We all (hopefully) know that budgeting is an important step to take in order to keep our personal finances in order.
But let’s be real, budgeting can get a bit annoying. It’s always frustrating when you’ve been trying hard to keep within your budget, but still see you’re not saving as much as you want to.
If you’ve been budgeting for a while, but still don’t really see the results you want to see, then you’re very likely making at least one of these common budgeting mistakes.
So, in this article you’ll find the 3 most common budgeting mistakes people make, as well as tips and advice on how to avoid them.
Grab a cup of coffee, sit back, and get ready to budget more effectively than you ever have before!
By the end of this post, you’ll know how to avoid the most common slips in budgeting, and will be on your way to reach your financial goals.
Table of Contents
Budgeting Mistake #1: Not Having a Budget
The biggest mistake in personal finance is not making a plan for how to spend your money.
A lot of people decide budgeting isn’t for them because they think it takes too much time, limits what they can spend, or is just boring and unnecessary. But the reality is that if you don’t have a budget, you are not able to manage your money properly.
Making a budget doesn’t have to be scary, and it doesn’t have to limit you too much, either.
Actually, it’s the other way around for me – having a budget provides me with more freedom and peace of mind, since I know exactly how much money I have and where it’s going.
To create a budget, start tracking your income and expenses for a month or two. This will help you an approximate of how much money you make and spend regularly, and also any unexpected expenses that might come up.
Once you know how much money you earn and how much you spend, you can start organizing your expenses into different groups like housing, transportation, food, entertainment, and saving.
Keep in mind to also make room for any irregular or unexpected expenses that may come up.
If you’ve categorized all your expenses, you can start adjusting your budget by deciding if you want to make any changes to your current ways of spending.
For example, you might want to have more money for investing, and cut out some of your expenses on food. In that case, you should think about how you can save money on food, so you have more money left to invest.
Make sure to keep your budget realistic, and try to follow it and track your progress the next few months.
Budgeting Mistake #2: Failing to Track Your Expenses
If you don’t write down your spendings, it’s easy to lose track of where your money is going.
Even small purchases, like buying a cup of coffee or a cheap shirt from your favorite clothing store, can add up over time and take a big chunk out of your wallet without you even noticing.
So, in order to avoid losing track of your money it’s crucial to keep a record of ALL of your expenses, even if it’s just a few cents.
To do that, you can download a budgeting app, or simply write down your expenses on a spreadsheet or a notebook. And, keep in mind to categorize your spendings (like mentioned earlier) so you can see exactly where your money is going every month.
I know tracking all your expenses can be a bit tedious at first, but that’s what it takes to stay on budget. Just remember, by doing this you’ll have way more money left to do the things you actually enjoy!
Budgeting Mistake #3: Not Adjusting Your Budget Regularly
Over time, your financial situation is likely to change as a result of a raise or promotion, a change in your living expenses, or unanticipated costs. If you don’t adjust your spending accordingly, you might be missing opportunities to increase your savings or overspending in certain areas.
If you want to avoid this, it’s crucial to regularly review your budget and make any necessary adjustments.
Adjusting your budget may involve increasing the amount you set aside each month, cutting back on certain categories of spending, or adding additional categories to your budget.
For example, you can make changes to your budget using a percentage-based system. You might choose to set aside 50% of your income for essentials like housing, utilities, and food, 30% for luxuries like entertainment and hobbies, and 20% for savings and debt repayment (this is called the 50/30/20 rule). This system is flexible and can be changed to suit your specific financial situation.
It’s critical that you focus on your your financial goals when making budget adjustments.
For example, if you’re trying to pay off debt, you might want to set aside more of your budget to debt repayment and less to entertainment expenses. If you want to set money aside for a big purchase, such as a car, you may want to increase your monthly savings.
Budgeting Mistake #4: Ignoring Irregular Expenses.
Irregular expenses may be easily overlooked because they don’t occur every month, but they can significantly affect your budget.
Irregular expenses could involve things like yearly subscriptions, auto repairs, or presents for the holidays. If you don’t budget for these costs, you might have trouble coming up with the cash when they’re due.
To have money for unexpected expenses, it’s essential to recognize what they could be and set aside money in your budget for them.
One way to do this is to divide the yearly cost of each expense by 12 months and set aside that amount each month. By doing this, you can be sure that you will have the money on hand when the expense is due.
Another choice is to set up a sinking fund for irregular costs. This means setting aside some money each month for a specific expense.
For example, if you know you need to go to the dentist for a checkup in 6 months, you can start setting aside money each month until you have enough to cover the expense.
By saving up some money for irregular expenses you won’t have to change your normal budget or dip into your emergency fund once they come up.
Budgeting Mistake #5: Not Having an Emergency Fund
Whether it’s a car repair, a medical expense, or a job loss, emergencies can occur at any time.
If you don’t have an emergency fund set up, you might struggle to cover these unexpected costs.
To avoid having to scrape up money in time of emergency, you should have some money set aside only for emergencies.
Usually, financial experts advise having three to six months’ worth of living expenses set aside for emergency use only. You should keep this money in a different account, like a high-yield savings account.
Saving up for three to six months’ worth of expenses may seem overwhelming when you’re just getting started.
To begin you can just start small and work your way up. For example, you can set an initial goal of saving $1,000 or $2,000, and then gradually increase it over time.
When you have saved up money for emergencies, you’ll enjoy the peace of mind that comes from knowing you’re ready for the unexpected. You won’t have to stress about how you’ll pay for unexpected expenses, and you’ll be better able to stay on track with your financial goals.
Budgeting Mistake #6: Overspending on Your Wants
It’s easy to get out of control when spending on things that aren’t actually necessary, like eating out, shopping, or subscription services.
Although it’s totally fine to spend some money on these things on occasion, overspending on your wants can easily throw your budget off balance and put you in a precarious financial situation.
If you want to avoid overspending, it’s important differentiate between your wants and your needs. Your wants are things like entertainment, hobbies, and travel, whereas your needs are things like housing, food, and utilities.
One way to keep yourself from overspending is to set a budget for your wants.
For example, set a limit of $200 per month for things like eating out, going to the movies, or buying new clothes. This way you’ll be able to fully enjoy these things without having to worry about whether you’re going over your budget.
Another thing you can do to cut back on spending on your wants is to search for ways to save money on them.
You could, for example, try preparing meals at home more frequently instead of eating out or canceling subscriptions to services you don’t use.
By making small changes like these, you can free up money in your budget for other things that are more important to you.
Budgeting Mistake #7: Not Shopping Around for Deals
You can often find offers and discounts that can help you save money whether you’re purchasing groceries, clothing, or household goods.
If you don’t look around for discounts, you might be spending more money than necessary, which over time can quickly add up.
To get the most out of discounts, make it a habit to shop around before making a purchase.
This could mean comparing prices across different shops, using coupons when shopping online, or delaying purchases until you can find a good deal on them.
By doing this, you’ll be able to save money and stay within your budget.
Another idea you can use to save money is to buy used items instead of new ones. Not only is it good for your wallet, it’s also good for the environment!
So, next time you need to buy things like electronics, furniture, vehicles, or clothing, be sure to consider if you can buy them used. You can find used items at your local flea markets, vintage shops, and Facebook Marketplace.
For more saving tips, check out my article where I share 19 hacks that can easily save you an extra $500 per month!
Budgeting Mistake #8: Failing to Stay Responsible
Yeah, it’s easy to create a budget, but sticking to it over the long-term is a whole other thing.
If you don’t feel responsible and motivated to stay within your budget, it can lead to overspending, accumulating debt, and missing out on your financial goals.
That’s why it’s important to regularly review your budget, track your expenses, and make adjustments as needed.
This might involve cutting back on non-essential expenses, finding ways to save money, or increasing your income.
It’s important to stay accountable for your financial decisions, whether you achieve that by setting clear goals and keeping to them, working with a financial advisor or coach, or seeking support from friends and family.
Staying responsible is crucial for achieving long-term financial stability. It’s a continuous effort to stay on track and make the most of your money, so you need to be up to the challenge!
That’s it, you wonderful finance nerds!
In this article we’ve covered the 8 most common budgeting mistakes and given you some tips on how to avoid them. By now, you should have a good understanding of what mistakes to watch out for and how to make sure you’re not falling into any of these traps.
Remember, budgeting is not always easy, but it’s a crucial part of achieving financial stability and success. The more you learn about personal finance, the more you’ll eventually make!
So, don’t be too hard on yourself if you’ve made some of these mistakes in the past. It happens to the best of us! Just take a deep breath, make a plan, and commit to making positive changes moving forward.
And always remember, you’re in control of your finances, and with a little bit of effort and determination, you can achieve financial freedom and security. Happy budgeting!