You think you've got a solid budget and plan for every expense on the list. However, when an emergency arises, will you be prepared? While you believe nothing will slip through the cracks, you may be committing some errors in planning and executing your budget that could cost you money.
Here are three little-known budget mistakes you could be making:
1. Not Saving for an Emergency Fund
You've got your basic necessities and even luxury items included in your budget, but how about an emergency fund? According to Bankrate, 1 in 4 Americans do not have any savings for financial emergencies. While you may have not budgeted for an emergency fund, it's best to start as soon as possible in case there are unforeseen repairs, layoffs or other disasters that could put you in debt. Look at your budget and see which expenses you could potentially cut to build an emergency savings account.
2. Accounting for Expenses Wrong
When you input your expenses into your budget, you may not account for these costs correctly, according to U.S. News & World Report. For example, for a mortgage, you are not just paying for the principal and interest associated with the loan, but also property taxes, insurance and even other charges like Homeowners Association fees. Mistakes with expense accounting often happen when you pay a one-time fee or other bills that are not monthly.
To properly include these expenses, consider dividing up the total cost by 12 to get the per month expenditure. Through getting the monthly cost for the item as opposed to the lump sum, you will have a better idea of how much money you will need to set aside each month to afford it.
3. Failing to Adjust Your Budget Regularly
During the course of the year, your expenses and therefore your budget could change. It's important to account for all of the times that you will have to make modifications in a budget. Did you change jobs and now have a higher salary? Update your budget as well as calculate the new amount of money you will likely have left over after all your expenses. A change in household costs could also prompt budget updates. If you installed energy-efficient appliances or light bulbs, you will need to lower your total budgeted energy expenses to reflect that.