Things to Avoid When Creating a Budget

Video Transcript

"Hi! This is Alfred on behalf of Expert Village. There are a couple of things to avoid when creating your budget. First probably one of the most important is don't count on windfalls. When projecting the amount of money you can live on, don't include dollars that you can't be sure you will receive such as a year end bonus, tax refunds or, investment gains. Be ware of spending creep. As your annual income climbs from raises, promotions and smart investing, don't start spending for luxuries until you are sure you are staying ahead of inflation. It is better to use those income increases as an excuse to save more. Over time your income should rise as your career progresses and you manage to save money for investing. But also overtime, inflation will raise the cost of living. A mere 3 percent rise of price will double the cost of everything within 24 years. At that time, you will need twice as much money as you do today to live on. So don't start spending your rising income on luxuries you have been denying yourself until you are sure you are staying ahead of inflation. We need to make realistic goals that we can keep. Don't set a goal for 0 dollars for your entertainment budget category if you know that you won't be able to keep that. "