A budget is a tool that allows you to take a good, hard look at your finances: what income is coming in, what expenses are going out and what that leaves you with, if anything.
A budget can allow you to save toward a goal, such as a vacation, new car or a kid’s college fund. It can also help you build up an emergency fund so you have a financial buffer in case unexpected expenses arise that you weren’t planning on. A budget can keep you from using too much credit, and it can give you peace of mind that you won’t spend beyond your means.
According to a GOBankingRates survey of more than 1,000 Americans ages 18 and older, over 43% of respondents had trouble paying their utility bills in the past six to 12 months. Not only that, 33% of respondents had less than $500 in savings.
With so many Americans struggling to pay bills and save money, it’s clear that many of us might have a budgeting problem.
If you are experiencing any of the following issues — from paying bills late to forgetting to adjust for things like inflation or life changes — you could be making budgeting mistakes.
Putting Too Much on Credit
If you find yourself frequently using your credit cards to fill in the gaps for expenses that should be covered under your normal expenses, you may have a budgeting problem.
“If you’re consistently carrying high balances on your credit cards, it’s a sign you’re living beyond your means,” said Sherman Standberry, a licensed CPA at My CPA Coach.
Experian suggests that too much credit card use is a sign of overspending and bad budgeting (or lack thereof). Keep in mind that when running a credit card balance, you are also adding hundreds if not thousands of dollars in interest that you also have to pay back.
“Prioritize paying down your credit card debt,” Standberry said. “Consider using strategies like the debt snowball or debt avalanche methods.” And in the future, better budgeting can potentially help you to avoid this outcome.
You Can’t Afford Bills or Are Frequently Late Paying Them
A budget is a tool that helps you assess how much income you have coming in and how much in expenses is going out. If you budget properly, you should be able to account for all your bills, especially your regular, recurring ones.
So if you’re finding yourself unable to pay bills or paying them late, Experian suggests it’s a sign that it’s time to reconfigure your budget.
“My advice?” said Enoch Omololu of the personal finance blog Savvy New Canadians, “Pencil in those due dates. Or better yet, consider setting up automatic payments. Let technology be your trusty financial sidekick.”
You’re Frequently Overdrafting
According to Standberry, if you find yourself consistently facing overdraft fees, it’s an indicator that your money management may need improvement and you’ve got a real budgeting problem.
The solution lies in taking proactive steps: Establish balance alerts with your bank to receive notifications when your account balance reaches a low point.
Additionally, consider building a financial buffer within your account to prevent overdraft situations from occurring in the first place. These measures can help you regain control over your finances and steer clear of unnecessary fees.
You Have No Emergency Savings
If you are someone earning a living wage that covers your expenses and leaves a little extra, you should really be putting money aside for emergencies, according to The Nest. If you don’t have any extra, it’s a telltale sign of a budgeting issue.
A budget should help you take a close look at just how much money is leftover after paying all your bills, and could also point out places where you can cut out expenditures in order to put money into savings.
“Aim for three to six months worth of living expenses, but even a small emergency fund can be a good start,” Standberry said.
You Don’t Make Adjustments
If you put your budget together in 2020 and haven’t changed it since, chances are — just considering things like inflation and high gas prices — your budget will no longer reflect reality, and you might find yourself pinching pennies.
According to The Balance, you should adjust your budget periodically, especially if there are changes in your income or expenditures or major life events like moving, having a kid, marriage, divorce or something similar.
Ramsey Solutions takes it one step further and says you should revamping your budget monthly, taking into account things like birthdays and anniversaries, holidays, seasonal purchases like snow tires, and semi-annual purchases like car insurance. It doesn’t have to be a big to-do, but going over your budget with the specific month in mind can help you stay on track.
You Didn’t Budget for Annual Expenses
When people make their budgets, they tend to focus on regular, monthly recurring expenses that crop up like weeds. But if you don’t factor in annual expenses, you’re going to be caught off guard several times per year when payments for insurance, property taxes or other annual bills show up.
Factor in these costs and put away money toward them every month, as well.
You Aren’t Sticking To It
Your budget is a powerful tool — but only if you use it. You have to commit to your budget and be dedicated to it if you want to get the most out of it.
“Give yourself grace and at least three months to get into a rhythm,” said financial expert Rachel Cruze. “It takes a couple of months to see your money patterns and habits take shape. I always suggest to always physically track your spending — whether it’s on a piece of paper, a spreadsheet or an app.”
You’ll feel it when you aren’t because you might not have enough money for a bill or money to put in savings. So, stick to a budgeting method that is most practical for you.
Household Members or Spouses Aren’t on Board
If you are part of a couple or live in a household where you share expenses with others, remember that you have to factor everyone into your budgeting. If you’re sharing expenses, then other people have to be willing to stick to the budget, too, or else you’ll run into problems.
Make sure you’re very clear upfront about the budget’s parameters, and get some kind of buy-in from others so they don’t sabotage all your best efforts.
You’ve Set an Unrealistic Budget
If your budget is planned down to the dollar without any flexibility, or you’ve allotted more money to things that you don’t need, you might have an unrealistic budget that you’re working with.
According to Money Crashers, you want to leave some wiggle room in a budget, though not so much that you’re tempted to spend without reason. You can always fix it up the next month if it isn’t working for you, but make sure your budget goals are doable.
Laura Beck contributed to the reporting for this article.
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