Budget mistakes that can hurt your finance: how to avoid them

Tuesday’s budget showered people with cash from a government happy with debt. This won’t work for you at home, so avoid these errors.

Treasurer Jim Chalmers has copped both cheers and criticism after handing down this week’s federal budget, all part of being in the public eye.

But a less public and more important budget for millions of Australians is their own household’s financial comings and goings.

While politicians are often judged harshly for spending errors, they can always pay for them using the peoples’ taxes, but an individual who keeps spending beyond their means ends up in a debt spiral and bankruptcy.

Finance commentator and Canstar ambassador Effie Zahos says both household and government budgets are about mastering the money game.

“They both require juggling income and expenses, setting goals, tackling debt and dodging economic curve balls,” she says.

“The kicker, though, is their end goals – while governments might ride the red ink wave for a while, households don’t have that luxury.”

Budgeting can hurt your head but has big benefits too. Picture: iStock

KNOW YOUR MISTAKES

Budgeting mistakes will happen in households, and the best way to recover from them is to understand why they happen.

Zahos says the biggest budgeting mistakes she sees people make include:

• Being unrealistic about how much they spend, with discretionary spending often “the biggest budget buster”.

• Not having an emergency bank account to lean on when needed.

• Failing to revisit budgets as personal situations change.

• Not addressing emotional triggers around how people manage their money.

“Take the time to find out why you do what you do,” Zahos says.

“The answers could be surprising and may help you avoid marketing tactics that you know have worked on you in the past,” she says.

People should understand that their budget is not set in stone, Zahos says.

“A budget is a living and breathing document that you want to revisit every six months,” she says.

“Changes in the federal budget can directly impact our personal finances, so it’s important to pay attention to both.”

EXPENSE ERRORS

MyBudget director Tammy Barton says personal budgets are typically more important to people than federal budgets in terms of managing money and reaching their financial goals.

“The way in which you manage your money can have a big impact on how your life turns out,” she says.

A big budgeting mistake Barton sees is people not tracking their expenses.

“It’s impossible to improve your budget if you don’t know where your money goes,” she says.

“Keeping track of your spending habits helps you identify areas where you can cut back and where you can create savings. A budget is the perfect tool that provides you with that total visibility over your money.”

Canstar’s Effie Zahos. Picture: Tim Hunter.

MyBudget’s Tammy Barton. Picture: Sarah Reed

Some people forget to budget for debt repayments including credit cards and personal loans, Barton says.

“Make sure your budget includes enough money to cover these repayments and prioritise paying off your high-interest debts first like your credit card debt,” she says.

Budgets that are not reviewed and adjusted can blow up.

Barton says it should never be set-and-forget and should be reviewed at least monthly.

Another key mistake made with household finances is comparing yourself to others.

“It’s easy to get discouraged if you see friends or family members who seem to have more money than you,” Barton says.

“Focus on your own financial goals and avoid comparing your situation to others.

“Treat your savings like a bill. Set up an automatic transfer to your savings account each payday so you’re not tempted to spend that money.”

BENEFITS OF BUDGETING

Budgets are powerful tools that can help you:

• Achieve financial goals.

• Analyse and control spending.

• Find extra money for saving, debt reduction or investing.

• Escape the insecurity of week-to-week living.

• Relieve financial stress and worry.

• Prevent fights with partners or loved ones.

• Future-proof your finances and make better money decisions.

Source: MyBudget

Originally published as Budget mistakes that can hurt your finance: how to avoid them