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Do you sometimes wonder whether your monthly budget is getting the job done? Signs that your budget is falling short include things like missing payments on some bills, not being able to put planned amounts into a savings account, and more. The truth is that there are hundreds of budget-related mistakes people make regularly. Fortunately, only a few errors are the source of most problems for working adults. The number-one culprit is creating a budget that’s too general. After that, typical errors include:
- Allowing monthly expenses to remain at a higher-than-needed level
- Using a one-size-fits-all budget template from a finance website
- Not planning for tax payments
Here are details about the top ways people fall short when budgeting.
Being Too General
On the cash outflow side of things, it’s easy to lump several categories together. Instead, be as detailed as possible when setting up expense categories. For example, consider breaking down a large line item like entertainment into several smaller areas, like fast food, movies, sporting events, bar tabs, road trips, live shows, and more. When you specify each item, it’s easier to see exactly where your money is going and potentially control overspending.
Not Minimizing Monthly Expenses
One way to get your spending habits in check is to make reasonable cuts when possible. One of the most effective ways of minimizing cash outflow is to refinance student loans. Consider working with a private lender for the best rates and terms. Likewise, use an online student loan calculator so you’ll know well in advance what to expect to pay each month on the new, single obligation. One of the benefits of an education loan consolidation is simplicity and ease of budgeting. Others include the chance to deal with private lenders who can offer your more advantageous repayment periods and other loan features.
Using a Static Template Downloaded from a Finance Site
Avoid the temptation to download and use a template budget. In most cases, these general schematics offer an excellent place to begin, as long as you remember to add your particular line items to the mix. Unfortunately, too many people opt to use the templates as-is. That’s no way to plan your finances. Always spend time creating a full-scale, detailed, highly personalized monthly spending plan. There’s no substitute for careful budgeting.
Ignoring Taxes
Overlooking tax bills is one of the more subtle errors working people tend to make when preparing financial plans. It’s hazardous for self-employed folks who often end up owing larger tax bills than people who work for others. The good news is that there’s a simple solution that can simplify tax preparation for the future. Look at your annual tax bills for the past three years to arrive at an average amount. Then, divide the average by 12 to get a monthly set aside figure. Add a category to each month’s budget called tax escrow. This technique should be a unique, separate account set up at your local bank. Its purpose is to hold the regular deposits of the tax escrow category. When the tax payment time arrives, you’ll withdraw the cash from the account to pay what you owe.
Reviewed and edited by Albert Fang.
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Article Title: Are You Making These Common Budgeting Mistakes?
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