If you’ve ever tried and failed at following a budget, it’s likely that you made one or more of these budget blunders or missed these best practices. For our ninety-ninth episode of RetireMentorship, we are covering Nine Budget Blunders and Nine Budget Best Practices. Let’s go!
Budger Blunder 1: Complicated Budget
Our budget has 37 categories and 18 accounts. No wonder we can’t keep track!
Keep it simple, stupid! Only use as many categories and accounts as we need.
2. Set and Forget
We set a monthly budget but don’t track and categorize transactions. We have no idea if you’re staying on budget.
Budget is a Verb
Actively budget and set up good financial habits for it.
3. Manual Tracking
We spend hours entering transactions and updating categories until we don’t spend the hours anymore (aka, you stop budgeting).
Software will do the monotonous work for us. We simply build awareness and make better decisions.
4. Overly Automated
If we automate 100% of the process, then we have no awareness, and we’re still not in control of our money.
Actively Engage with Your Money
It won’t automatically do what we want. We still need to act on it.
5. Forgetting Irregular Expenses
Vehicle maintenance and repair, gifts, holidays, insurance premiums, and all sorts of other irregular expenses can through us off.
Embrace Your True Expenses
They are coming; time to plan ahead for them (see Rule 2).
6. Treating the Credit Card Bill as an Expense
We treat our credit card bill as an expense, like our mortgage payment. The variance in the balance can derail our budget, and not knowing what that balance is until the month is over isn’t active enough.
Expense Your True Expenses
Credit card bills are not an expense. They are a collection of expenses. Track where we spend on our credit cards. YNAB does this better than any other software.
7. The Invisible Budget
Our budget is packed away where we can’t see it. We can’t get up-to-date information to make on-the-spot decisions.
The Power of the Budget in the Palm of Our Hand
Using a budgeting app like YNAB can give us instant feedback on whether we have money for that purchase or not.
8. Budgeting Alone
One spouse budgets and the other ignores it. Cue “allowances,” disagreements, and fights.
Use the Best Practices to work together for the best budgeting success.
Budget Blunder 9. Budgeting for “Free”
We think we can “save” money by using free budgeting methods. But it’s only free if our time is worth nothing. It becomes “expensive” when it doesn’t work.
Use the Best to Be the Best
Use YNAB. (⬅️ That’s a period. As in, “end of thought.”)
That’s the Nine Budget Blunders. Now let’s look at the Nine Budget Best Practices
Budget Best Practices
Wait, didn’t I share the best practices already? No. Not blundering is not the same as being the best. Avoiding some of the blunders brings you back to neutral. We need the best practices to take us beyond.
Budget Best Practice 1: Use YNAB
A high-power desktop website matched with a superior mobile app. It’s everything we want in a budget. I do not get paid by YNAB and have no affiliation. I do get a free month if you use one of my links, but I could actually get paid to represent other products (which I don’t). I think YNAB is the best. That’s why I recommend it.
2. Automate Transactions
Connect our banks and credit cards to import and categorize transactions automatically. YNAB recognizes previous transactions to make it easy to maintain our budget. It does all the boring parts for us!
We can also set transactions to repeat. Then we’ll know at the beginning of the month to ensure we budget enough for those end-of-the-month bills.
3. Create Budget Habits
A thorough setup and automation can do much of the work for us. But we must actively engage with our budget. Create great budgeting habits! Episodes 75–77 covered financial habits, and Episode 76 specifically covered creating good financial habits with budgeting as an example.
Best Budgeting Habits
Create these three habits:
- Creating a Budget – At the beginning of the month or pay period, practice Rule 1 and give every dollar a job.
- Reconciling Accounts – Ensure what you have in YNAB is in sync with what you really have. I do this weekly.
- Categorizing Transaction – Approve the recognized transactions, and categorize the rest. This is best done daily, perhaps when you’d normally scroll social media.
These habits keep us on track and our use of capital aligned with our values.
The next three are best practices for spouses. They will help you overcome the Budget Blunder of budgeting alone.
4. Budget for Joint Goals
This assumes we have joint goals. Budgeting for joint goals really cements both the goals and our support of each other’s hopes and dreams.
5. His & Her Spending
While most expenses are household expenses, we should also have individual spending categories that we fund monthly. This money can be spent guilt-free! We put clothing and individual eating out in our spending categories. Eating and activities done together come from a joint category. This is a game-changer in household money management!
6. Own Categories
I’m a financial planner; my wife Kayla was an art teacher and now works at home raising our children. It will surprise none of you that I manage the budget.
We do Habit 1 together, but I do all of Habit 2 and most of Habit 3. I track and ensure all the bills get paid.
But Kayla manages a few categories in addition to her spending: Grocery, Kids, Gifts, and Other. She doesn’t need to manage the whole budget, just the ones she uses the most. She can always check to ensure we have funds in any category or can flex money to that category (see Rule 3) before she spends.
7. Fund Yourself First
If we wait until the end of our budget to fund our goals and save for the future, we never will. Pay yourself first. Fund your most important goals. That may be retirement. That may be debt paydown. That may be date night! But fund yourself first.
8. Consider Tradeoffs
Budgeting helps us see the tradeoffs. If we buy this, we can’t buy this. If our vacation is really that important to us, maybe we should cook at home tonight. Being actively engaged with our budget helps us make those tradeoffs and draw closer to what we truly want.
9. Delay Optional Spending
Maybe we see something we think would be nice. We check our budget, and there is “Other” money there. Technically we can buy it, right? Wait!
Too often, we spend our discretionary funds too early in the month. Then we get an unexpected expense, but our “Other” category is depleted. And often, that item we bought before ends up collecting dust.
If we practice waiting to buy optional items until the end of the month, we’ll avoid this problem. We’ll have money for the unexpected. Or, in the unlikely event no expenses arise, we’ll have money at the end of the month!
If we still want the item, we can buy it in confidence. But more than likely, we don’t want it anymore, and we can apply those saved funds as an extra amount toward our goals. (Extra, because we have already funded ourselves first.)
Budget Blunders and Best Practices Conclusion
Nine Blunders and Nine Best Practices for the ninety-ninth episode. That’s a wrap.
Next week I’ve got some cool things to show you, and a special announcement. See you then!
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