So you’ve decided to finally get serious about taking the steps towards achieving financial freedom?  Congrats!  The first part, as you’re probably aware, is budgeting like a pro.  A typical budget includes a list of your income, expenses, and savings.  Even though you may already have those areas covered, chances are your budget still has some flaws that you might not even realize.  Have no fear, though!  I’ll talk about some common budgeting mistakes here, and, more importantly, show you how to fix them.

Budgeting Mistakes You Should Avoid:

Not Prioritizing Saving

9 times out of 10, finding money for saving or investing is the last line item on your budget.  That means it often doesn’t ends up not happening. You need to change that, and make saving one of the first things listed on your budget.  Saving should be like any other mandatory item in your budget, such as car payments and utility bills. If you establish your monthly savings amount from the get go, the rest of your finances will still fall into place.

An easy way to ensure that saving is first is to automate your savings plan. That way you don’t have a chance to spend that money. There are awesome apps to automate your savings or you can start an automatic transfer to your savings account through your bank.

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Overpaying for Monthly Expenses

When is the last time you evaluated your regular monthly expenses? You know, your cell phone, cable television, and internet service bills?  Chances are you signed up for those services during a promotional period.  After the promotional period ends, the price tends to skyrocket.  Your cell phone, cable television, and internet service may not be the only services that you are overpaying for. Check out these 6 monthly bills that you need to negotiate.

Overpaying for monthly expenses leaves less money to save, invest or trade with. The next step in correcting your current budget is to give your providers a call and ensure you have the best rate and that the services match up with your needs.

Forgetting Annual Expenses

It is easy to budget for ongoing monthly expenses but it gets tricky when you have to factor in Annual Expenses. Annual expenses include things you can’t avoid like car registration fees, dental and medical copays, annual scheduled car maintenance, and credit card annual fees. By budgeting for annual expenses all year long, you won’t be shocked when they come up.

In order to be prepared when an annual expense comes up, you budget for those expenses monthly. Now, I’m not saying that you need 50 different line items in your budget to cover all the different annual expenses that you may incur, but you should be aware of those expenses.

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Budgeting with Unrealistic Expectations

Trimming the fat from your budget is a must but don’t forget to be realistic. I know you created an awesome budget and whipped your finances into shape!  However, is your budget realistic? Your co-workers will ask you to go to happy hour.  Your friends will ask you to go to the movies.  You will be invited to weddings.  It is great to cut back but don’t eliminate all additional spending to the point that it affects your livelihood.

Include a line item for entertainment in your budget that is realistic.

No Long Term Financial Goals

The last major mistake with your budget is that you haven’t outlined any solid financial goals.  Sure you want to invest more, buy a house eventually, and grow your retirement account. However, your budget doesn’t reflect these financial goals.  For example, you know you want to buy a house in the next few years but are you regularly saving for that large purchase?  A down payment for a house is 20% of the home value. It’s going to take you a while to get there, so you better be planning for it.

The last step in correcting your budget is to sit down and think about your short term and long term financial goals. Once you have those goals in mind, it is time to make a plan to reach them.

Now that you know the 5 major mistakes in your budget, its time to make changes.

If your current budget needs a major makeover, you’re in luck! There are two great resources to whip your finances into shape: You can budget like a pro with these 5 simple steps, or, for more customized help you can use the tools of the VTX personalized budget planning services.

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