Making — and sticking to — a household budget can help you conserve cash and limit your credit needs in tough economic times. There are some traps, however, that can bust your budget quickly, despite your best intentions. The New Jersey Society of Certified Public Accountants (NJSCPA) offers the following advice to avoid making these mistakes:
Mistake #1: Not Having a Budget
When you create a budget, you add up the amount of net salary and other money you expect to receive during the month then total what you need to spend on necessities, such as rent or mortgage, food, transportation, savings and other costs. Once you subtract your expenses from your income, you can save or spend whatever remains. Just remember not to spend more than what is left. If you do, you’ll have to borrow from next month’s budget to cover the overage, setting you back in the future.
Mistake #2: Overusing Your Debit or Credit Cards
One quick way to outspend your budget is to use your debit or charge card when you want to buy something you really can’t afford. If you can’t resist the temptation to use these cards, leave them home and use cash only for your purchases. That will force you to live within your means. Once you’ve used this approach for a month, it will be easier to make a habit of it.
Mistake #3: Neglecting Your Rainy Day Funds
Even if you are living on a tight budget, it’s always a good idea to set aside as much as possible in a special savings account that provides a financial safety net. You’ll be happy you have this cushion if you face a large unexpected expense or you lose your job. After your savings have grown a bit, you can dip into the account for special indulgences or luxury items. The best way to succeed with your savings account is by committing to make regular payments over time. You don’t have to save a lot each week, but make sure you stick to your plan.
Mistake #4: Ignoring the Small Things
How much does your morning cappuccino cost? Do you buy a bottle of water when you go to the gym? Do you purchase your lunch every day at work? These are costly and unnecessary expenditures. Because they are not regular monthly costs — like an auto loan, for example — you may forget to include them when adding up your expenses. However, these little items can drain cash quickly. As you go through your day, try to make a note of all your small expenditures and consider how they could be avoided. This may include bringing your lunch or setting aside time to shop for a week’s worth of homemade dinners in advance. You will notice an immediate improvement in your budget.
Mistake #5: Stamping Out Fun
It’s true that renting a movie is cheaper than going to a theater and eating at home is less expensive than a restaurant. But be careful not to outlaw outings and entertainment altogether. If you do, you can make yourself so miserable that you give up on your good budget habits completely. Instead, stick to your thrifty intentions most of the time, but be sure to try to plan for some special outings or purchases when possible.
Your CPA Can Help
Making financial decisions can be challenging during tough financial times. That’s why it’s important to remember to turn to your local CPA for any advice you need. He or she can help you make the best choices for yourself and your family.
If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to www.findacpa.org, and in a few clicks you can locate a highly qualified professional who can assist you.
For more information on various personal financial matters, visit the NJSCPA’s public service website at www.MoneyMattersNJ.com. While visiting, you can subscribe to Your Money Matters, the NJSCPA’s free, monthly email newsletter to receive valuable personal financial planning advice throughout the year.
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