Setting up a budget - Things that
easily get forgotten

When you start setting up a budget, you want to try to take everything into account. Chances are though, that you'll forget a few things.

This is why you need to take some time to adjust your budget as you set it up. Here are just a few things you need to make sure to include in your budget that you might easily forget.

Contingency or emergencies

This is one of the major things that can blow up a budget. What do you do if the car breaks down or the sink gets clogged? Many times, people will actually fall back on credit to take care of these contingencies. This just digs you into a deeper hole, though, since you then have to deal with interest payments.

Instead of having no emergency plan, you should have at least a small emergency savings fund. That way, when something happens, you can use your savings to take care of it without blowing your budget. For the next few months, just put as much money as you can spare into a savings account until you have at least a couple thousand pounds saved up.

This is also true when you're setting up a budget for a major event. If you're planning a wedding or a big party, you need to add 10% to your budget for contingencies. This keeps you from going over budget when the unexpected happens.

Ad hoc purchases

After you have finished setting up a budget you must track everything you spend. You really need to stay on top of every penny, or things will easily get out of control. Little things that you don't budget for - a can of Coke, stamps, or a cup of coffee - can add up at the end of the month.

There are a couple of ways to take care of these purchases without blowing your budget. You could track them very carefully, writing down purchases every day to make sure you're still within budget. Another option is to make a separate budget for your small purchases when you're setting up a budget. At the beginning of the month, withdraw cash for these purchases. Then, you can just use your cash for the little things, and when you run out of cash, you know you've run out of budget room.

Failing to update the budget

After setting up a budget, if you don't update your budget regularly, then you will not stick to it. It's so easy to estimate what you're spending and to end up totally over at the end of the month. The easiest way to avoid this problem is to set aside a little bit of time every few days to update your budget. Just pull out your receipts, and start writing down all your purchases. This will make it less time-consuming to budget, and it will keep you on track.

Not keeping receipts

Keeping your receipts is the easiest way to keep track of all your purchases. Some people rely on their online or monthly bank statements to check on spending and update budgets. This can be a mistake, though as it's not always easy to see where your money is going. If it is difficult to track where you are overspending, then it will be difficult to make changes. Plus, it's really easy to write down all your purchases every few days if you have your receipts.

Forgetting once a year purchases

When you're setting up a budget, you can forget to factor in all your yearly purchases. Then, when those things pop up, you don't have the money to take care of them. As you're writing your budget, think about your major yearly expenses like Christmas gifts, birthday gifts, car servicing, and insurance payments. To take care of these expenses, divide the total amount by twelve, and set aside a little bit of money in a savings account each month for these items. Then, when these expenses pop up, you'll be able to cover them.

Failing to save

Savings should be an important part of your budget. Whether you're saving up for yearly expenses or a rainy day, you should put a little money in a savings account each month. To make sure you have enough money for all your events and purchases, you can use a couple of separate savings accounts or simply earmark money for different occasions.