The following content originally appeared in an article by Elizabeth Renter on NerdWallet.com on May 23, 2017.
6 Budgeting Mistakes and How to Fix Them
The thought of accounting for every bit of money you touch can be intimidating, but the biggest budgeting flubs don’t require a math degree to fix. With some instruction and resolve, anyone can build a budget. We talked with several financial planners to identify the most common and troublesome budgeting errors and help you avoid them. The pros agree: Skipping a budget entirely is the biggest mistake you can make. But once you’ve nailed one down, steer clear of these additional blunders.
1. Failing to track expenses
The accuracy of your budget and your ability to make progress toward financial goals depends on knowing what you’re spending. Being vague with these figures could set you up for failure.
“Quite frankly, most people have never stopped to think about how much money they actually spend on food or personal items,” says Justin Goodbread, a certified financial planner with Heritage Investors in Knoxville, Tennessee. He says he sees folks both dramatically over- and underestimating how much they spend each month.
Fix: Track what you spend for at least one month before setting your budget. Ideally, you’ll keep tracking expenses every month, but shoot for one month per quarter at minimum. Use a good budgeting app to simplify the process.
2. Neglecting your retirement
A goal that’s many decades away is an easy goal to neglect. But whether you’re middle-aged with a family or fresh out of college, you need to save for retirement — it should be the single biggest financial priority in your life.
“People tend to see saving for retirement as sacrificing their ‘expendable’ income today,” says Lauren Klein, CFP® and founder of Klein Financial Advisors in Newport Beach, California. “That’s looking at it all wrong.” Klein suggests thinking of today’s retirement contributions as tomorrow’s paychecks — this is the money that will pay the bills when you’re older.
Fix: At a minimum, set aside enough of your salary to meet any employer match for 401(k) contributions. If you don’t have a 401(k), set up an IRA and contribute what you can each month. The ultimate goal is to set aside at least 15% of your current income for your golden years.