Five Common but Overlooked Budget Mistakes and How to Avoid Them
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First of all, pat yourself on the back.
You’ve sat down and cranked the numbers for your family budget. You’ve covered the basics, like the mortgage, groceries, and education. You’ve nailed down a realistic savings and retirement plan, and you’ve kept your credit cards in check. You’ve even safeguarded yourself and your family with medical, auto, and homeowner’s insurance.
But you’re not quite finished. Sleep well at night by avoiding these five common budget mistakes:
1. Ignoring small expenditures.
Ever wonder how much your $5.00 afternoon coffee breaks add up? If you get five a week, that totals up to around $100 per month.
Tracking your expenses, even the smallest ones, will help you distinguish between needs and wants and see your spending patterns over time. Maybe you’d rather make your own coffee—and get a monthly massage or invest in a better insurance plan instead.
2. Not investing in disability insurance.
If something happens to you, will your family’s needs still be met? Will you still be able to achieve your long-term financial plan?
Your paycheck is one of your most valuable assets. Consider protecting it with disability income insurance. Your agent can help you figure out the right amount to ensure your family’s well-being and security in case you become sick or hurt and totally disabled. Whereas other more familiar insurance plans—like auto and medical—focus on paying others, this is a plan that pays you.
3. Saving money in your IRA only.
Yes, having tax-deferred savings is great—you’ve got to love that nest egg—but you also need taxable savings and an emergency fund so you don’t have to live paycheck-to-paycheck. Having a healthy financial plan is all about balance. So keep squirreling away that money into your 401(k) and enjoy the tax benefits, but don’t neglect your other savings accounts. And remember that some insurance plans can help you make the transition to retirement, such as life and disability insurance plans that can return some of your premiums under certain circumstances.
4. Not getting a life insurance plan that will meet your family’s needs.
Think about your long-term financial goals, your family’s monthly living expenses, and each one of your financial obligations. After you’re gone, you don’t want your loved ones to have to face the burden without any protection. Your insurance agent can help you determine the right life insurance plan tailored to protect your family’s future. Of course, as your financial situation changes, your life insurance plan will need to adjust, too.
5. Letting your budget collect dust.
In order for a budget to work for you and your family, you need to revisit it every month, before you’ve had a chance to go too far off track. Schedule time to go over how you’re doing in each category, and make it relaxing with a cup of tea. Congratulate yourself on the areas of success, and calmly assess areas for improvement.
Overwhelmed? Don’t be. Just make a list, and focus on one goal at a time. Soon your budget will truly reflect the protected financial plan that you and your family deserve.