It took me a while to come around on budgets, I have to admit. Through my 20s and into my early 30s, I bounced back and forth between writing down occasional budgets on the backs of envelopes and not really tracking my money at all.
In other words, I wasn’t organized with my finances, and that was a big problem.
I’m a convert, though, because learning how to budget properly has helped me increase my net worth by around $50K over the last two years.
It turns out that if you avoid some common budgeting mistakes, you can turn your budget into a tool that helps you fulfill your dreams, whether that’s paying down debt, buying a home, travel, or whatever.
1) Don’t Get Overly Ambitious
Mistake: The first thing to avoid is something that hits a lot of people hard. Don’t write your first budget entirely based on the person you want to be. In other words, if you know you’re going to end up spending money on coffee halfway through a long work afternoon, don’t budget $0 for coffee expenses. Instead, write down a realistic number that might help you cut back.
Another variation on this problem is forgetting to budget for expenses you know will be coming — things like car inspection and Christmas gifts.
Instead: The problem with overly ambitious budget goals is that if you can’t stick to them, your whole budget will end up collapsing. So be realistic when you make a budget.
2) Don’t Leave Your Family Out of the Process
Mistake: I’m single and don’t have kids, so this is less of a problem for me personally. But a common budgeting mistake within families is for one person to write the budget without getting buy-in from all the other people who might actually spend money. Don’t do this! Your partner and/or older children need to understand and agree with the budget so that they don’t end up blowing it.
Instead: Call a family meeting and let everyone help figure out what categories you need in your budget and how much to spend in each. Parents have final say, of course.
3) Don’t Let One Blown Category — or Five — Get You Down
Mistake: A common budgeting mistake is to get depressed when you blow a budget category and then give up on the idea of budgeting altogether. Let’s say in the first month you budget $50 for restaurants and then spend $75; you might be tempted to decide there’s no point even trying.
Instead: Look at your budget at the end of every month and see how to adjust it. Was it a one-time problem or ongoing? Do you need to adjust next month’s budget, or just take something out of savings to cover the extra expense and plan to fill up your emergency fund again next month?
4) Don’t Budget With Money You Don’t Have
Mistake: Sometimes people plan for the year, or the next five years, based on expectations of a raise or bonus or inheritance. It’s a bad idea, because if you don’t get the expected extra income, your budget is suddenly blown.
Instead: Even if you are almost sure you will get the raise/bonus, budget only based on your current regular income. If the extra money does show up, you can use it to advance your debt-paying or savings goals.
5) Don’t Think of Your Budget As a Limit
Mistake: A lot of people resent the very idea of a budget. They think of it as a punishment or as something that prevents them from enjoying life. This causes them either not to have a budget at all, or to avoid thinking about it as much as possible.
Instead: See your budget as a stress-avoidance and goal-achieving tool. Let it prevent you from going into unnecessary debt, and let it help you use your money the way you want to use it, rather than spending it on things that don’t really make you happy.
One final note – if you are looking to set up a budget or switch to a new way of budgeting, consider downloading our free budget spreadsheet.
Do you have a budget? Have you ever made any of these mistakes? Got any other mistakes people should avoid as they embark on a budgeting adventure?
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I totally agree with what the points you stated above. I particularly like the first point. I think for a budget to work, a budget needs to be realistic. For example, I want to save $2000 but my income is only $3000 and my expenses are around $1500, then, that $2000 may not be possible.
If I may add, one of the budgeting mistakes that many people tend to overlook is that the budget may not or should not be set to stone. Changes come and, sometimes, they come unexpectedly. It’s better to make adjust budget when these changes come around.
This is so true! Budgets need to be flexible to work.
This month, I’ve been tracking every dollar I spend in a spreadsheet. It has been eye-opening in terms of seeing where I spend the most and least amount of money. This will definitely serve me well for creating my budget next month.
Oh man, tracking spending is SO HELPFUL and so eye opening.
When I first made my budget I looked at the statements of all my accounts and determined what I actually spent in a month. That way I could realistically determine how much to budget for each area of spend. It was also a reality check as to how much those afternoon coffees and dinners out were costing me each month and helped me determine where I was going to make efforts to cut down spend.
That’s a totally great thing to do — track your spending before making a budget. Glad it worked!
Great post! Having your family on board is so important. In so many families, just one person manages all of the family’s finances and that is not the way to do it.
P.S. Love the new design :)
Yeah, my friends with families definitely need to stay on the same page in order for it all to work out. Plus, what happens when the person who’s been doing everything gets sick or even dies? We don’t like to think about it, but it happens, so it’s best to be prepared.
So C stands for Catherine : ) I really like point #1. And if you make a realistic budget, what you might find over the months and years is that your frugality muscle grows. We’ve been able to cut back on groceries more than we would have originally thought. A budget isn’t written in stone. It can be reworked to reflect increasing frugality.
Yup, it does :) I think it’s true that when you get used to budgeting it gets easier. That’s been the case for me too.
Great tips! I like to budget, but still make a ton of mistakes from time to time. I try not to get too ambitious and get my whole household involved.
I think a lot of people find that strategy works for them!
Love the redesign!
These are great tips, particularly in regards to blown categories. For example, Rob and I budgeted $100/month for car repairs, and then had to spend $1000 when we only had $600 saved. Then we increased the savings and again went over budget. We’re now up to $200/month and we think we’ve finally hit our long run average.