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Why You Need to Avoid These 10 Budgeting Mistakes to Reach Financial Freedom

Great budgets are key to reaching financial freedom.

But, I bet you’re thinking that your budget is on point–after all, you’re saving money and paying off debt. Although you’re taking care of the basics, your budget can get better. If you’re looking to reach financial independence–you need all the help you can get.

Even improving one small aspect of your budget can make all the difference. No matter which way you look at it –you can only win trying to improve your budget.

Here are 10 budget mistakes you should avoid to reach financial freedom.

1. You’re Not Having Fun with Your Budget

Here’s the truth, budgets are boring.

I admit that budgets aren’t something I get excited about. That’s the main reason why most people fail to create one or to commit. Fortunately, there are people out there who make personal finance interesting.

Instead, transform your budget in something you’ll love. For example, choose to review your budget on the day when you’re energized. For most people, this can be on a Friday or during the weekend.

Another idea is creating themed days. You can buy pizza each time you’ll review your budget or go to your favorite coffee shop. Your goal should be to create a budget ritual that you’ll look forward to.

2. No App Can Solve the Root Cause to Your Problems

Think of any problem and I’ll bet there’s an app for it.

Becoming dependant on technology for your problems is a bad thing. Unless you’ve mastered the basics, no app will solve your problem. Unlock your smartphone and see how many finance apps you have installed.

Remove all finance apps in your smartphone that solve the same problem. For example, if you have Mint and Personal Capital installed–choose one of the two.

Use simple budget templates to track your expenses. Then rely on finance apps like Mint or Personal capital to track your cash flow.

3. Manually Saving Leaves Room for Mistakes

You’re saving money–that’s good, right?

It depends, are you manually saving each month? If so, you’re doing it wrong. By being human you’re prone to making mistakes.

Knowing this it’s important that you automate your budget as much as possible. This way your money transfers to several accounts automatically. You won’t need to spend time making these transfers and now you’d less likely to spend your extra money.

Have external saving accounts to make it challenging to transfer money out. Set yourself up for success by creating systems in your budget that make it hard for you to fail.

4. Don’t Settle for Small Returns

Too much of anything is a bad thing–saving is no different.

Some believe that putting thier money in a savings account is more secure than investing it. Once you’ve saved enough money for unexpected expenses stop putting money to your savings account. The problem is that there are invisible costs.

Take, for example, 3% annual inflation that’s constantly devaluing your dollar. Think of it this way–if you’re depositing your money in a savings account that yields .5%, you’re dollar is losing 2.5% each year.

Better alternatives to savings accounts are CDs, money market accounts, and index funds.

5. Take High Risk for Large Rewards

It’s normal to fear the unknown, but often this is where the highest rewards are.

Most people who fear the stock market are the ones who are least educated in investing. I’m not an expert, but I’ve learned the basics. The best knowledge I’ve received was from taking action.

You’ll most likely make mistakes along the way, but don’t let this stop you from investing. Investing in the stock market is your solution to beating inflation in the long run. There are great options available to help you get started.

Here are some resources:

  1. The Book on Common Sense Investing
  2. Rich Dad, Poor Dad
  3. Join the BoggleHeads forum

Once you become familiar with the basics you’ll feel comfortable investing your money. From here you can choose to invest with robo-advisors such as Wealthfront or index funds.

6. Invisible Expenses are Hurting You

Most people, including myself, forget to include certain expenses to your budgets.

These expenses include haircuts and annual subscriptions. Use tools like Personal Capital to find similar expenses–then start budgeting for them.

For example, if you pay for an annual subscription like Amazon Prime, divide this cost into 12 months. This way you’ll know to budget roughly $10 each month. Now when you’re hit with this annual fee it won’t feel like a surprise.

7. Agreeing to Pay Your Bills is A Huge Mistake

Stop paying your providers their monthly cost without negotiating.

Set a reminder to call your cell phone, cable, and insurance providers each quarter. Many people believe that their monthly cost is the final price–not the case. Your goal is to ensure you’re paying the lowest cost possible for your monthly expenses.

Use your budget spreadsheet to find your most expensive provider. Call them and be strategic with how you’ll ask for a discount.

You don’t have to be the best negotiator in the world to succeed. If I was able to get a discount after speaking with my provider for a few minutes, so can you. If for any reason you don’t want to call your providers, you have another alternative.

Use services like BillCutterz to do the negotiation on your behalf. There’s no cost, except they’ll take half your profit. Whether you negotiate or someone else does so on your behalf there’s no excuse to not be saving money.

8. Unorganized Bills Are Demolishing your Budget

If you’re paying your bills on their set due date you’re doing it wrong.

If 4 out 5 of your bills due on the 1st you’ll be paying a large amount at the beginning of each month. Even if you’re able to cover this you’ll have less money to spend on other necessities. Instead, calculate your total monthly expenses and divide the cost in half.

For example, split your bills to total up to about half your monthly cost. If you get paid on 1st and 15th of the month, change your bill’s due date to fall evenly on these dates. The result should be you paying roughly half your monthly expenses in each pay cycle.

9. Splurging is Key to Consistently Saving

An important part of creating a budget is ensuring you stay committed.

And there’s no better way than spending your money on nice clothes or luxuries that make you happy. Keeping up with the Joneses is wrong and unhealthy. You’ll always compete to have a better things and will dig yourself further into debt.

But, some people like to buy certain brands to please themselves. In your journey to financial independence, it’s important that you avoid setbacks. That’s why spending money on nice things is part of the formula for building a strong budget.

If you’d saved $500 each month but deprived yourself of nice things, how long would you be able to maintain this? Most likely after a few months you’d quit and start spending the money you’d worked hard to save.

Repeat this pattern a few times each year and the result is having little money saved. Now imagine if you saved $400 without fail each month. You’d use the remaining $100 to save for an item that brings some joy in your life.

At the end of the year, you’ll be both satisfied and have more money saved up. Yes, there will be people who can live off very little each month and get excited to save every penny. The problem is not everyone is like this.

Don’t beat yourself up if you like to buy nice things. This is an area that I’ve struggled with before in the past. Understand yourself and know what makes you happy. Then build your budget around your needs.

As long as you’re consisntely saving more than you spend, you’re in good shape.

10. Never Forget to Review Your Progress

Review your budget at least once a month.

Why?

Because we’re human. Many things can happen that will affect your budget. For example, you can have unexpected expenses, or overspend your budget. It’s also important to review your budget to know if you’re reaching your financial goals.

Track your progress by reviewing your budget spreadsheet or budgeting app. View which goals you’re reaching and where you’re falling short. More important, make the necessary changes to reach your financial goals.

Reviewing your budget doesn’t have to feel draining. Spend time reviewing your finances on days when you’re happiest. If you have a budget that’s doing most of the work for you, expect to spend anywhere from 30–60 minutes to review.

Commit by scheduling a recurring date in your calendar to review your budget at least once a month.

Celebrate Reaching Financial Freedom

Picture feeling confident about your budget.

You’re on track to reaching retirement sooner than you’d expected. You didn’t win the lottery or began earning millions of dollars. Instead, you ensured your budget was helping you reach your financial goals early on in your life.

You don’t love your budget, but you don’t hate it. You’re just using it to help you live your dream lifestyle. And you’re now more committed than ever.

The truth is retiring at 65 isn’t something to look forward to. This worked decades ago when companies gave their employees a secure retirement–but this is no longer the case.

This is good because you now have control of your retirement– not someone else.

You have the power to take ownership of your career. You have the power to create your ideal lifestyle. And you have the power to reach financial independence faster than before.

The only catch is that it’ll be on the most challenging things you’ll do in your life. But, you’ll become a better person for it. You’ll build discipline, intelligence, and happiness.

Now go create the best budget possible–your dream lifestyle is only a few good habits away.

About the Author Chris

Chris writes personal finance and productivity articles for software companies. He gets fresh ideas through continuously investing in himself and interviewing successful entrepreneurs.

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