Many people give up on budgeting because they keep making the same mistakes. That's why you need to learn the most common budgeting mistakes and avoid them as much as you can.
Knowing what budgeting mistakes to avoid is the key to success when splitting your money between different categories. Money misconceptions and false perceptions can make the best budgeter give up instantly.
What you need to understand about budgeting is that it's never too late to fix your mistakes and improve your budget system for the next month. So let's learn the most common budgeting mistakes.
What Are The Most Common Budgeting Mistakes?
Some of the most common budgeting mistakes are not writing one, guessing your expenses, not accounting and tracking every expense, and not setting financial goals. Having unrealistic expectations, not revising and updating the monthly budget, or not saving money are common mistakes.
Not building an emergency fund, considering cheaper alternatives, setting up money for fun, being motivated, and including others are also budget mistakes. Suppose you often borrow money from other categories, choose the wrong budget method, budget based on gross income, forget irregular expenses, or think you don't need a budget. In that case, you are still making budgeting mistakes.
Not Having A Written Budget
I can't understand how you can make a personal budget without writing it down. How can you check how much money you need for each category? How will you know if your budget eas a success if you can't check it? How do you know if you have overspent money or not?
Believe me when I say that it doesn't matter how good you are at memorizing numbers or knowing what you have to pay. Without having a written budget, I guarantee you will fail.
The chances are that you will stick with the planned budget if you have it written down since you will not keep changing numbers according to what you want at a particular moment but to what you want according to your financial goals.
So if you want to start budgeting today, ensure you write everything down.
Guessing Your Expenses
Another mistake that I see many budgeters make is that they will guess the expenses, thinking they know exactly how much money they are spending. One survey found that 65% of Americans have no idea how much they spent last month (or make a wrong guess).
The truth is that you probably spend more money every month than you think, so you must check your bank statements and highlight every expense you have before you start budgeting. If you understand your finances and where you spend your money, you can make some cuts and save more money for your goals.
If I ask you how much money you receive every month, you can tell me the exact number, so don't guess the expenses. Have the correct number of how much money you spend per month. Otherwise, you risk failing to budget even before you start.
Not Account For Every Expense
Another mistake I often see is when budgeters don't account for every expense. Sometimes you have that odd expense where you bought a bar of chocolate during lunch break at work for just $1, or you took the bus because you didn't want to walk. Every expense matters. Every dollar spent should be counted.
The important lesson here is that no matter where and how you spend your money, every dollar counts, and you should add it to your budget.
Not Tracking Your Expenses
How can you know that you are overspending or keeping the spending on the established limits if you don't check it? Now, you don't need to do sums on a calculator every day, but it will help if you do it regularly.
I have a friend who set up a budget and blew it away after two weeks because he did not check how much money he was spending. He surpassed his limit for groceries and date nights quickly because he wasn't checking how much money he was regularly spending, making the idea of having a budget useless.
If you don't know how much money you are spending, you won't know when you have reached your limit and stopped it. You can use a budget app like Mint to do that for you. When you start tracking your expenses, you can be accountable for making your budget work.
Not Setting Financial Goals
Let me tell you this: a budget without financial goals is useless. If you don't have a why and a purpose to save money, make cuts, or improve your financial situation, you will definitely not stick with what you planned on your budget.
You want to have some financial goals like saving money to do something, making debt repayments, building an emergency fund, cutting some expenses to stop overspending, going on holidays, etc.
When you have financial goals, you will stick to the budget because you want to achieve that objective. Every time a budgeter intends to spend money on something they shouldn't because it isn't on their budget, they should look at their financial goals.
Having Unrealistic Expectations
Budgeters' biggest mistake is setting unrealistic expectations and thinking they will save a lot more money or cut their expenses almost wholly. But, of course, that doesn't happen at all after you start budgeting since it's a trial-and-error process.
You may think that you will pay your credit card quickly or go on holiday next month and add the money you have saved after budgeting for one month, but that is almost guaranteed will not happen. This is because most budgeters have no touch with their financial reality.
If you always drink with colleagues after work, you can't expect to cut everything from one month to the next because you will fail. It would be best to do it gradually, with every month going fewer times. The same happens if you eat out every day at work or consistently buy dessert. The idea is to cut expenses gradually.
Some budgeters are also unrealistic when setting financial goals, thinking they will save $500 per month when, in reality, they are in debt and overspending $300 every month. It's essential to be realistic to keep your motivation to stick with a budget.
Not Revising The Budget Monthly
Another common budgeting mistake is not revising your budget monthly. You need to understand that no month is the same, and your financial situation changes more often than you think.
Maybe you had a raise two months ago that you are not considering? The electricity bill went up, but you keep the same amount every month on the budget. It's summer, so you pay more for the air conditioning. If it's Christmas, you will spend more money on gifts. You need to consider all of these and revise your next month's budget.
Also, if you don't review your budget, how will you know you're delivering on what you set out to do?
Never Adjusting Your Budget Monthly
When you start budgeting, you want to change your spending pattern, so you need to keep adjusting the budget until you find a way that works perfectly for you, your needs, and your financial goals.
The first budget you will implement will be full of errors, something that you have to revise and then adjust for the next month. For example, maybe you put much less money into the groceries category than you thought you would spend. Or do all your essential bills and products become more expensive, and you need to make some cuts in other categories?
This is why it's so important to keep adjusting your budget over time.
Borrowing Money From Other Categories
Sometimes it can be very tempting to borrow money from other categories if you have already spent all you should on another one. Don't do this, or your budget will not work out as you want.
It sounds so easy to borrow an extra $300 from your savings account to ensure you can go out with friends and spend a few days eating out. Or you find out about a massive sale of one handbag you want, so why not?
If you do this once, you will keep repeating it (it's a difficult cycle to break), and you will not save money or achieve your financial goals. Before thinking about borrowing money from other categories, always think about your long-term goals.
Not Saving Money
One of the advantages of budgeting is that you can save money to reach some financial goals like buying a house, purchasing a new car, going on holidays, buying something you want, paying debt faster, creating an emergency fund, etc. To make all of these happen, you need to save money.
That's why it's difficult to understand how some budgeters decide not to include a category on their budget where they save money since that's the point for most of them. Even if it's not the main reason why you are budgeting, you still need to save money to achieve any financial goal. It's also good to build an emergency fund in case something happens.
Not Building An Emergency Fund
A very common budgeting mistake that I often see it's a budget without an emergency fund category. So what happens when an emergency strikes and you have all your money down to the penny, and you can't afford that expense because you never created an emergency fund? You will get into debt.
Having an emergency fund will create a financial buffer to keep your budget working as planned without relying on credit cards or loans if an unexpected expense like home repair, car repair, or a health problem happens.
Not Considering Cheaper Alternatives
Lowering expenses is one of the keys to a successful budget. Most people start budgeting their money because they want to cut costs and save more money at the end of every month. However, you can do something about it regarding groceries, utility bills, consolidating your debt, or lowering interest rates.
You can buy cheaper products from white-label brands in the supermarket, check other providers for electricity, water, etc. or find ways to save money when using them. You can also consolidate all your debts into one monthly payment and negotiate with your bank the interest rates.
One of the most significant points of having a budget is to find ways of spending less money and saving more, so you need to find cheap alternatives for everything you want to buy and make the best decision possible.
Not Setting Up Money For Wants (Fun)
Now, unless you are trying the extreme budgeting method, you should always have space on your budget to do fun things, or you will drive crazy. Remember that life is about having fun too.
Just because you are serious about budgeting your money, that doesn't mean you can't eat out, buy some clothes or have a drink with a friend. Instead, it means that you don't spend all your money irresponsibly and overlook your financial obligations like paying debt, bills, and mortgage.
Keep in mind that no budget on Earth will work out in the long term without you spending money on your Wants category. That's why most budgets have a “Wants” category, for you to do things you enjoy but that are not essential for you to live.
Choosing The Wrong Budget Method
I have seen some people stick with a budget method that isn't working for them for months. It was so overwhelming to choose one that they were afraid of trying a different one.
If you tried a budgeting method that didn't work for you, just try another one and check if it's better. You may need to try six different budget methods in six months to understand what is the best one for your needs. Some people will use the 50/30/20, others the 60/30/10, and some will opt out for the 70/20/10. Keep trying different ones.
Budgeting Based On Your Gross Income
Just because the salary on your contract says you earn $50,000 a year, that doesn't mean you will receive that amount of money. Therefore, you need to calculate your taxes and subtract them to know exactly how much money you will receive.
I have seen budgeters make this mistake and not cover all their needs because they budget their money for the gross income and receive a lot less.
Just imagine that you think you will receive $3,000 for the next month. So you budget all your money according to it. But then you only receive $2,400 because you forgot to include the taxes you pay. That means you have less $600, and you'll need to make further cuts to your budget. That would be chaotic.
Forgetting Irregular Expenses
You should also understand that you need to consider irregular expenses (that's why it's essential to revise and update your budget) when creating your budget.
If, for example, you use the zero-based budget, but then you don't include two birthday parties, one wedding, and the annual car insurance, you will be in trouble. You will have to grab money from one category to fulfill these expenses, and your budget will become a mess.
Some examples of irregular expenses you should pay attention to:
- Property taxes
- Charitable contributions
- Childcare or babysitters
- Vet bills
- Health expenses
- One-time tickets
- Home repairs
- Gifts for family and friends
- Tuition payments
- Season tickets
- Vehicle registrations
- Special events/holidays
Not Being Motivated
Another common budgeting mistake is people who start a budget and are not motivated to start with one. If you have no motivation at all, you will fail.
If you are not committed to making your budget work, you will not be disciplined and will cut expenses when you need to save money. That's why financial goals are so important because they are the motivation to ensure you implement the budget you have planned.
Understanding your motivation behind why you want a budget is crucial. Do you want to start a budget because you want to save money? Because you want to get out of debt? Perhaps you want to go on your dream holidays finally? Find out your motivation.
Not Including Others
If you are single and live alone, you don't need to include anyone on your budget, and you can make all decisions independently. However, if you live with someone else and have a partner or a family, you need to ensure everyone is included in all budgeting decisions.
A budget will only be effective if everyone affected agrees with all decisions. What is the point of one person saving all their money if his partner keeps spending the money and does not change his spending behavior?
That's why it's so important to communicate and listen to everyone affected by the budgeting plan. This will prevent overspending and ensure everyone is working towards the same financial goals and following the budget.
Thinking You Don't Need A Budget
Anyone that doesn't sit down and check how and where they spend their money is already making one of the most common budgeting mistakes. Unfortunately, many people feel scared to review their financial situation and prefer not to know at all and hope for the best.
So, if you think you don't need a budget, I have bad news because you need one. If you believe that budgeting is only about sacrificing, you are wrong and need to try it.
Common Questions About Common Budgeting Mistakes
These are the most common questions about common budgeting mistakes.
What Is The Most Common Budgeting Mistake?
The most common budgeting mistake is setting unrealistic expectations and believing that making a budget will make all your financial problems disappear. I would say some other pretty common budgeting mistakes are guessing expenses and not adjusting the budget regularly.
What To Avoid While Budgeting?
It's a lot of different things you can avoid while budgeting. Still, I always say that every budgeter needs to set financial goals to maintain their motivation and determination when budgeting. Without financial goals, people tend to not stick with their budget because they don't have the inspiration to keep cutting expenses and saving money.
What Causes Improper Budgeting?
Poor budgeting is usually caused by poor planning, being unrealistic with the way you split your money throw categories, keep moving money between categories, and not respecting what you have decided at the beginning of the month. When you make a budget, you stick with it till the end of the month, when you revise and update it for the better.
What Is The Most Likely Reason For A Budget To Fail?
I would say that the most likely reason for a budget to fail is poor planning. If you don't know how much net income you receive every month, where and how you spend the money, and what budget type will be the best for you, you will fail.
Conclusion On Common Budgeting Mistakes
So no matter what common budgeting mistakes you will make, you need to keep budgeting and adjusting according to your needs until you find the best way to keep advancing toward your financial goals.
Remember that everyone fails till they succeed in something, and it's no different when it comes to budgeting your money.
Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.