One major financial pitfall is to neglect to budget the categories that allow for discretionary spending. These categories are the ones that can vary from month to month. These categories can include groceries, eating out, clothes, medical expenses, gifts, and fun money. It is important to track these categories because it is easy to overspend in each of these areas.
Many people will sit down and write out a budget that includes only their bills. They see that they have a large surplus of money, and are constantly confused at where the money disappears to each month. At the end of the month, they may end up putting some of their groceries on the credit card. They may also be confused as to why their credit card balance is steadily growing.
Others may know that they have a certain amount that is they can spend each month, and stop once they reach that amount. Often they wonder where their money is going, and wondering what they have to show for it. These people may be better at making sure they have enough to cover groceries for the month, but the rest may be frittered away.
By tracking and limiting the amount that you spend in these categories each month, you can free up money to save or to pay off debt. It is important to realize that it is your budget, and you can decide the right amount for each category. If you can afford to spend four hundred or five hundred dollars on groceries each month, then you shouldn’t feel like you have to cut the category down. If you have enough money (and are still saving a set amount each month) you can set the amount for fun money just as high.
Many people believe that budgeting these categories is just too restrictive. It actually allows you to control what you do with your money. If you are tracking what you spend you are more conscious of the choices you are making. This will lead to wiser choices, and a more comfortable lifestyle.
Related Articles:
Financial Pitfalls: Discretionary Spending
Budget Strategies: The Envelope System