6 Budgeting Mistakes You should Try to Avoid in 2022

6 budgeting mistakes you should try to avoid in 2022

Effective budgeting can make life so much easier. Unfortunately, cracking that magic formula that allows us to always get it to the end of the month is not always easy and due to countless financial difficulties we have experienced in recent years, becomes increasingly harder with each passing day.

But, the silver lining in this whole situation comes in the fact that people have, by now, made so many budgeting mistakes we have the benefit of learning from their experience and not having to go through all these trials alone.

So, let’s take a look at some of the most dangerous mistakes you should avoid in 2022.

Failing to understand how much you are spendingFailing to understand how much you are spending

Setting up any form of a sensible budget without understanding how much you need to spend each month is near impossible. Be that as it may, this is one of the most common mistakes people make when allocating their monthly earnings. So, we suggest that you go through your debts, utilities, and casual expenses, pen down every single cent you spend, try to find some average numbers, and allocate your after-tax earnings according to the following principle:

  • Needs (50%) – The expenses like utilities you absolutely need to make
  • Wants (30%) – Things you spend money on but are not critical
  • Savings (20%) – The money you are going to put aside for rough periods

Setting up unrealistic expectations

Don’t get us wrong here – the savings can be made in countless areas and you are encouraged to try to reduce your monthly expenses as much as possible. But putting too much faith that you will be able to reach any milestone, use public transport every single day, or find discounted products every single time you go shopping can only set your budget too far off the mark and cause serious shortcomings. So, try to be as realistic as possible and use your savings for making investments and increasing your earnings.

Failing to leverage discounts and reward parts

Failing to leverage discounts and reward parts

That being said, some saving methods do have a clear set of rules and outcomes you get on any purchase. For instance, a David Jones American Express card gives you reward points for set amounts of money you spend. These points can later be used in supermarkets, gas stations, and other retail points. So, you always know how much you are saving and where you can make discounts. Using the strategies like this one can give you a lot of financial leverage when your monthly resources are spread too thin.

Using too many financial accounts

In some cases, using different accounts for different specific purposes can be very beneficial. So, if you are opening an account to get a loan, feel free to do it. But, you should try to avoid stacking up too many accounts. First, most of them will require some sort of maintenance you can easily lose the track of and create unintentional leaks. Second, splitting your finances across too many different accounts ultimately causes you to lose track of them, keeping a close eye on your finances is the pure essence of effective budgeting.

Depriving yourself of amenities

You can look at this whole issue as if you were trying to maintain a healthy diet. Trying to completely deprive yourself of food in order to create a caloric deficit will ultimately cause you to indulge in all the things you enjoy and create a yo-yo effect. Managing finances is not that different. Trying to take too many things out of your life will eventually cause you to burn out and overcompensate. Remember that moderation and incremental progress are much more effective than infrequent and ineffective leaps.

Not keeping the track of variable expenses

Last but not least, we would like to point out that every person deals with countless variable expenses like food, commute, repairs, entertainment, etc. Dealing with these variables by making estimations based on the previous consumption would be just fine if all these expenses wouldn’t vary in hundreds of dollars. So, yeah, take the previous expenses as a starting point but do your best to keep the track of and factor in price fluctuations, expected expenses, and all other factors that may influence your budget.

We hope these few examples gave you a general idea about the common mistakes people make when setting up their monthly budgets as well as pointed out some of the strategies you can use to overcome these obstacles and keep your monthly expenses under control. We are living in very troublesome times where managing your finances becomes harder with each passing day. Effective budgeting won’t solve all of your financial problems but it will set up the foundations for all future efforts.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.