Budgeting blunders: Have you been doing it wrong all along?

Opinion: Five of the most critical mistakes that can keep your budget from delivering the results you're hoping to accomplish
Budgeting blunders: Have you been doing it wrong all along?
By Ambareen Musa
Mon 30 Jul 2018 10:21 AM

Budgets are a great way to help you save more and achieve your financial goals faster. But budgeting can be a total failure if you don’t do it right. 

We’re not just talking about rookie mistakes that every beginner-to-budgeting ends up making, but those blunders too that seasoned budgeters are guilty of making.

Souqalmal.com rounds up five of the most critical mistakes that can keep your budget from delivering the results you’re hoping to accomplish.

Being ‘penny wise & pound foolish’

Well, in the correct geographical context, this means you’re sweating the Fils, while ignoring the Dirhams. Your smaller savings will eventually add up and translate into bigger savings, but that’s not all you should be focusing on.

Yes, replacing your daily fix of café-bought cappuccino with a home-brewed one could save you a few hundred dirhams in a month, but what good will this do if you shell out a thousand or two on impulse buys every month?

Prioritise the big stuff, and scrutinise your major expenses to find ways to save more. This could mean moving to a more affordable accommodation, driving a smaller more fuel-efficient car or getting rid of expensive credit card debt.

Ignoring your non-monthly expenses

While factoring in your monthly expenses when drawing up a budget is pretty straightforward, many budgeters often ignore their irregular expenses. These could be sporadic expenses that may pop up at any time, or other quarterly, half-yearly or annual expenses like your car, health and home insurance premiums, car maintenance fees, dental check-ups and so on.

The easiest way to account for these expenses is to convert them into their monthly equivalent. So a planned annual expense like your car insurance premium of AED 4,000 should show up as a monthly outlay of AED 333 in your budget.

Not being on the same page as your spouse

When you’re married budgeting becomes a team effort, not just an individual endeavor. Married couples may often have disagreements when it comes to financial matters, but when your individual budgets are replaced with a joint household budget both parties have to get on board.

It is best to lay everything out on the table - Discuss your current finances, address debt and talk about your long-term financial goals. Set up a budget after careful consideration of each other’s specific circumstances, and determine your contribution towards the joint expenses. Finally, don’t forget to regularly track and review it together.

Failing to account for unforeseen expenses

This is one of the biggest blunders your budget can fall prey to – Not accounting for the unexpected. You could be on-track with your budget if the income and expenses keep coming like clockwork. But what if an unforeseen crisis hits you without any warning?

It could be a medical treatment not covered by your health insurance, a hefty fine, or an unexpected job loss. Such a situation could leave a huge dent in your finances, completely derail your budget, and worse, force you to go down the ‘debt’ road.

That’s why you need to set aside some savings towards an emergency fund. Think of your emergency fund as a safety net, a contingency plan, or quite literally, your savior in times of financial crisis. It is recommended that you save at least three to six months of living expenses in your emergency fund. And don’t forget to replenish this fund if you ever need to tap into it.

Not calibrating your budget as you go

To make a budget work for you it is important that you regularly review it and readjust it based on your changing financial circumstances. Your income won’t always stay the same, and neither will your expenses. So why should your budgeting strategy stay the same?

Got a salary hike? Rather than splitting the increment evenly across all expense categories, you should ideally be allocating a higher amount towards your savings or debt repayments. Just had a baby? You will have to reallocate your income to not only account for the higher expenses, but also consider saving towards a school or university education fund.

Remember - Setting up a budget is half the battle won, but you need to stick to it to reap the financial rewards. Knowing the mistakes to steer clear of can make budgeting really work for you, and also motivate you to keep going once the savings start to roll in.


Souqalmal.com founder Ambareen Musa

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