4 Areas That Everyone Underestimates When They Budget
Budgeting is one of those things that everyone knows they should do, but they don’t. After all, living by a budgeting ethos has a tendency to mean you have to constrain yourself and stick to a plan. When you eliminate the possibility for spontaneity, most of us fail to stick to such a plan.
If you’re determined to make budgeting work, then it’s important to get to grips with a few areas that tend to be problematic. These are areas where people continually underestimate what they will actually spend. Getting these right means that you’ll be able to manage the budget as realistically as possible, ensuring your sums are always right, and making sticking to your budget easier as a result.
1. Entertainment
When setting up a budget, it’s important to look back on previous expenditure in each area to see what you’re likely to need in the future. It’s difficult to do this for entertainment, though. Often, entertainment is paid in cash and can’t be tracked so easily. Try and track your spending for a month before you try and set a true budget for how much you spend on having a good time.
2. Debt Repayment
The amount you’re repaying to debts — including your mortgage — should be covered in a budget, but it’s often tempting to overlook it. If you’re only budgeting to pay back the minimum payment amount, then there’s a good chance that you’re never truly going to clear yourself of that debt burden thanks to interest accumulation. Take a look at debt consolidation to see if there is anything you can do to lower your repayments or group them into a single, unchanging amount that you’re sure is going to bring your overall debt levels down.
3. Contingency
The biggest problem with the contingency section of the average budget is that there isn’t one. A contingency is needed for all those little areas where you suddenly might have an unexpected expense, or when something you have budgeted for turns out to cost more than you were anticipating. Always try and set aside at least 5% of your income as a contingency, to be called into action only if required. If you don’t use your contingency by the end of the month, then it can go into savings, or be spent on a nice treat for the family.
4. Food
We all have a tendency to underestimate how much we spend on food. This is made all the more difficult if your grocery store purchases also involve non-food items, such as toiletries and entertainment items — the overall price on a receipt can be several budgeting categories blended into one. Try and keep purchases very separate, with different transactions, so you can map your food expenditure and plot it as well as possible in the future.
Creating a budget is a great idea; ensuring you don’t underestimate the amount you need to budget for the above areas is an even better one. Give due focus to these areas, and you won’t go far wrong.
