Looking to make some positive changes to your finances? Your budget might have some answers! It’s an indispensable tool that can be used to reveal insights into your spending habits.
This peek at your finances may help whether you use online loans from MoneyKey or not. Everyone may stand to gain some useful information by checking in with their earnings and determining how they plan to spend and save them.
But it may get confusing when household budgeting myths get in the way. Believing in some sayings like “extreme budgeting is the only option” or “under budgeting is the goal” can hold you back from managing your money in a way that’s best suited to your situation.
If you’re ready to take back control of your finances, it’s time to separate fact from fiction. Dispel the mysteries surrounding these household budgeting myths, so you can make informed financial decisions.
Myth #1: Extreme Budgeting is the Only Way to Save
Extreme budgeting is a radical form of cutting back on spending that could be tough for a lot of people to stomach. It involves eliminating all the unnecessary expenses from your budget, then making huge lifestyle changes to whittle down what you spend on the remaining essentials.
You may have heard about extreme budgeting without trying it for yourself. Occasionally, an extreme budgeting challenge hits the Internet and becomes a popular way to illustrate how hard it may be to live on a shoestring budget.
Personal finance expert, Kathleen Elkins spent $2 a day on food for a month doing the Elon Musk Challenge. A year later, she tried living on $60 a week doing a cash diet challenge for CNBC.
Similarly, Gwyneth Paltrow embraced a challenge presented by celebrity chef, Mario Batali, and the Food Bank For New York City to spend just $29 on groceries for a week, which is the average of a week’s worth of food stamps for someone who is enrolled in the Supplemental Nutrition Assistance Program (SNAP) over a period of six months.
These challenges of extreme budgeting may not be practical. Gwyneth Paltrow gave up after a few days of starting extreme budgeting. And though Kathleen Elkin completed her extreme budgeting challenges, she reported how difficult it made her life for those weeks.
For this reason, it’s perhaps one of the more damaging budgeting myths on this list. Following such a strict spending plan requires sacrifice and dedication. It can be intimidating, and it might scare you off the idea of budgeting altogether.
While there may be some benefits to following a cash diet, it may not be sustainable for the average person — especially if this is your first time.
Luckily, there’s no rule that says that extreme budgeting is the only way to control your spending. There is no right or wrong way to follow a budget either. Your spending plan may be as flexible or as strict as you need it to be.
Myth #2: Being on a Budget Means You Can’t Have Fun
To some people, a budget may be boring. And it’s easy to see why! Following a strict budget can sometimes mean that you’ll have to cut out expenses that make it hard for you to pay for your necessary expenses and save.
The first few things that tend to go are the fun things in life — weekend trips, takeout, movie tickets, clothes shopping, craft beer sampler packs, and more.
Once you strip those expenses from your budget, you’re left with the essentials like rent, utilities, and groceries.
While it’s true, you may have to sacrifice some things to free up more cash for savings, you may want to think twice before you cut out everything that you enjoy.
Living an austere lifestyle may yield immediate results for your bank account, but it may not be realistic or sustainable for your mental health. All it may do is make you hate budgeting.
And let’s be honest — you’re not likely to stick with something you hate.
Before you give up on your new spending plan altogether, you should know these things about fixed and variable expenses so you know what’s realistic to cut. Try tweaking it so you can still allocate some money towards things you enjoy.
Think of it as how some dieters plan for a cheat day when they follow a strict meal plan for the rest of the week. For budgeters, an occasional small splurge item may help them stay motivated to stick to an otherwise basic budget for the rest of the time.
But a single latte or a night out with friends may not be the only way you can inject a little fun into your budget. The following hobbies and activities show how easy it can be to fill your time with entertainment without spending too much money.
- Hiking or cycling through your local park system
- Meeting friends for a picnic
- Visiting art galleries and museums during their free nights
- Taking advantage of free clubs, lectures, and classes offered by your local library
- Going to free events and concerts - check online or your local newspaper for these.
- Taking a free online class to pick up a new skill
- Volunteering at a charity for a cause you believe in
Fun doesn’t always have to cost money. Try to think of some ideas on your own and reach out to your friends and family to see if they have any as well.
Myth #3: There’s Only One Type of Budget
Believing there’s only one way to budget may be one of the biggest budgeting myths out there. In reality, there is no ‘one-size-fits-all’ spending plan.
For one thing, everyone’s financial situation is different. Your earnings and responsibilities may not be the same as your coworkers’, neighbors’, or friends’, so you’ll be punching in numbers that make your budgeting plan unique.
Multiple factors may have an effect on your budgeting plan — including things like the size of your family that you’re supporting, the cost of living in your area, and the amount of debt you need to pay back. If you’ve taken out a loan from a bank or one of these alternatives to mainstream banking, you’ll need to consider which type of budget will keep you on track to paying off your debt.
There are several budgeting techniques that provide different frameworks to rein in your spending and boost savings.
You may find some of the more popular types of budgeting techniques below.
- Zero-based budget: The goal of this method is to make sure your income minus expenses equals zero. You do this by assigning every dollar a job that reinforces your finances, like saving and investing.
- Reverse budget: The mantra “pay yourself first” sums up this method It prioritizes your savings, so they’re the first thing you pay every month. The essentials come next, and any leftover cash is what you have to spend on the fun stuff.
- Percentage budget: This method breaks your spending into broad categories like needs, wants, and savings. These categories get a percentage of your income, so you always know how much money you can afford to spend on each category.
- Envelope budgeting method: So called for its reliance on envelopes to keep your money organized, this option relies on cash for most (if not all) your expenses. Each envelope represents an expense, and you fill it up with the money you need at the start of the month. Since you can’t stock up on cash until the month rolls over, the envelope budgeting method forces you to make do with what you have.
As you can see, there are plenty more types of budgeting techniques than your traditional spending plan — and this is just scratching the surface!
If you’d like to learn more about how to follow these budgeting techniques, go through the MoneyKey blog. We’ve shone a spotlight on each of these methods mentioned above and more in the hopes that we might help you find the right plan for your spending style.
Myth #4: Going Overbudget is a Sign of Failure
Generally, you want to stick to your spending plan, but it may not always be possible.
Sometimes, life may throw you a curveball. Maybe your car breaks down unexpectedly and you don’t have the funds to pay for its repairs right away. Or perhaps you have to pay for antibiotics when you catch a nasty chest infection out of the blue.
Going overbudget may happen from time to time, but you don’t have to be so hard on yourself when it does.
It’s important to note that a budget is a guideline - it lays down the rules about how you can spend your money. You should feel comfortable tweaking your spending plan, so it works for your present obligations.
Just because an unexpected car trouble or medical bills tank one area of your budget doesn’t mean the whole thing is shot.
What you need is a little perspective. Take a breath and look at other areas of your budget to see if there’s any wiggle room to cover your necessary expenses.
Can you perhaps postpone or eliminate an unnecessary expense?
If so, you may syphon this cash and use it on your bills for unexpected and emergency expenses. You may still be able to balance your budget, even if it doesn’t look like the original plan.
But don’t worry if this isn’t possible. If there aren’t other expenses you can cut when you’re over your budget and you have no other way to pay for unexpected emergency expenses and repairs, an installment loan may be able to cover them. In an emergency, you may be able to save time and get your loan online quickly, so you don’t delay getting the cash you need.
Regardless of how you cover an unexpected expense, it’s important you understand that these things can happen from time to time. Building savings into your budget may help you handle these emergencies without tweaking your expenses or searching for a cash advance online.
Myth #5: Under Budgeting is the Goal
This may seem like one of the more harmless budgeting myths on the list — at least on the surface. While it’s better than going over budget, under budgeting on a regular basis isn’t ideal either. It can suggest that there may be trouble brewing in your budget.
Remember, your budget forms a spending plan that should be as accurate as possible. You’re supposed to be the boss of your cash flow and manage your money according to the plan.
Under budgeting may imply something didn’t go according to plan. Sometimes, it’s unavoidable, like if something unexpectedly costs less than you were expecting.
This should be an exceptional situation. It shouldn’t happen every month with multiple spending categories.
Even though you’re spending less than you thought, under budgeting can mean that there’s cash unaccounted for in your budget. It’s easy to think of this extra cash as money to burn, and you might spend it on items and experiences you don’t need.
There’s no harm in having fun once in a while if you can afford it. Budgeting for things you enjoy may help you stick with your plan, after all.
But ultimately, being on a budget may mean that you want to cut expenses to pay down debt or save more money. Spending all your “extra” money on the fun stuff may not help you achieve these goals.
You’re more likely to achieve your goals by striking a balance between a motivational splurge spending and responsible money management. So, the next time you’re under budget and free up some cash, consider:
- Putting some of it towards any existing debt payments
- Rolling some of it into a necessary, variable expense, like groceries
- Saving some of it for a rainy day
Whatever you choose, just remember to update your budget so that your spending plan is accurate.
Myth #6: You Only Have to Make a Budget Once
There’s no doubt that creating your first budget is a big deal. You’ll need time to tally your expenses, compare them to your income, and see which ones are headed for the chopping block. You may have to redistribute where your money goes, so you can boost your savings and pay down debt.
Then you actually have to follow it!
After all your hard work, the last thing you want to do is continue tweaking your budget. But it’s a good habit to get into. A budget is only as effective as it is accurate, and it can’t be accurate if it’s outdated.
For instance, you might get a new job that pays you more, or you might end up moving to a new house with lower mortgage payments. On the other hand, you might suffer an illness that prevents you from working or experience a family emergency that doubles your expenses.
These are just a handful of examples of how changing circumstances may impact the income or expenses of your budget. If you don’t update your spending plan to reflect these changes, you may think you have a higher or a lower amount of money than you actually have.
Think of your budget as a living document; it evolves with your finances. This may mean you have to revisit your budget multiple times a year to make sure it’s accurate.
Forget These Budgeting Myths and Get Started on Your Budget!
Now you know the truth behind these household budgeting myths, take what you’ve learned here today and apply it to your finances. Research budgeting techniques to find the one that fits your spending style. Make sure to fit in your necessary spending and set aside cash for something fun. These tips may help you stick with your budget for a longer period of time.
But let’s be honest — any time you have to cut down expenses and change the way you manage your money, it might be a tough adjustment at first. Change may not always be easy to handle.
While budgeting may be hard sometimes, it’s ultimately a valuable skill to have. It helps you organize money for your bills, save up for sought-after purchases and unwanted emergencies.
If your savings ever fall short and you have no other way to cover an unexpected expense, call us to learn more about installment loans to see if they’re the right solution to your next emergency. They may act as a stopgap between your savings and your next paycheck.
But don’t forget to budget for them! Updating your budget through the ups and downs of your finances can help you stay on track.
