This post contains affiliate links, which means I may receive a small commission, at no cost to you, if you make a purchase through a link. Please read my disclosure for more details(Last Updated On: February 18, 2019)
Living below your means and sticking to a budget can expedite your journey to early retirement and financial independence. However, there are several common buedgeting mistakes that I have made and that I keep seeing others repeat. This post talks about all the mistakes that are actually not helping you when it comes to budgeting and frugal living!
1. Not considering the happiness factor
Budgeting is supposed to be fun. However, I see tons of people being so restrictive on themselves that they take all the fun away.
I try to be really “strict” on myself when I budget. However, I still allow room for “entertainment.” I budget in vacations and I even budget around $200 a month just for dance classes.
These are activities that I enjoy and that I am not willing to forego. Travelling and dancing are some of my greatest passions in life and they help me boost my mood and mental energy.
I would never in a million years give up my love for travel and dance just to save a couple hundred of bucks every month! My happiness and mental health are worth a lot more than that!
If I couldn’t pursue the things I love in life, I would feel imprisoned and I think the therapy costs would offset all of the money I’d save elsewhere!
2. Not being flexible
A budget isn’t set in stone. It’s okay to update your budget as you continue to gain more control of your financial situation.
I like using a budget to motivate myself. That being said, I won’t be too hard on myself if I have to make some exceptions once in a while.
For instance, if a friend decides to throw an unexpected party, I’m not going to say no just to save money and stay within my budget. I guess you can say I have a serious case of FOMO.
Or if I happen to find something I was planning to buy on a deep discount, then it makes more sense to buy it now than to wait and buy it later at a higher price.
It’s important to be flexible with budgeting and to understand that nothing goes as planned. Sometimes we go over budget and other times we go under budget. And all of that is okay and part of the budgeting process.
3. Only taking one thing into consideration – price
The mistake I often see is when people only look at the price of an item or service when making a financial decision. People opt for the cheapest option because it saves the most money. However, this is not always the best solution.
Cheap does not always mean good. Sometimes it just means just that – cheap.
For example, if you buy a cheap $10 sweater, it might last 2-3 washes before it starts losing its shape and colour. However, on the flip side, if you invest in a higher quality sweater for say $100, it could literally last you years and bring the cost per use down phenomenally.
Cheap is not always better. Sometimes you have to consider quality over quantity when making financial decisions!
And sometimes, the most expensive option is actually the “cheapest” one in the long run!
4. Not considering opportunity cost
Opportunity cost is the value of something you give up in order to pursue something else.
Sometimes I see people lining up for hours or driving miles and miles just to save a few bucks. Is it really worth your time? That time could have been better spent working on your side hustle and earning money elsewhere!
Let’s consider the example of driving for miles just to buy something for a “lower” price. Did you factor in the amount of money you’d pay in gas? Also, did you factor in what you could have done with your time instead of driving?
I once lined up for an hour to get free entrance into a museum (worth $10). However, my hourly wage is actually worth much more than just $10. I could’ve spent my time working on something productive to generate more income rather than just standing in a line!
Now, I always weigh all the options and consider whether jumping through hoops just to save a couple of bucks is really worth it!
5. Not considering health
To save money, I’ve seen people buy lower quality food or processed food/fast food because it’s a cheaper alternative to buying fresh produce and cooking. This is a huge no-no!
Just because you’re saving money on food costs doesn’t mean you’re saving money in the long run. Think about the damage eating low-quality food will have on your body in the long run!
What you’re saving now in food costs could amount to crippling medical bills in the future. So do your body a favour and invest in good quality food!
You can still get very high quality food for cheap without having to resort to unhealthy options. Be sure to check out my post on how to save money on groceries and food costs.
6. Getting rid of too much too quickly
When one starts budgeting, it gets almost addicting to slash everything off at once. Don’t do this!
It’s so easy to overestimate how easy it is to cut your lifestyle spend. I recommend taking baby steps and making small changes to your budget. This comes as less of a “shock” to your system and will give your brain time to adjust to your new spending limits!
In this post, I discussed 6 common budgeting mistakes people make when they start budgeting! Are you making any of these mistakes? What are your thoughts?
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