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Preparing a monthly budget, and then managing your expenses, according to that always helps. A family budget is not that complicated to prepare, only you need to analyze your monthly expenses, and your monthly income, and what’s leftover at the end of each month.

Budgeting your monthly finances, not only let you manage your money in an efficient way but also enables us to save for the future and achieve distant financial goals - be it retirement or a child’s education.

But here the problem is, many people give off the idea of budgeting their monthly finance, in case if they fail to make it work for them. Question is, why the budget fails to work for them? Well, this can be due to some common budgeting mistakes that people do often commit while planning their budget.

Let us know about these common budgeting mistakes so that you can avoid it in the future, at the time you will plan your budget.

1. Ignoring Small Expenses

At the time we sit and plan our budget, we include the big expenses of our house, like electricity bill, house rent, grocery cost for the month, DTH connection bill, milkman’s bill, travel cost and many more, but we often ignore the small expenses that we carry in our daily routine. Like for example a daily coffee at Barista on your way to work might cost only Rs 100 a day, but if you sum up it for a month, it may go up to Rs 2000-2500, well, this expense should be placed in your monthly budget, isn’t it?

Similarly, a parking fee, foot spa, car cleaning expense or a toy purchase might seem small expenses of day to day life, but if you add, it reaches a sizeable amount if taken together. So, don’t ignore any of the expenses.

In order to include these small expenses, you need to first estimate these small expenses, for that you should keep a daily account of expenses in a small notebook or in an excel sheet. In two or three months, you will get to know approx. of your small expenses, now you can add them in your financial budget, or you can also include them in big expenses categories like housing, food, entertainment, savings, debt repayment and so on.

2. Your Neighbor Is Not the Benchmark for Your Expenses

Your neighbor recently bought a BMW car, and after you saw your neighbor’s car, what was the first sentence that you spoke, I also need to buy a similar one? And right from here, your budget starts getting imbalanced.

There can be many good reasons for your neighbor to buy a BMW car, maybe he must be saving or investing to buy a car for a long time, maybe he would have a good financial position than that of yours. Here the thing that you need to understand is, your financial decisions should never be based on your neighbor’s or your friends’ financial decisions, it may ruin your finances and end at putting a heavy debt on your head.   

The best way to manage your financial decisions, categorize your purchases into two categories, needs and wants. Focus on purchasing your needs, and it would be good if you invest in your wants.

3. Not working as a team

If in a family both, husband and wife are working, it is their responsibility, to plan and manage the finances and expenses of their house, together. Working together makes a lot of differences in a positive way, then working separately.

It is important to come together and share financial information. It will not only provide a big picture of family finances but also help achieve future financial goals.

4. Too Frugal a Budget

Preparing a budget that is too frugal, often hinders you from doing the hard work to increase your source of income. Frugal budgeting which is too restrictive can demotivate you causing ‘frugal fatigue’.

So it would be far better to treat yourself occasionally, plan for short vacations, plan for occasional dine-outs, and more, than preparing a frugal budget. You can also treat yourself when you achieve financial milestones like you can treat yourself with a good dinner at a good place, on finishing five years of successful SIP investing in mutual funds!

5. Under-providing for an emergency fund

The most important reason behind running an individual out of his financial budget is unexpected events, at the time when they are not prepared for their emergencies. Thus, it is essential for every individual to provide for an emergency fund from their regular budget to take care of such unexpected expenses.

Now you must have understood about the five common mistakes that you should skip while planning your monthly budget after that only your financial budget will make your money work for your finances and expenses.

You can contact us at Shri Ashutosh Securities Pvt Ltd., for any assistance, we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).