Humans can be funny, we know what is right and good for us but find it difficult to do. Budgeting is one of those right things that many of us of don’t do. Some reasons can be: we don’t understand how money works, we feel it’s too difficult and most often it’s our habits.
We’ve become accustomed to blowing money fast and end up asking ourselves “Where did all my money go?” “I don’t even see what I spent all my money on,” “I can’t believe my money has finished so soon,” etc. Even when we wise up and try to budget, there are some mistakes we keep making and that’s what we’re going to be discussing in this week’s blog post. Let’s gooo!
What is a budget and budgeting
Budget: It is an estimate of income and expenditure for a set period of time.
Budgeting: The act of allocating or providing a sum of money for a particular purpose from a budget.
Personally, I see budgeting as assigning security guards to your money so that it doesn’t run wild.
Common Budgeting Mistakes
Last week, I received what I'd like to call a lump sum and I surprised myself. One of the first questions I asked myself was "how do I save this money?" Normally, I'd ask myself "how will I spend this money?" But it was as if being dead broke some days prior to that finally gave me the wake up call I needed or perhaps it was the request that I do an article on budgeting that gave me the epiphany of "I need a budget!"
But over the course of my short life, I have made many mistakes when trying to have a budget and here a few ones.
1. Not Having a Budget
Have you watched Narcos? Let me take you back to the scene when Pablo Escobar's daughter was cold, what did he do? He kept throwing dollar bills into the fireplace just to keep the fire going, that's what not having a budget is like. You can also say not having a budget is like drunk driving, anything goes!
When you're on a salary job and you don't have a budget you may end up living above your means and even if you don't, you may not be saving or investing your money. For example, during my NYSC days when I was getting a small salary, I realised that after 2 weeks, most of my money was gone and it was worse in September 2018 because we got paid about 2 weeks in advance due to the upcoming Sallah break. Now, imagine having to stretch a salary meant for 4 weeks into 6 weeks. It was a struggle time and I had to call in one or two favours just to stay alive.
To make a budget, you'll first need to track your spending, keep your receipts, record your spending and review your bank statements from the last 3 months to give you a good idea of how much you're spending.
2. Sticking to The Same Budget Every Month
I get it, you're making the same amount every month so why should your budget change? This may seem like a good idea because you want to observe your spending habits but the truth is you can't exactly spend your money on the same things all the time, even your bills are subject to change. You need to be able to give yourself some wriggle room when budgeting. For example, when it's a festive period like summer or Christmas or any other holidays, you may spend more than you normally would. You don't want to find yourself in a tough spot when it's time to buy gifts, celebrate your birthday or go for a concert but your pockets are dry like the Sahara.
3. Having a Mental Budget
There is the saying that the faintest pen can match the sharpest memory. A budget at the core of it are goals and plans for what to do with your money and over and over again, studies have shown that writing your goals down is more effective in achieving said goals.
It is very difficult to keep up with your budget without writing it down. There were times when i tried to remember what i spent my money on because I couldn't be bothered to write it down at the time but it caused problems and inaccuracies for me. Honestly, it can be quite stressful writing down everything you spend your money on to the last naira but it becomes easier if you keep at it.
The purpose of having a written log is to track and observe your spending habits and to know what works and doesn't work for you. I used my notes app on my iPhone to write what I spent my money on and what day and at the end of the money I put everything in an Excel spreadsheet. What was very evident was that I spent most of my money on mobile data (because data is life) and food (because food is life too).
4. Not Separating Wants from Needs
In his world famous book, The Richest Man in Babylon, George S. Clason tells the story of Arkad who was Babylon's richest man. In this story, Arkad decides to teach a class of men how to amass wealth and he said they need a budget in order to save them from their desires and spend whatever little money they had on what they perceived to be necessary.
Human desire wants a lot more than our resources can hope to ever satisfy. They are like weeds on fertile soil, you can never truly get rid of them. So, let's call wants weeds and needs crops, some weeds may look like crops but they're not. In the same vein, some wants may look like needs but they are not.
When budgeting, it is imperative that you separate your wants and needs. According to Your Finance Pal, the biggest money wasters are clothes, alcohol, fast food, shoes, escorts and cigarettes. It is quite obvious that all these money wasters are wants and not needs.
A need is something you depend on for survival more or less such as clothes, food and shelter. A want is something that isn't necessary but can make you more comfortable. For example, 3 pairs of shoes may be a need but a fourth pair is definitely a want. If you want a fourth pair, instead of just out rightly buying it, you can plan to save some money up for it and then buy it.
5. Leaving Out Fun and Entertainment
Fun and entertainment has a sleek way of eating our money like Pacman. Many of us don't really budget our fun and entertainment, for example, on a night out with your friends when you're drunk your money goes out of your pocket way quicker. How do you even budget for something when you don't know the price? I mean, when you go out to eat, do you know how much the food costs? We all want to chop life but don't forget that chopping life used to chop money i.e. it costs money to enjoy life and many of us want to blow money fast like there's going to be hyperinflation the next day like in Venezuela.
It's better to put a fixed amount on how much you're willing to spend on fun and entertainment based on how much money you made in that month. For example, if you made N50,000 as your salary, you can spend a maximum of N10,000 on fun. But, if you made N50,000 as salary but had a left over savings of N20,000, you can spend N20,000 on fun and entertainment. Try not to go overboard and if you do, then execute a plan on how to make up for it (see 11 Steps for Creating an Effective Plan).
6. Not Saving
Most people when they budget, only plan what they will spend their money on and end up not saving even a simple kobo, penny or cent; some even end up in debt. When budgeting, saving is as important as spending, when you don't save money then your desires will feast on your money and soon nothing will be left. What of if you suddenly fall sick and you have no savings? How will you pay for your hospital bills? What if you suddenly lose your job? What then?
Due to the recent government shutdown in the US that last over 30 days, many federal government employees went without pay. Many of these people didn't have savings and it really put them in a tight spot, they couldn't pay their rent, buy food or medicine, etc. Some of them had to be fed in soup kitchens and the likes. I can understand that when you live paycheck to paycheck saving is kind of impossible but as much as you can, try to save at least 10% of your earnings, it will go a long way.
In conclusion, budgeting doesn't have to be so hard, it may be difficult at first, you will make mistakes often times but that's fine you will get it sooner or later. I will recommend two apps for you to use apart from your trust pen and paper and Excel spreadsheet. If you're in Nigeria, I recommend using Piggybankng and if you're abroad, check out YNAB (You Need A Budget).
QOTD: "Money is like fire, helpful when handled right but harmful when handled wrong. A budget is your fire safety equipment." - Ofai Edori
WELL, THAT'S IT FROM ME GUYS. NOW...
Which of these budgeting mistakes are you guilty of and which ones will you like to add to the list? Comment below! Like and Share this with your friends so they can avoid these costly mistakes. SUBSCRIBE to my blog to get my free e-books plus you'll never miss a thing. Follow me on Instagram (I post valuable videos there), Facebook, Twitter and Pinterest. See ya next Monday!
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My name is Ofai and I'm passionate about blogging and it gives me fulfillment that I can help you out so sit back, relax and enjoy your weekly carats of #SelfImprovementGems with me!