Is one of your resolutions this year to get financially healthy? Are you looking to grow your savings or make a rainy day fund? Do you want to make a budget so you can buy a new car or a home?

There are a ton of reasons to make a budget, or adjust your existing budget. It’s a good exercise in staying financially on top of everything and knowing your full situation. The job of budgeting can seem very simple at first, but there are some common mistakes you need to avoid.
 

1. Putting Leftover Money Into Savings
 

When planning out your budget, of course the first step is knowing how much money you have coming in and how much is going out for required expenses. You have to eat, pay for where you live, pay for a car, and things like that. Next, you list and track other expenses you regularly have too.

But what about your savings? Far too often, people treat building their savings as an afterthought. They adopt the idea that whatever is leftover in the month goes into their savings account. Even worse, they might treat their savings as just someplace to hold money they regularly spend from.

These attitudes will only lead to a stagnant, or ever decreasing, savings. Instead of having money go into your saving accounts as an after thought, plan it into your budget. Have a set amount go into your savings each month and don’t touch it unless there is an emergency. This is a great way to build up an emergency fund or pay for a large expensive goal, like paying for a down payment or going on a vacation. 
 

2. Guessing Costs
 

A good budget should account for every dollar and needs to be very accurate. Don’t just guess how much your expenses are, have hard numbers behind each one.

For many of these, like rent, loan payments, and cell phone bills, these costs are the same every month and they're easy to know and include in your budget. But other costs fluctuate month to month. Utility bills, food, gas, and personal spending can change drastically month to month. That is where guessing commonly comes in.

Instead of just guessing how much you spend, find a good estimate. The difference between a guess and an estimate is having data behind your reason. Find out your regular spending on these changing costs over several months and then average them. That average is your starting point for your estimate. For bills that don’t change too much, this average is enough to work within your budget. Expenses that change a lot more month to month require more work.

Starting from your average, look at previous months that cost much more or less from it. Find reasons why they changed so much. Many times, the reason should be fairly obvious. For example, your gas utility bill went down in the summer and higher in the winter, while your home’s electricity did the opposite. Or your personal spending went way up in November and December as you bought gifts for everyone. With this information, you can adjust your budget and prepare for these months of change.
 

3. Not Tracking Your Spending
 

Budgets shouldn’t be a once a year worksheet, but a living document you work with regularly. At the bare minimum, you should be updating your budget once a month. It’s one thing to come up with estimates for expenses, but you need to be including what actually happened too.

If you don’t track your spending, you aren’t holding yourself accountable. How do you know you stuck to your budget if you aren’t keeping receipts or even know how much you spent? Your budget becomes a wish, a dream, a hope that you’re being financially wise. You have to track your spending and compare it to your budget in order to improve and know where to adjust.
 

4. Informing Your Partner About a Budget
 

If you have a partner or spouse, you need to include them in the budget making and keeping process, especially if you share finances. What is the point of making a budget that keeps your spending in check if your other half doesn’t know about it and spending to their heart’s content.

When building a budget, have them involved early on. This can spread out the work and help everyone involved understand the importance of the budget and your situation. It can also lead to important revelations and information about your spending situation.

Then, you both need to be accountable for tracking spending, in whatever method that means. That could include keeping receipts, pulling debit/credit card transactions, or even just writing it down after every purchase.
 

5. Not Having a Plan for Leftover Money
 

You’ve made a budget, you’ve tracked your purchases, you’ve grown your savings and at the end of the month, you find out you have extra cash leftover. That’s wonderful news, but it does present a new problem. What do you do with your leftover money?

There are two clear options: either you spend it, or you save it. But what do you spend it on, or how do you save it? Not having a plan for this money can lead to either impulse decisions, or letting the money go to waste. Especially if you consistently have money leftover every month, make a plan for how you’ll utilize it.

If you have debt, paying it down with this leftover money is a great idea. Extra money paid over the monthly payment gets put towards paying down your principle, which in turn will lower your total interest paid. It also means getting out of debt quicker. 

You could also use that extra money to treat yourself from time to time. Especially if your budget is focused mostly on essentials and nothing for yourself, use that money for your mental and physical wellbeing.

Does the idea of spending the extra money not sit well with you and you’d rather save it? Rather than putting it into a low interest savings account, invest the money. You could invest in the stock market, or squirrel it away into an IRA, or Pioneer could help with a Term Certificate. You get a higher interest rate than a savings account, the money gets put away for a set term, and at the end you get your money back, plus interest!

Open a Term Certificate