overall view of where your finances currently stand, for better or for worse. But the process of listing your income and expenses isn’t a budget – it’s just a list of numbers. Budgeting starts to happen when you go through the numbers and start making them work for your current financial situation.
For example, if your debt is more than your income, there are two options: cut back on expenses, or look for ways to gain more income. On the other hand, if your income does cover all of your debt, but you have other goals, such as saving up an emergency fund, or saving for a home deposit, you will easily be able to see whether or not your current budget will enable you to meet those goals. If not, your numbers will need to be reworked as well.
If you’ve found in the past that budgeting doesn’t work for you, it’s time to change your thinking about what a budget truly is. When you do, you can start avoiding this common pitfall and start working towards achieving your financial goals.
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