Having a budget is a big part of building your financial house. Still, budgeting is easier said than done.
For many people, starting a budget can feel overwhelming.
And for the folks who have tried budgeting, some don’t stick with it.
For others, it seems too restrictive, stressful, and full of budgeting obstacles.
We’ve all been there!
Starting and maintaining a budget – or spending plan – can be challenging. And it’s easy to make mistakes and give up.
But by knowing the typical budgeting pitfalls, you can take steps to make sure they don’t thwart your financial goals.
Read on to learn the most common budgeting mistakes and how you can steer clear of them.
10 Budgeting Mistakes and Tips to Avoid Them
Mistake #1: Not having a budget
Even though more people are budgeting now than in previous years, many Americans don’t budget at all.
Of those that don’t budget, many think they don’t earn enough money. Others believe budgeting is stressful and time-consuming.
Yet, not having a budget—or having one that you don’t use—can lead to overspending, lower savings, more debt, and higher financial stress.
Avoid this mistake by making a spending plan and using it.
Budgeting may not always be fun. But it helps you pay your bills on time, keep track of spending, and plan for the future.
In a recent survey of people using a budget, 85% said it’s helped them get out of or stay out of debt. And others said it’s helped them save more and reach their financial goals.
Mistake #2: Guesstimating expenses and income
An estimated budget is better than none at all.
But not using accurate numbers means your budget can’t do its job.
Guesstimating your budget leads to inflating income and underestimating spending.
In other words, guesstimates are more wishful thinking than actual numbers.
Not only is it ineffective, but it interferes with financial goals.
Avoid this mistake by tracking your actual expenses and take-home income for a month.
Be honest about the numbers – not what you want them to be. And then set realistic budgeting categories.
Being real about your situation leads to better financial success.
Sure, it might be less than ideal at first. But it’s better to know the actual situation than have a false picture of your finances.
The important thing is to create a long-term budgeting habit that you can stick with and improve in time.
Mistake #3: Using the wrong budget for you
A saving and spending plan does you no good if you don’t use it.
If you’ve tried a budget and it didn’t work, you might think budgeting doesn’t work for you.
Yet it probably means that particular budgeting method didn’t suit you.
Avoid this mistake by finding a budget strategy that you will use.
Budgeting is as individual as people; not all systems work for everyone.
If your budget works for you, you’re much more likely to stick with it.
Sometimes you have to try a few methods before you find one that works. If a budgeting method feels super difficult, move on.
Try to find one that’s easy and convenient for you to use and maintain.
Whether it’s an app, spreadsheet, or paper and pen, there’s something out there for everyone.
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Mistake #4: Not leaving any wiggle room
It is motivating to set lofty budgeting goals at first. But a super restrictive budget is no fun.
If you don’t budget enough each month, it leads to budget burnout.
For some, burnout leads to going on a spending spree and giving up on budgeting altogether.
Avoid this mistake by having some flexibility in your spending plan – for the necessities and some fun too.
If your budget is too restrictive, you probably won’t stick with it.
Sticking to your budget can be the difference in reaching your financial goals.
Mistake #5: Giving up too soon
It can be challenging to maintain a budget at first.
Some people give up when it feels too restrictive. And others give up after they spend too much one month.
When a budget doesn’t seem to be working out initially, it’s tempting to throw in the towel.
Avoid this mistake by creating a budgeting habit you can stick with long-term.
Like any other habit, it takes time and patience.
Do what you need to do to make budgeting easy and satisfying. And incentivize it if you need to.
Start small and take it one step at a time; every step you take will get you closer to your goal.
Most of all, be kind to yourself! If it doesn’t work for one month, that’s okay. The next month is a fresh start.
Maybe you need to revise your plan or find a new method. But don’t give up!
Mistake #6: Forgetting irregular expenses
Forgetting about irregular expenses is a common budgeting pitfall.
It might not seem to be a big deal, but doing this too much derails your budget and financial goals.
When you borrow from other budget categories or savings, it can throw off your entire spending and savings plan and make it hard to catch up.
Avoid this mistake by reviewing your upcoming, irregular expenses often. Break them down and include them in your monthly budget.
You might need to make adjustments to other categories or save for them until they’re due.
For example, if you know an insurance bill is coming in 3 months, you can set aside a third of the payment each month until it’s due.
Below are a few expenses that are easy to overlook:
- Quarterly taxes
- Membership fees
- Retirement contributions
- Holiday/birthday gifts and spending
- Vet expenses
Creating sinking funds to save for these non-monthly expenses or future big purchases is a helpful strategy to avoid taking on debt or tapping your emergency savings.
Mistake #7: Failing to revise your budget
For most people, income and expenses fluctuate from year to year, even month to month.
When your budget doesn’t fluctuate with these changes, it’s ineffective. And it can lead to budgeting gridlock.
Avoid this mistake by scheduling time to review and revise your budget.
Ideally, this is monthly, but you could also do it quarterly or annually if that works better for you.
Couples can make it a date and use the opportunity to get on the same financial page.
Mistake #8: Not having an emergency fund
Whether it’s medical bills, car repairs, or home maintenance – large, unplanned expenses can and do happen (even if you don’t think they will).
And if you don’t prepare for them, they will crush your budget!
Avoid this mistake by having money set aside for emergencies.
Whether it’s $100 or $5000, any amount saved helps when the unexpected arises.
Start small and add to your emergency savings each month. Include it as part of your monthly budget, and you’ll have it built up before you know it.
Mistake #9: Not having clear financial goals
Financial goals provide an incentive to budget.
If you haven’t thought about or written down your goals, you might not have the motivation to create a spending plan.
Everyone has financial goals, though not everyone defines them.
Your goals might be to pay off debt, take a trip to Hawaii, buy a birthday gift, or retire at 55.
But if you don’t clarify and budget for your goals, you aren’t likely to reach them.
Avoid this mistake by identifying and writing down your financial goals and creating a financial mission statement.
They will provide the motivation you need to start a budget – and stick with it.
Think of your plan as enabling you to do the things you want to do, not deprive you.
Mistake #10: Not finding ways to reduce “fixed” expenses
It’s a common mistake to assume that monthly fixed costs, like cell phone and internet service, are set in stone.
But these are often negotiable!
When you stay with expensive providers or plans—you could be missing out on savings (and a reduction to your budget!).
Avoid this mistake by trying to reduce your fixed expenses.
Call service providers and ask if they have a different plan. Or see if their competitors can offer you a better deal.
Perhaps you can negotiate a rent decrease or refinance your mortgage.
Do some digging to see what options you have for reducing regular expenses.
Even small savings on regular bills can add up!
Closing thoughts on budgeting mistakes
For many people, the word “budget” conjures up unpleasant thoughts.
But when you think about budgeting as a way to reach your goals and get what you want, it’s more appealing.
And when you know the common budgeting pitfalls, you can take steps to prevent them from happening to you.
You still have to do the work of creating and maintaining a spending and savings plan.
But when you find a method that works for you, you’ll start to build a habit that will pay off for the rest of your life.