Budget challenges are common, but not always because people spend too much. Sometimes the main problem is that consumers are unaware how much they spend so expenses take them by surprise. Here are some categories to watch.
Insurance bills take many people by surprise because they are due every six months, so the first step is to get on a monthly payment plan if your carrier offers one. Also be sure you have enough coverage in appropriate areas. You may need disability insurance to protect your income, renter’s insurance for your valuables, horse insurance if you have a horse. It may add slightly to your monthly outlay now, but it can save you from disastrous surprises down the road.
People underestimate entertainment expenses like dining out and seeing movies, so track them carefully and total them at the end of each month. Repeat the process for several months. Most of all, don’t fool yourself into thinking you will be exceptionally disciplined and not go out at all next month; let the past be your guide and be honest with yourself. If you have spent an average of $500 for the last six months, count on spending that next month too.
Most couples don’t share the financial responsibilities evenly; they design the budget together, but one person usually ends up being the principal bookkeeper. When one is a saver and the other a spender, that can lead to a treacherous pattern where one seems mean and the other appears irresponsible. Here again, honesty is crucial so let the numbers speak for themselves. If someone has bought a new kitchen gadget or power tool every month for the last few months, you should budget for another purchase next month.
Build an emergency fund equal to at least 1% of your annual gross income or a minimum of $500. You don’t know what emergencies will arise from one month to the next—but you can count on there being at least one.