I used to be one of those people who was terrified of the dreaded “B” word: budget. After learning from the plethora of personal finance experts in the blogging world about a better way to budget, I realized that the reason budgeting scared me so much in the past is because I was making many of the most common budgeting mistakes listed below.
The Most Common Budgeting Mistakes
In order to help newbie budgeters avoid those same mistakes, I’m sharing today 7 budgeting mistakes that can get a person to throw in the towel when it comes to a life of budgeting. Avoid these mistakes and get ready for budgeting success!
1. Not Writing Your Budget Down
And that includes your spending. Every bit of it. From the muffin your purchased from the food cart at work to the latte you grabbed on the way home. A budget will be much harder to stick with if you’re not tracking your spending and having a written budget to compare it with. Writing every expenditure down – whether it be on a spreadsheet, a notebook or a free online money management tool such as Personal Capital will ensure that you know exactly where your money is going each month so that you can make changes accordingly if need be.
2. Setting a Budget that’s too Strict
In our first successful year of sticking with a budget, we set a grocery budget of $300 a month for our family of six. For us, that dollar amount was too strict and brought two problems into our budgeting world:
- We failed continually at the budget and overspent nearly every month
- The continued failure tempted us to give up on budgeting altogether
Luckily we stuck with budgeting, and we also learned that the best budget is a budget that has reasonable spending amounts for your situation in each expense category.
3. Forgetting Annual, Semi-Annual and Other Occasional Expenses
Insurance bills, propane fills, vet and medical bills; all budgets have those expenses that come up only occasionally. If you leave them out of your budget, you’re likely to experience budget panic when those occasional bills come due. Deacon suggests using an envelope system or savings account system where you take the annual amount of each occasional or potential bill, divide it by 12 and set that amount of money aside so that all of the money is there when the bill comes due.
4. Forgetting to Include a Savings Category
A vital part of budgeting success is including a savings category and a retirement savings category. If you’ve got kids at home, it may not be a bad idea to add a college fund savings category as well. Successful budgeters report a much higher level of savings success when savings categories are treated like a bill and worked into each month’s budget.
5. Forgetting “Wiggle Room”
Another reason we used to fail so miserably at budgets is because we didn’t have any “guy/girl money”, as Deacon likes to call it. The result was that we felt guilty then if we wanted to make an expense that fell outside of our normal budgeted expense categories. If we wanted to dine with a friend or pick up a treat at the store, immediate guilt set in for blowing our budget. We also found ourselves getting resentful at times if our spouse wanted to make an “outside of budget” expenditure that one or the other of us didn’t feel was prudent.
The solution? Guy/girl money. These days, both Rick and I take an allotted amount of play money out of our budget each month so that we have some wiggle room money with which to spend with reckless abandon. It’s not a huge amount of money given we’re in the middle of a debt payoff journey, but it’s enough to grant us both some budgeting freedom.
6. Not Analyzing Your Budget Regularly
Life changes, and so our budgets need to change too. For this reason, it’s a good idea to analyze your budget at least on a quarterly basis to be sure that the allotted spending categories are working for you. It’s also a good idea to revisit your budget in preparation for upcoming larger expenses. Some reasons that your budget may need to be altered can include:
- the realization that your older car may soon need to be replaced
- the decision to move so that down payment savings can be added in to your budget
- saving for a vacation or other bigger expense (check out our free vacation budget form)
- a change in lifestyle, for instance if you decide to switch your child’s education from public school to a private school
By analyzing your budget regularly, you can be sure to make changes that will help you plan for different events that come up in life, whether planned or unplanned.
7. Not Individualizing Your Budget
Many times peoples’ budgets fail because they base their budget on someone else’s lifestyle or on what they think “normal people” spend their money on. In other words, they do a “keeping up with the Joneses” type of a budget. The truth about budgets though, is that they work best when people and families customize the monthly budget in a way that correlates with their individual wants and financial goals. Your goals have the highest chance of being achieved when they’re set based on the things that are most important to you.
As an example, if everyone on the block is budgeting for a new car next year, but a goal of early retirement is more important to you than having a new car is, don’t let yourself be lulled into following the crowd. Instead, choose goals and a correlating budget to reach those goals based on what is truly most important to you and your family. By doing so, you’ll have more motivation to stick with a budget that will help you keep your goal-reaching moves on track.
When you learn how to do it correctly – that is, in a way that best suits your life and goals – budgeting can actually start to become fun. Whereas we once dreaded sitting down to develop a budget each month, we now get excited about making a plan for our money that will bring us one step closer to achieving our goals and leading the type of life we want to live: a life free of debt.
What are your best tips for successful budgeting? How is your budget different from other people’s?