Putting an effective budget together is hard work. You have to go back and look at your spending history, tally up all the sources of income and where that income goes, and then carefully distribute the money that isn’t going toward savings or debt reduction among a whole list of important categories, all the way from the most basic sustaining needs up to the necessary indulgences that make life brighter and more enjoyable.

After doing all this work, it’s important to keep your budget working effectively. There are plenty of trip-ups that could undo all the preparation and planning that has gone into your budget: today’s blog looks at a few of these that you should make sure to steer clear of!

#1: Budgeting For Money You Don’t Have

This is a common trap that plenty of would-be budgeters fall into. Namely, they will make a plan for a budget – let’s say for the next month – without actually having that amount of money to work with. You can easily get carried away in hypotheticals as opposed to actually having the money in front of you, so to speak, to allot into the different elements of your budget. Planning ahead is great, but in order to make each dollar count in the right place, it’s important to be able to assign it to a goal or need directly.

#2: Forgetting About Fees

The convenience of online transactions and paying with cards has transformed how we use money. However, fees are a negative component of this convenience, and they can surprise even the most scrutinous budgeter. Things like ATM fees, transaction fees (whether associated with cards or with online payments services like PayPal), and other incidental costs associated with modern payment methods may take bites out of what you thought you had available to budget – but they can also be a sign or symptom that you’re spending a little too much with a particular credit card, for example.

#3: Responding to Financial Emergencies

Budgeting is all about setting expectations for your money, but you also need to be able to expect the unexpected. Any event that requires an urgent, significant deviation from your regular budget will cause a chain reaction effect on the rest of your spending. This is why it’s vital to “pay yourself first” and allot some money from each paycheque to an Emergency Fund before you go about distributing money into other spending categories. How big of an emergency you want to be prepared for is up to you, but many experts recommend being able to save up at least a month’s worth of your earnings. For more tips, check out our blog ‘Dealing With a Financial Emergency in 4 Steps‘.

#4: Letting “Lifestyle Creep” Creep Up On You

One of the best things about budgeting is that, once it starts working, you will feel its effects. You’ll suddenly realize that you don’t have to stress about whether or not today is a fancy coffee day. You might start saving a little extra for that trip you wanted to go on. And, as your financial picture gets brighter, you might start getting a little more luxurious with your spending than you realize. It’s not your fault: this “lifestyle creep” happens to almost everyone as their finances change and grow. But it’s important not to let it surprise you! The most important thing is to keep reviewing and revising your budget and the balance between what money comes in, and where (and how much of) it goes out. As long as you’re capable of doing regular reviews and adjustments to your budget, it should stay on track without being burned by lifestyle changes.

Tags : debt managementdebt reductionfinancial literacyfinancial planningmoney savingpersonal financesaving money