Most of us know that some form of budget is important. But everyone’s personal situation is different, and there is no such thing as a one size fits all approach to budgeting.
Personalising your budget is vital for the ongoing success of your financial health, however there may be some important factors you are probablyignoring when it comes to your finances that are sabotaging your success.
Below are the five most common mistakes I see when women are managing their finances.
- You save first and pay for expenses later. Contrary to popular belief, this isn’t necessarily the best option. If you do not set aside an appropriate amount of cash for your ongoing expenses, then you will have to dip into your savings anyway to pay your bills, which ultimately defeats the purpose. It’s important to estimate how much your ongoing expenses are and set aside an appropriate amount of money for these. Once you have calculated a suitable amount, you can then allocate a separate savings component. That means that when all of these expenses come due, you don’t have to dip into your savings to pay the bills, and your savings won’t suffer.
- You are only paying the minimum off of your non-deductable debt. Generally speaking, debt can be broken into two categories. Firstly, the debt that you have for investing or business purposes. This is the debt that you may be able to get a tax deduction on the interest repayments. Secondly there is non-deductible debt, or your personal debt. Think home loan, personal car loans etc. If you have excess income and you are paying the bare minimum on these debts, then you are doing yourself a disservice. Increasing your minimum payments can knock years of the life of your loans and save you thousands of dollars in the long run.
- You live off your credit card for your expenses. If you can’t be trusted with a credit card, then take the temptation away. Credit cards can be an excellent transactional tool, however if you have a problem with spending, then you shouldn’t be using them. An easy way to monitor your spending, is to take out your spending money in cash each week. You know exactly how much you have so that you can’t overspend. Another option is to use a visa debit card if you don’t like carrying cash with you. It’s all about knowing your weaknesses. If you find at the end of the month that you overspent on your credit card, then break the cycle, and get rid of your credit card all together.
- You pay your bills late. Any bill paid five days late or more, will have a negative effect on your credit rating, not to mention the late fees usually applied. As of March 2014, the credit rating system changed to incorporate late bill payments. That means that any bills you pay late could come up negatively on your credit rating. This includes your basic household bills like electricity and your phone bills, so make sure you keep on top of these. You may not know about it now, but it will come back and bite you when you are trying to get a loan later down the track.
- Saying yes to everything. I love a social life as much as the next girl, but if you are overcommitting your time and your money, you will blow the budget. I’m not saying stop going out, I’m just saying be mindful of your budget when you do. If you are concerned about going over your allocated funds, then suggest a more cost effective catch up with friends. Coffee at a café is cheaper than dinner and drinks. It is always important to allocate some of your funds to ‘going out’, but make sure you stay within your budget and you can have the best of both worlds.
While having a budget is important, you need to make sure that you aren’t setting yourself up to fail from the beginning. Have a look at the way you manage your finances and make sure you aren’t making any of the above common mistakes.