Why These Careless Budgeting Mistakes are Costing you Thousands

When it comes to budgeting and being mindful of where your money goes, the question in front of you is really quite simple.

Do you track expenses?

For some, that question is pure nonsense, but in the best way possible.

Tracking expenses for that contingency is a no-brainer, something they do without thinking but have it down to a science. They know what’s going in to the bank, what’s coming out, and also stay focused on other key financial goals like building a savings account or emergency fund, along with allotting enough for retirement and other long-term financial goals.

But budgeting is hardly the norm, in fact, recent studies suggest that only about 41 percent of Americans use a detailed household budget, to go along with another alarming statistic that exemplifies just how important budgeting truly is: half of Americans, if they had a $400 expense, would have to borrow that money, versus having it on hand.^[1]

So for those individuals who are tracking, budgeting and spending properly, you’re part of the 41 percent that are making your finances work.

You’re not living paycheck to paycheck, you’re putting money aside on a variety of levels, and you’re not one of the 57 percent of Americans with less than $1,000 saved.^[2]

That dollar figure, in terms of savings, is hard to swallow, but it, along with other money woes detailed, all goes back to budgeting and the idea that you’re either skipping it altogether or putting together one that hardly is detailed and feels more haphazard than helpful.

One of the core reasons people fail to track expenses is because of the accountability piece and not wanting a budget to get in the way of having what they want. Spending money is easy, fun and enjoyable, mostly because you’re getting something in return.

Having a budget almost stands in the way of that joy, but on the flip side leaves you frustrated with the fact that you’re not saving and struggling to pay bills and not sit and wait for another paycheck to bail you out, a process that is all too common.

In 2016, 75 percent of Americans say they were living paycheck to paycheck, and that number grew 3 percent in 2017.^[3]

This all adds up to a budgeting and financial epidemic, and it all centers on budgeting.

Now, to be fair, some will argue vehemently that they have a budget, but yet still can’t save. That’s an oxymoronic statement in that a budget is a simple exercise in income versus expenses, so if you’re truly tracking what you spend, then the process defines the outcome.

The issue typically is in the process piece, specifically budgeting mistakes that you’re making.

You may feel as though you’re budgeting effectively, but the true measure of success budgeting wise is having money left over at the end of each month.

Most individuals aren’t even aware that you should be saving 20 percent of your monthly income, not spending it, with 12 to 15 percent going toward retirement and another five to eight of that for a savings account.^[4]

At the core, budgeting is about awareness financially, and making sure you’re not just spending frivolously or assuming that saving really isn’t overly important.

If you’re having spending troubles, a budget can flush that information out without much effort, and certainly can help slow or stop the financial bleeding that’s happening, thus causing you mistakes made that is costing you more than just a few dollars.

Try thousands.

If you aren’t budgeting, that’s an issue, but if you are and you’re not sticking to it, that is equally as daunting and disappointing.

Whatever the case might be, you can avoid costly errors on your part, most of which you’re missing daily, weekly, monthly and yearly and that is literally taking money out of your hands with no rhyme, reason or trace of what happened to it.

The Big Picture: Learn to budget with all expenses, percentages in mind

Far too often budgeting is perceived as being something that is either an all or nothing project (which are those who do it well) or a hodgepodge of ineffectiveness that really doesn’t follow any sort of pattern or thought behind the execution.

Budgeting has a breakdown that is pretty widely known, as far as how much you should be spending on various household items. Earlier, the mention of retirement and savings, 12 and eight percent respectively, was pulled out of your monthly income for those very reasons.

But what about everything else.

So aside from the savings piece, here’s how most your staples should breakdown.

Food is between five and 15 percent, with housing at 25 to 35 percent and 10 to 15 percent to charity, and the rest, whether that’s clothing or entertainment should make up the 100 percent (also, again, factoring in the savings piece).^[5]

The key takeaway is not making the mistake of investing too much into a monthly mortgage or overspending on food.

Housing is the biggest expense most people have, with 14 trillion dollars now the total for mortgages in the United States, with the average monthly payment on a home just over $1,000 ($1,029) at about 14 to 15 percent of the monthly income, which is a good sign.^[6]

Naturally, some states have a higher percentage, but overall you should be no higher than the 25 to 35 aforementioned range versus income.

If most are doing a good job, maybe food or entertainment costs can be to blame.

To stick to these percentages on these larger, broader line items means simply to do a better job of budgeting and treating a budget as more than just a paint-by-numbers project.

The Little Picture: If you’re going to get the big stuff down, the little will do you in

So one of the bigger expenses you focus on is food, and that five to 15 percent range seems fair, but food also is part of a smaller scale of, too, much like other incidental spending you’re doing and not really tracking it all that well (if at all).

When it comes to food, most Americans spend around $151 per week, with the higher income households closer to $180, which equates to $600 to 720 per month, for groceries.^[7]

That fixed cost is fine, but what if you’re someone who spends money on take-out food for lunch and then again for dinner, or spends the weekends outside of the kitchen and are more inclined to dine out regularly.

In 2015 and 2016, most Americans spent more on takeout then they did groceries, roughly 55 billion versus 52 in that time frame.^[8]

So if a person spends on average about $3000 per year on take-out food, that’s an additional $250 per month, that has to factor into that $600 or $720 total that takes into account your groceries, too.

Overlooked and often ignored are small but powerful budget items that you’re missing or simply taking the convenience for granted.

Whether you’re spending $4 per day on a cup of coffee and $2 on a bottle of water, you can’t look the other way with the smaller-priced indulgences. Just because it’s not a mortgage loan, car payment or student loan debt doesn’t mean it should be forgotten.

Millennials are, according to published reports, spending more money on coffee to go than their retirement, roughly $3 per day or $1,100 per month; roughly 41 percent of that age bracket born between 1980 and the early 2000s won’t cough up their daily coffee to ensure they retire.^[9]

Goal Disoriented: If you’re not setting yourself up to succeed, you’ve given up

You often hear coaches say they learn more from their mistakes than from their victories or motivational speakers of all sorts who tell you how many times they have to get knocked down, before they get back up and stay up.

Those sentiments ring true when it comes to money too, because even though budgeting is crucial, if you aren’t goal oriented or have an idea of what you want your money to do, then saving only is going to go so far.

That progress or lack thereof was noted by most, with a recent study showing that 77 percent of Americans made some sort of financial resolution for 2018 last year, which is twice as much as 2016 into 2017, perhaps an admission that goals do make a difference with your money and said mistakes.^[10]

Funny enough, you all know how resolutions end: usually not all that well.

Truthfully, the hard numbers say that only about half of Americans have set financial goals, 33 percent aren’t saving any at all; the 22 percent that say they’re saving a good amount pales in comparison to the 45 that say they want to save more.^[11]

Perhaps the most telling part are the 83 percent who say they’re planning smart, from this same survey, but only 51 percent actually achieve success.

That disconnect means that while intentions are good, follow-through or clear-cut direction is missing badly.

Saving money has to be equal parts automatic and aggressive, with you being that coach or motivation to do more with the money you have and being less passive about how you save, if you’re even doing that at all.

Budgeting is often tough to wrap your brain around, because quite frankly every day you’re in the trenches: spending money, working hard and really spending most of your time wondering why all this hard work isn’t paying off.

You’re not doing the little things right, much the same way a sports team can have talent and conceptually understand their goals and end point, but yet struggle with penalties, mental errors and just can’t fine tune the small stuff.

If you aren't sold that budgeting works or that managing money isn’t worth your time consider this:

The average person spends more than eight hours every day working (roughly eight hours and 3 minutes), with 14 hours on personal care and leisure activities, with the study revealing that more than 40 hours per week is bad for your health.^[12]

While working 40 hours has become the norm, you’re putting your health at risk and adding stressors, not to mention the time we enjoy on the flip side after we’re done working, spending time with family, traveling, etc.

Your finances is the great divide that affects both, either negatively or positively, with the latter coming from budgeting properly.

A budget that is broken means that time spent at work is going to increase to earn more, and those leisurely activities are suddenly going to be disappearing, so you’ll live to work and not work to live and revel in all your successes.

That doesn’t sound too fun, so as much as budgeting is equally mundane, it might be worth your time so that you can actually start enjoying it again.