Lately, I feel like all I think about is my money. The constant changes in the economy, soaring inflation rates – it feels like everything’s getting pricier by the day!
And I can’t help but wonder why there’s always a shortfall in our bank account. Why it feels like expenses are always more than my income. And why retirement seems like a distant fantasy – will there ever be enough stashed away for those golden years?
Then, I had a conversation on our podcast with Lisa Moraitis, Certified Professional Accountant, and it brought a much-needed shift in perspective. She peeled back the layers of my financial worries and helped me see that an easy fix was only a few budget habits away.
Lisa’s straight-forward advice transformed my money mindset. And I can’t wait to share these 10 gems with you. Hopefully you can avoid my pitfalls. To make it even better, I distilled Lisa’s insights into some quick fixes to make budgeting easier. Even almost fun.
Let’s dig in…
Mistake #1: Not Understanding Your Net Worth
The first step to take charge of your finances is to calculate your net worth. It’s simple math, really: Assets – Liabilities = Net Worth.
Assets are things like your house, that car you fully own, savings, and investments. And liabilities are all our debts – credit card balances, mortgages, rents, and loan payments.
Why is knowing your net worth important? Well, you need to know where you stand before you start budgeting! It’s like sketching an outline before coloring in the picture.
Start by grabbing an Excel doc, or a plain old piece of paper and listing all of the things you own and all of the things you owe money on. Next put a dollar value beside each of these things, grab your calculator and start adding it up.
Mistake #2: Forgetting to Prioritize
Understanding your priorities is a game-changer. It’s like having your personal compass for financial decisions. Maybe you want to travel across Africa, pay off your credit card debt, buy an investment property or splurge on a Birkin Bag. It’s all good.
Just be really honest with yourself about what matters most when you’re allocating the money in your budget.
And know that your priorities aren’t fixed rules. Instead, they provide clarity. They help distinguish between your immediate wants and what truly aligns with your long-term goals. And when budgeting gets hard (cause it can, and it will), they help direct us. Ensuring our money supports our dreams, not just fleeting desires.
Mistake #3: Guessing Costs and Missing Details
Estimating expenses can be tricky – we often underestimate what things cost, especially with today’s rising prices. Your past year’s bank statements are a smart tool to help guide your current budget. Of course, add a little cushion for inflation. This also helps ensure you don’t overlook any expenses like those infrequent property tax or insurance payments.
It’s wise to allocate a monthly portion of your budget to cover these costs. And a great habit is to set up a separate savings account for these irregular expenses. Move the budgeted money into this account every month so you’re ready for these bills when they show up.
Other costs to consider are the unexpected ones – like needing a new transmission for your car. These can really strain our finances.
Enter an emergency savings account. This acts as a financial safety net for those unforeseen expenses that tend to catch us off guard. Planning ahead and transferring some money here each month helps cushion the blow when they hit.
Mistake #4: Losing Track of Your Spending
This one’s really important – regularly tracking your expenses. To make it easier,
use a free budgeting app or software that syncs with your accounts. These handy tools also categorize your spending automatically, saving you from the tedious task of manual entry. Some will even send notifications when you’re nearing your budget limits. A lifesaver to avoid overspending on impulse buys.
The key isn’t just tracking expenses but doing it consistently. It’s not about feeling guilty for spending, rather about making informed decisions that align with your financial goals.
So schedule regular dates with your money – weekly, or even a quick daily glance. Light a candle, grab a glass of wine, make it fun instead of stressful. And when reviewing your transactions, consider where you’re spending and make sure it’s aligned with your priorities.
Mistake #5: Forgetting to Pay Yourself First
Paying yourself first means setting aside some money each month for your savings. First. Like before diving into bills or splurging on those shoes.
Ideally this is a percentage of your income that is automatically transferred into savings and investments. As your income increases, the percentage should also increase.
To help figure out what percentage to pay yourself, look at your priorities. The idea is to squirrel away a chunk of your income every month toward these goals.
If you want to get fancy, you can divide your savings into “right now” stuff and “future dreams”. This separation makes it more clear where your money’s headed and keeps you motivated to keep saving.
Best practice is to lock this up so you can’t touch it impulsively. It’s your safety net, not an ATM!.
Mistake #6: Overspending and Impulse Buys
Overspending and impulse purchases can really throw your finances off balance.
One way I curb my impulse buying is to adopt a 24-hour rule. When I feel the urge to purchase something spontaneously, I hold off for a day. This cooling-off period helps me figure out if this is an impulsive desire and genuine need aligned with my priorities. And sometimes, if something sitting in my shopping basket long enough, the store offers me a discount to buy it – bonus!
Another helpful strategy is to prepare a shopping list before heading out. We’ve all been to Costco so we understand the dangers of vast aisles filled with irresistible offers. Sticking to the list acts as a guardrail against unplanned purchases. It helps you remain focused and less susceptible to shiny objects strategically placed to catch your eye.
Mistake #7: Not Planning for Fun
Planning for fun in your budget is just as important as any other expense. Budgeting doesn’t have to be all about bills and savings. Treating yourself and indulging from time to time matters too.
The key is not to ditch the budget when you want to do something fun, but rather to plan ahead.
Allocate a portion of your income specifically for entertainment and indulgences sprees – whether it’s dining out, a weekend getaway, or those booties you’ve been eyeing. It’s about planning for these moments and treats rather than feeling guilty afterward.
Mistake #8: Not Automating
At first, automating your finances is a little scary. For me it felt like I was losing control or setting myself up to be scammed by online systems. But, I promise this isn’t the case. And in fact, automatic payments actually increase your control. It ensures bill are paid on time and savings, and investments are allocated according to your financial plan.
Added bonus – It saves you precious time in your already chaotic schedule.
Mistake #9: Getting Discouraged and Giving Up
Feeling discouraged while managing your budget is normal. Like anything, starting new financial routines takes time, so embrace the learning curve.
Remember, your budget is a flexible guide. If you overspend one month, readjust for the next; it’s all part of the process. Budgets aren’t about deprivation; they’re about finding a balance to enjoy life within your means.
It might take a while to see financial changes, especially when paying down debts. Persistence is key—track your spending and adjust as needed.
And make budgeting enjoyable by treating it like a date, colour coordinating your Excel spreadsheet, or finding a fun apps. Whatever floats your boat and makes the process more manageable.
Mistake #10: Avoiding the ‘Finance’ Talk
Let’s face it, talking about money isn’t always easy. It feels uncomfortable and can be really intimidating.
Our discomfort with money might stem from fear of judgment or a lack of knowledge. But, having these discussions, with your partner, family member, or a financial advisor, is so very important. They help align our financial goals and prioritize where our money goes.
Financial advisors can offer invaluable guidance on investment strategies, retirement planning, debt management, and overall financial stability. And a good advisor will help to educate you and build your confidence. So you’ll feel even better having financial conversations with your family.
So, there you have it! Some things you might have been doing that were derailing your efforts to start budgeting or to get your budget back on track.
What I learned from Lisa is that staying close to our money (knowing what’s coming in and going out), prioritizing savings, adding some automation and being realistic about spending, helps us pave the way to financial freedom.
And most importantly, budgeting isn’t about limitations; it’s about empowerment.
Want to learn more? Check out our podcast with Lisa Moraitis.