Budgeting is a life skill that can help to reduce stress and help prepare for the unexpected. A car breakdown, or unusually high utility bill can be stressful enough. But imagine the stress you would feel if you were worried about how to cover the cost. Preparing a budget can help you build in a buffer to cover unexpected costs but can also help to take control of your spending.
However, even the most diligent and watchful spender can miss a thing or 2, so in today’s blog we will share some of the most common pitfalls to look out for when budgeting and spending.
A common mistake people can make when it comes to budgeting is failing to plan ahead and to allow for contingencies.
At MABS, we see clients who can have their careful budgeting thrown out of synch by significant events that should bring them joy, such as family occasions like communions, confirmations, and Christmas. Other smaller events such as taking a day trip to the beach on a warm summer day, can lead to unexpected costs. Such as transportation, ice cream for the kids, bucket, spades and more! Smaller costs like this can build up and can lead to possibly being short on a week’s rent or letting a utility bill slip by, for example.
Our suggestion: Sit down and think through events that you know will occur during the year. Put aside a small bit of money to prepare for them. For example, Christmas saving schemes are a solid & effective way of preparing for the expense. Make sure the following January is not filled with stress and worry as utility bills that can’t be paid come through the letterbox.
Similarly, topping up a jar of euro coins or using Revolt Vaults can be an easy way of saving and can be dipped into for those events that are unplanned for (like the day trip to the beach). In this way, you can avoid the shocks that spiral into debt and retain control of your finances.
Relying on estimates
Too much reliance on estimated spending, instead of taking the trouble to look at specific costs in detail, is a significant mistake in budgeting.
Many people can tell you broadly what their monthly/weekly gas or electricity costs are or their TV/broadband package. But often, there can be a significant variance in what they think they are spending versus what they are actually spending.
Our suggestion: Completing a household budget, which can be made easier by using our MABS Household Budget tool, can be surprising to see your various regular expenditures listed.
Taking the time to look closer at your spending is important. Understanding these regular costs is a way to avoid getting into debt. If you’re working off a tight budget, relying on estimates (instead of the actual figure spent) could send you over budget. The more you can train yourself to pay attention to the small details of your spending, the more confidence you can have in your budgeting habits.
Not writing down your expenses
Accurate knowledge of how much you spend and how much everything costs is important. It is difficult to retain all that information in your head. Therefore, it is a good idea to use a spending diary. List all your expenses, and this will help you stick to your budget.
Here’s a little game – think about your monthly subscriptions and add up the total in your head. No cheating; keep the list purely in your head and when finished, write down the total monthly subscription on a piece of paper.
Now, route out your most recent bank statements. List out all the subscriptions that are coming out of your account monthly.
- Did you miss any in your head?
- Did the value you had in your head match the actual spend?
- Are you spending less or more than you thought in your head?
Our suggestion: Keep receipts to be aware of what is coming out of your bank account. Keep track of your outgoing cash, especially bills and groceries. Regularly check your bank account history. Prioritise the debts: mortgage, rent, utility bills etc. Try our Full Financial Picture Tool, to help work out a plan to tackle one or more debts.
This can be a huge pitfall for many people, especially if paid monthly. The temptation to splurge is high, especially during sales or if discounts are offered online.
Our suggestion: Before you press buy or tap that card ask yourself – is this something I really need, or can I do without it until I have saved for it?
It is important not to overspend what is allocated in your budget and to save money for extra things. So you can still enjoy life while keeping your budget on track! Try not to pay for impulse items on your credit card unless you are going to clear the balance in full every month.
Not Considering Cheaper Alternatives
This is a common pitfall for many people. There can be good savings made by shopping around and looking for the best deals.
Utilities and grocery shops are a large cost to every household. Some people pay a premium for convenience when there can be savings made.
Our suggestion: Comparison websites, such as Bonkers or CCPC, are fantastic websites that help you compare utility providers for electricity and TV & Broadband. Check out our Switcher Series of blogs for more top tips on switching your energy and TV/Broadband providers.
Try following these useful tips and see how your confidence in managing your money grows.
Budgeting and looking closely at your spending habits can be difficult. But once you take a step back and review your finances, it may be easier than you think! Keep an eye out for our next blog to discover our top tips on Switching Your Bank Account.
If you have any other questions or would like to speak to a member of MABS, call our National Helpline on 0818 07 2000 Monday to Friday, from 9am to 8pm, WhatsApp 086 035 3141 or request a callback if you want to talk confidentially about budgeting, problem debt or general financial matters.