Those who are new to budgeting have probably thought things about budgeting that were entirely wrong. Below are the biggest budgeting myths that might even succeed in preventing you from making your best financial decisions.
Myth # 1: Budgeting is pointless
People that think budgeting is pointless are usually people that have been discouraged by unexpected expenses. We get it — having to completely empty your pockets after doing everything you can to be financially responsible can be pretty disheartening. However, there’s a way to plan for unexpected expenses in your budget.
We all have to deal with unexpected expenses, but the way to deal with them is to simply build yourself an emergency fund. By building an emergency fund, you’re setting money aside for a rainy day. You won’t have to touch the savings you’ve worked hard to accumulate, nor will you ever have to reach for your credit card.
You only have to keep in mind that an emergency fund is for, as the name suggests, an emergency. So make sure you don’t spend it on anything else if you want to succeed in making your budget work.
Myth # 2: I can keep track of my money without a budget
If you think you can keep track of your money without a budget, think again. You might be able to keep track of the big expenses, but we spend so much on little things every now and then. It’s those little things that add up, and before you know it, you’ve gone through all of your funds. Once you’ve gone through all of your funds, you’ll have no choice but to reach for your credit card at the end of the month.
When budgeting, you’re forced to track all of the money coming in and out of your account. Moreover, it will force you to be writing down all of the expenses you’ve made. This will let you know just how much you have left to spend, decreasing the risk of falling into debt or dipping into your hard-earned savings.
Myth # 3: I don’t have enough money to create a budget
If you think you don’t have enough money to start budgeting, think again. It’s precisely because you don’t have enough money that you should start! Because you have limited funds, you want to be able to make the most of them — and that’s precisely where budgeting comes in handy!
A budget will help you keep track of all your money. It might even prompt you to find ways to increase your income or decrease your expenses so that you don’t feel too limited. One thing’s for sure: if you have limited funds, a budget will 100% help in getting you to reach financial security.
Myth # 4: I have a lot of money so I don’t need a budget
Even if you make a generous income, doesn’t mean you shouldn’t “waste your time” budgeting. Whether you make very little money or a lot, everyone needs a budget. Because chances are, if you make a lot of money, you’ll probably feel comfortable spending a lot more. And a high cost of living generally means an increased risk of falling into debt. Mo’ money, mo’ problems, right?
In fact, a 2020 survey conducted by Willis Towers Watson found that 18% of U.S citizens earning an income of six figures or higher are living paycheque to paycheque. That’s almost a fifth!
The truth of the matter is that everyone has bills to pay. The only difference is that people who earn more will also tend to spend more. The spending patterns are the same — just scaled up!
Myth # 5 Budgeting is only for people who have a lot of debts
Budgeting is certainly helpful for people who have a lot of debts. After all, it is a budget that will help them get out of debt. However, budgeting is about so much more than that. In fact, a budget can help you:
- Pay off your debts
- Pay your bills on time
- Achieve your financial goals
- Keep track of your money
- Save for retirement
- Save for a new home or car
- Plan for a baby
- Stay ahead of unexpected expenses
In all, a budget will help you build a healthy financial future, ensuring that you’re able to tackle anything that comes your way.
Myth # 6 Budgeting is complicated
Creating and following a budget isn’t as complicated a process as you might think. In fact, once you get started, you’ll realize how easy it can be — and you’ll never want to stop! Those new to budgeting might think that they need to have this extensive Excel sheet with 20 different spending categories, but that couldn’t be further from the truth. In fact, you can create an excellent budget with as little as 6 categories (sometimes even less).
The most important things you should keep track of are:
- Your income
- Your variable expenses
- Your fixed expenses
- Your debt repayment expenses
- Your savings
- Your emergency funds
The trickiest category when you’ve first starting out will be keeping track of your variable expenses. These include things like the amount you pay for groceries, outings, gas, etc. They’re things you pay for, but vary in price, every month.
Once you’ve tracked everything, deduct your expenses from your income. What you’re left with is the amount you should split between your savings and your emergency fund. If you don’t have much left to split, see if you can find ways of increasing your income or reducing your expenses. It could be as simple as going through your monthly subscriptions and canceling the ones you don’t really use.
In the end, your budget is only as complicated as you make it. So if you want to keep it simple, track only the categories mentioned above! You don’t even need an Excel sheet for that — just a pen and paper!
If you don’t want to complicate things by adding and subtracting all the numbers, use Allevia’s online budgeting tool. Allevia’s budgeting tool is an easy way to keep track of all of the money coming in and out of your accounts. It’s an amazing platform for staying on top of your financial objectives.
