Our friends from MoneyEstate compiled a concise yet useful list of five common budgeting mistakes. It’s truly amazing to watch people with college degrees and lots of life experience literally be clueless about budgeting (and we’re not talking about such advanced concepts like financial modeling or calculating investment risks!). Good news is that when we developed the Weekly Envelope online budgeting system, we incorporated means for users to get ready for the unexpected and to follow all Personal Finance Commandments. Let’s have a look at the list of mistakes compiled by MoneyEstate:

1. Not writing down and defining your budget. You won’t believe how conveniently flexible you are when it comes to defining a budget and sticking to it if it all happens in your head. Depending on circumstances, you can think that your weekly budget might be $300 - when in reality it’s half that. Where does the surplus money come from? Well, your cash reserves or (unfortunately, much more often) credit card debt. Weekly Envelope system gives you an exact figure how much you can spend a week in order to spend less than you earn and to save for your goals. If you spend more - you’ll see the impact of excessive spending immediately.
2. Non planning for surprise or one-time expenses. From our experience, an average person saves less than 50% of the planned amount because of unexpected expenses (car breakdown, child expenses, social events, etc). The solution? Most “unexpected” expenses are in fact known in advance and are predictable. Day Care center for your kids? Totally expected. Car broke down? Unless it’s a major repair (in which case it might be a good idea to dispose of a car altogether), you could’ve saved up for the repair: after all, you knew that it was just a matter of time, didn’t you? Weekly Envelope system allows you to specify your expenses in advance and save up for special occasions. You will be surprised to see that most your “unexpected” expenses are in fact recurring and can easily be planned.
3. Not budgeting for contributions to an emergency fund. This is the most basic rule of personal finance: no matter what - emergency fund is something that you must religiously build up. 20% is the best, 10% is OK, but even 5% is better than nil. Don’t expect to get a salary raise or a fat bonus (especially in the current economic climate): start with things you can actually change. Weekly Envelope system suggests you to save a certain amount of money on a regular basis and informs you about the optimal size of your emergency fund.
4. Not changing the budget. If you don’t correct your budget from time to time, you risk forgetting about regular expenses or about changed income structure or about additional financial obligations or … well, you name it. The result? It’s always spending more than you earn and steadily heading toward debt. It’s a good idea to look carefully at your budget every month or so. The best part? Weekly Envelope does it for you and adjusts your budget based on the planned expenses.
5. Leaving income for spending without budgeting. Let’s face it: the day you deposit your paycheck is probably the happiest day of the month/fortnight. And it’s so tempting to spend just this little bit on something you’ve always wanted. Just one little purchase… or maybe two. Spending without budgeting gets you in financial troubles faster than anything else. That’s why it’s extremely important to use a reliable method or tool to help you with budgeting. What might this tool be? Well, you guessed correctly: Weekly Envelope personal finance system.

Don’t leave your life to chance. Taking control over your budget and spending is really easy if instead of stressing yourself with details you look at the big picture first. Good luck!

Without doubt, one of the most reliable ways to start a fight at home is accidentally saying the word ‘budget‘ (or ‘tracking income and expenses‘). At times, an innocent question like ‘Honey, how much money have we got left till the next paycheck’ could ruin your deserved family evening.

Discussions like this one take place when financial problems already exist and they’re starting becoming visible - either because the checkbook for some reason can’t be balanced, or credit card repayments doubled all of a sudden, or a UPS delivery person became your daily visitor. Anyway, families lose control over their spending and budget and try to talk their way out of “inquisitive” (but very reasonable) questions from their members. What causes such unpleasant discussions and how can families stay out of trouble?

I’ve listed several most frequently cited excuses that are used to confuse a partner and change the subject instead of stepping out of a comfort zone, admitting the financial mess and trying to find ways out.

I’m offended because you don’t believe me. (Or, Do I have to inform you about my every expense?) This is the most popular manipulative excuse (or accusation) used by both family members. The only reasonable (and as emotionless as possible) answer is: “Over the last couple weeks you’ve purchased a lot of stuff we could easily live without, and so we may need to carry some balance on a credit card this month” or “Every week you buy clothes we haven’t budgeted, so we have to gid into savings to fund your purchases”. Facts, not emotions, work best on such manipulative techniques.

Tracking expenses is so embarassing. How could we reach the rock bottom when we have to know where every penny is spent? This question is usually asked in a whining voice in response to a suggestion to define a budget and stick to it. One of the right answers is: “There are ways to avoiding counting every penny and still not spending more than a budgeted amount. Knowing how much money we’ve spent and deliberately resisting the temptation to buy stuff is way less embarassing than getting into debt without any plan to repay it”.

We earn more than we spend. Right? Why bother counting? (Also known as: We’ve never had financial problems before, so we won’t have them in the future.) However, this is likely to be a pleasant but unsustainable illusion when financial troubles are right around the corner. Again, no emotions: “We’re only relying on our home equity and credit card limits to deal with the unexpected. Last month servicing our car cost $400 more than we expected. We always hope that we’ll always have money when we need it but we don’t base this hope on anything. Starting an emergency fund will bring us some peace of mind. And let’s make a simple budget, which will tell us how much money we can safely spend without compromising our short to mid-term goals”.

Also, you need to agree on the three major rules of avoiding conflicts regarding money:

1. Both of you need to define the maximum amount you can spend per week (this amount may vary depending on your utility bills, loan repayments and other obligations). The most important element of this exercise is joint effort. The budget needs to be agreed on by both parties.
2. Both of you need to define the maximum amount each of you can spend without consulting a partner. Buying a CD for $15 might be OK but buying iRobot Roomba without talking to your partner is NOT OK.
3. Avoid lying about money. You might’ve gone a long way towards building trust, but such a simple thing like saying that your new watch costs $100 instead of $500 you’ve actually paid is capable of bringing you back square one. However, show compassion when your partner admits impulse buying instances - but be vary of the trend.