My wife and I went way over our budget in a couple of categories during June. Part of it was to be expected because I’m commuting to a new internship, and part of it was planned, but unfortunately, most of the over-spending can be chalked up to a simple fact: we made some spending mistakes.
Any time you make a mistake it hurts, but financial mistakes have the possibility to cause quite a bit of damage. Mistakes are especially costly when you’ve been making progress with your efforts to get out of debt and put your finances in order. They stifle your desire to keep trying and give you one more problem to fix. When you’re dealing with multiple banks and bills and paychecks, however, mishaps are bound to happen, whether small or large. While mistakes may be unavoidable, disaster is not.
Here are some simple steps you can take to mop up after a mess.
Minimize the damage
Because accounts and bills are all linked together by transfers, there is a good chance the mistake might become a bigger one if you don’t take action. If your overdraw your checking account, make sure that you have enough money in there to make up for the overdraft and any associated fees your bank might charge you. Nothing is more frustrating that withdrawing too much money from your checking account, depositing money to cover it, and then overdrawing again because of a fee.
If your financial misstep is something more long-term, like spending more than you planned, you have a bit more time. Slide the money in your budget around, and if you do have to add more money, make sure you only add as much as you need, and unless it is a real emergency; don’t pull from your emergency fund.
Take steps to ensure it doesn’t happen again
Double check any automatic transfers or bill payments you have and record them all on a calendar so you know how much is going to who and when. It’s easy to forget about the electric bill that’s due while you’re on vacation or the check you gave the kid who mowed your lawn that finally got cashed. Getting into a rhythm takes a couple of months, but once you get the swing of it you can be sure to always have your money where it needs to be.
With mistakes in budgeting or spending, go back over your purchases and find out exactly where all that money went. Make sure you can account for all of your purchases, and try to find a couple that you can leave out next month. If your situation is dire, you might want to see if you can return something or cancel a service.
You can keep more money in your checking account or come up with a bill reminder calendar to help you get an overall picture of what you need to be doing.
Learn from the experience
Do some research to find out exactly what happened. Did you forget about a bill payment or checking account fee? If you see a charge you don’t recognize, don’t just pay it and brush it off. Learn why you were charged and if there was anything you could do about it. If you understand what happened, you are more than likely able to prevent it from happening again. The worst thing you could do is ignore it.
Catch your second wind
Don’t let the setback discourage you! Everyone runs into trouble of one kind or another as they get their finances in order. It’s important to pay attention and do all you can to know what’s going on with your money, but when you miss something or something bad happens, don’t get stressed out, just fix it and do what you can to improve future.
Learning to handle mistakes in a way that suits you takes a little bit of practice, but you will cut down on the majority of mistakes and recover quickly from the others.
Photo credit: neilspicys
Updated December 20, 2011 and originally published July 2, 2009.
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This is a great article. The snowball that happens when you get a fee from the bank is amazing and before you know it, you have several overdrafts. I think minimizing the damage and tracking automatic payments are great points.
One of the trickiest things is the way most banks will lay overdraft fee upon overdraft fee. If a check you deposit isn’t funded by the time you think it will be, you could find yourself in trouble to the tune of hundreds of dollars in overdraft fees alone. Try to find a bank that advertises it will only charge one overdraft fee per day if you make a timing mistake with your deposit. It’s not easy.