I hear so many people complaining that budgeting is hard. It’s too restricting, complicated, and just plain boring. What I do know is the reason why budgets fail is not in the budget itself, but in how we view the budget and how we set it up in the first place. There are so many budgeting mistakes that may be costing you big time.
In this blog post, Budgeting Mistakes that are Costing You Part 2, we focus on the common mistakes that happen when we fail to set it up and stick to itwhen setting up and sticking to your budget. If you missed Part 1, click here for Budgeting Mistakes that are Costing You Part 1. In that blog post, we discuss how you may be the very reason why budgets fail. With budgeting misconceptions and limiting beliefs, you may be setting yourself up for failure before you even begin.
By sticking to an old fashioned monthly budget for two and a half years, my hubby and I became debt-free in July 2019. We continue to budget because we know it works. In the past, we made mistakes that not only cost us money but also are time and my sanity. Here’s part 2 of the budgeting mistakes that may be costing you.
Two Major Underlying Causes for Budget Mistakes
There are several reasons why most budgets fail, but there are two major underlying causes. The first one being you. If you haven’t read part 1 of this series, click here to read that post. It discusses why you may be the very reason your failing at budgeting.
The other major underlying cause for most budget mistakes is in the initial set up and how it’s tracked. Your budget should not just be random numbers on a paper or a spreadsheet. Failing to set it up correctly in the first place is the second underlying cause for most budgeting mistakes. We’ll be discussing these reasons and how to solve them in this blog post.
Budgeting Mistakes: Implementation is Flawed
1. Giving up too soon when things don’t go as planned / Giving up just because you’re over budget
Persistence, or rather lack thereof, is another reason why budgets fail. With most lofty endeavors, roadblocks are inevitable. Learning how to budget takes time and patience. Most importantly, you’ll need to cultivate a new money mindset that most of us have never considered.
It’s easy to give up and throw in the towel at the first sign of trouble. Don’t let this be you! Budgeting empowers you to make decisions about your money. Without budgeting, you may be driving towards a cliff that you don’t even know is there.
SOLUTION: Reading this article is the first step in starting off your budget process right. Do the exercises and write down all the reasons why you want to start budgeting in the first place. Refer to your list when times are tough and remember why you wanted to start budgeting in the first place.
Give yourself time to learn new habits and create a new healthy relationship with money. Just because you’ve decided to get a handle on your finances doesn’t mean that you’ll be a budgeting diva overnight. Mistakes happen even if you’ve been creating budgets for years. Why would you expect yourself to be perfect at the get-go?
2. Failing to Create a Realistic Budget
You’re only lying to yourself if you don’t create a realistic budget that accounts for all of your expenses. Tweaking the numbers to make your budget work is just hoping that something magical will happen to fix your situation. I hate to break this to you, but you’re the only one that can change your situation. Hoping to hit the lotto should not be your plan.
The only way to build a budget that works is to face your current situation. Creating an imaginary budget will only hurt you in the end. If you face your problems now, you’ll know what needs to be done instead of ignoring it. You may need to make hard decisions like cutting expenses or selling items you don’t use anymore. Setting a realistic budget with actual expenses is the first step.
SOLUTION: Sit down and take the time the time to build a realistic budget. You may not know how much you’re spending, especially if you’ve never tracked your spending before. Follow the steps in this post, How to Create a Zero-Based Monthly Budget. It will walk you through setting up a budget that works. Check out this post too, Budget Categories.
3. Failing to budget a small amount for unplanned expenses
Even the best laid out plans have surprises. It’s frustrating when you have an unexpected expense that you didn’t anticipate. You’ll have to adjust your budget and decrease another budget item to offset the new unexpected cost. It’s discouraging. I know firsthand because I failed to add a small amount for unplanned expenses when I first started budgeting.
SOLUTION: Budget a small amount for unplanned expenses like unexpected birthdays or small household repairs. If you don’t need it at the end of the month, you can decide how to use it. If you’re paying off debt, allocate it to your debt snowball. This is your spending plan, so decide the best way to use it that matches your financial goals.
4. Failing to budget enough money for entertainment and personal spending money
It’s easy to cut your entertainment budget and personal spending budget, especially when you need to cut expenses. After all, these expenses are discretionary. This is a valid rationalization, but this common budgeting mistake will leave you frustrated and hating the process.
I’m a big fan of Dave Ramsey and subscribe to his philosophy of living on beans and rice in order to pay down debt. Don’t take his words literally as I did. I was so pumped up to pay off my debt that I cut whatever I could to reach my goal faster. This was a huge mistake. My family started hating the process and budgeting altogether. I realized that I was the cause and not the budget itself.
SOLUTION: Budget a small amount for entertainment and personal spending each month. Don’t fool yourself into thinking that you can live without a little bit of spending money or fun.
5. Failing to budget enough for groceries and dining out
Food is the one budget category that most of us struggle with in the beginning. Failing to budget enough for food is probably the most common mistake. Most of us have no idea how much we’re spending on food. Why track something so basic when all of us need to eat?
SOLUTION: Be realistic in this category and slowly cut down this expense each month. If you’re spending $1,000 on food each month, don’t slash it in half just to make your budget work.
Most savvy savers preach eating at home as an easy win for instant savings. However, cooking all of your meals at home takes time and patience, especially when you’re used to eating out more. Don’t think that you’re instantly going to become the next Food Network star of your household.
Start by cooking one or two meals each week. Don’t try to create complicated gourmet masterpieces either. Cook simple meals that you know how to make and you’re family will love.
Making everything from scratch does save money, but if you need a little help, by all means, go for it. Ease into it instead of just jumping in headfirst like I did.
I didn’t believe in meal subscriptions like Hello Fresh before because I thought they were too expensive. But if you’re eating out all the time and find meal planning and cooking overwhelming, using a meal subscription service might be cheaper while saving your sanity. It’s also a great way to learn new recipes and cooking skills if you’re an amateur cook.
Spending too much money on dining out? Try cutting down how often you go out or find more budget-friendly alternatives instead of going cold turkey.
If eating organic is important to you and your family, then budget it in. Don’t use the excuse that you’re on a budget to be the reason why you can’t eat fresh, healthy food.If you live near an Aldi, check them out. They have a lot of organic and healthy products at affordably priced than most other health food grocery stores.
If you have no clue on what you’re spending on food, review last month’s transactions. Don’t try to guess. Chances are you’ll estimate less than what you’re actually spending. I would even urge you to budget a little more than what you think you need.
6. Failing to track it during the month
It’s one thing to set your monthly budget, and another thing to actually track it. Tracking it day in and day out is where the magic happens. Have you ever heard of “Plan the work. Work the plan.”
Imagine that one of your goals is to run a marathon. Proclaiming that you’re running a marathon in six months is only wishful thinking. You need to start a training program, set up your plan, and create habits that will physically and mentally prepare you. Training programs will have you start slow, building up your muscles and your endurance levels.
Tracking your budget daily sets the framework and builds strong long-lasting financial habits. If you plan on adding up all of your expenses at the end of the month instead of tracking it through the month, you may not realize that you’re over budget. You also won’t have time to adjust.
You will also spend less time when you spend a little time each day, instead of spending hours at the end of the month trying to remember what you spent your money on.
SOLUTION: Plan on spending 10-15 minutes each day logging in your transactions. Get in the habit of logging your expenses right away or at the end of the day. Use an online financial app like Everydollar. You can track your expenses on the go. Your spouse and partner can also see exactly where you’re at in real-time.
7. Believing that tracking your spending is budgeting
When you track your spending but fail to set a budget, you’re not really budgeting. You’re tracking what’s happened after the fact. You haven’t set a plan for your monkey, a budget, so you don’t know if you’re spending too much.
It’s like driving to Disneyland without consulting a map, setting a budget, or a timeline for your arrival and departure date. You know where you want to go, and you may even track your mileage and where you’ve stopped at. But did you get there in time? Did you visit all the places that you wanted to along the way? Did you spend too much? Or maybe you got sidetracked and didn’t even reach Disneyland at all.
SOLUTION: Set your budget at the beginning of the month. Don’t fall into the trap of believing tracking your spending is budgeting. Budgeting tells your money where to go, instead of hoping and wondering that your spending matches the budget.
8. Failing to assess what’s working and what’s not
Great leaders know that following up after a plan is vital. What went well? What didn’t go as planned? Can we improve or change anything?
Even the best laid-out plans have hiccups too. Budgeting is no different. Things will pop up or you may not have estimated enough money to cover groceries. Or, you may have spent more in a given category than you planned. Check your budget and be honest about what may have caused it.
SOLUTION: Take the time to review last month’s or last year’s monthly budget to see what worked and what didn’t. Did you miss something? Do you need to be more realistic and increase or decrease some budget categories?
Maybe, you overspent. Don’t beat yourself up. Things happen. The most important thing is to learn by your mistakes and find a way to avoid it the next time. Do you need to increase the budget in that area? Or maybe you need to create a sinking fund (saving fund for expected savings) so you have cash saved for the next time?
Maybe, life just happened. Learn from it, acknowledge it, and move on. Or better yet, maybe you’re killing it and hitting all of your financial goals. Pat yourself on the back!
9. Trying to be perfect. Letting the details overwhelm you.
Budgeting is merely a spending plan, based on the best information you have on that given day. Trying to be perfect, down to the very last detail is overwhelming and unrealistic.
I hate to break it to you, but life isn’t perfect which means your budget doesn’t have to be. Just start and the pieces will land in place.
SOLUTION: Just start budgeting and learn as you go along. Estimate your income and expenses to the best of your ability at that moment in time. You’ll make more traction if you try to build a budget rather than avoiding it because you want it to be perfect.
Budgeting takes at least 3-4 months, if not more, to start feeling comfortable with the process and understanding your spending needs. And even with that, you’ll be surprised how your budgeting style may change based on what is going on in your life.
Don’t try to be perfect and lose sight of why you’re budgeting in the first place. Budgeting takes time, but you’ll thank yourself later when you’re reaching your financial goals.
10. Failing to set a new budget each month
Setting a monthly budget that you recycle over and over is a common budgeting mistake. Even if your income and monthly expenses are predictable and stable, each month can be vastly different from each other.
I used to think this way too, but budgeting based on only your income and monthly bills is looking at only half of the picture. What special events are coming up? Do you have a large expense coming up that you need to save for?
Taking the time to check what’s going on the next month or in the near future will show you how much you need to spend or save that month. Your life is not on auto-pilot, so don’t think your budget is too.
SOLUTION: Sit down and create a new zero-based monthly budget each month. Take the time to check what’s coming up. Are you saving enough for special events or holidays? Remember, Christmas and holidays come around every year. They shouldn’t be a surprise. Do you need to increase your grocery budget because you’re hosting a dinner event with friends?
Taking the time to set a new budget each month will offset the time and frustration when you forget an item. It’s time well-spent that will get easier with each new budget you create.
11. Failing to write it down
Budgeting is simply making a plan for your money. It’s easy to think that you’re ok if you know you have more income than your expected expenses and saving allotments. You may think that you don’t need to write it down and track it.
It’s easy to forget transactions and think you’re ok. Unless you’re a genius and have a photographic memory, you may find it difficult tracking the budget all in your head.
SOLUTION: Do yourself a favor and don’t try to be a budget prodigy. You’re only hurting yourself in the end. Write it down either on paper or with a personal finance budgeting system like Everydollar.
Writing it down also signifies that you’ve made a pact to yourself and your family. It’s your promise to yourself and your family that it’s important and that you will follow through with it.
12. Failing to enlist help. Thinking that you can do it all by yourself.
If you’re in a committed relationship, don’t fool yourself into thinking that you can set a budget and not include your honey. Budgets fail when we expect others to blindly follow along when they don’t understand why they’re budgeting in the first place.
When you fail to discuss your finances and the reasons why you want to budget, your honey may not understand why you’re cutting down the restaurant budget or changing the brand of toilet paper. And yes, my hubby noticed!
Including your honey in the budgeting process also keeps you accountable. Just because you’re so fired up about budgeting now doesn’t mean things will go smoothly. You may be the one that needs motivation when things get tough. Having your honey cheering you on and getting you back on track will be your saving grace.
SOLUTION: Talk to your honey about budgeting, and include them in the budgeting process. If you’re a math nerd like me, don’t expect your honey to whip a budget from scratch. You can ask them what’s happening next month and what expenses you should expect.
If you’re the free spirit like my hubby, let the math nerd lead the front, but don’t hide in the shadows. Let them know what expenses may need to be increased or decreased and why. Share in the lifestyle changes and spending decisions. The math nerd will be more than happy to incorporate your ideas into the budget.
13. Failing to set up an emergency fund.
Setting up an emergency fund to cover unexpected expenses is the secret that most people choose to skip over. After all, saving for an emergency fund doesn’t sound as glamorous as paying off debt or saving for a dream vacation or a down payment for a house.
People give up on budgeting when something unexpected happens and they don’t have the money to cover it. Instead of dealing with why they don’t have the money, they blame it on budgeting saying it failed them when they really needed the money.
What they failed to see is that they didn’t use their budget as a starting point to systematically build an emergency fund for that very reason.
SOLUTION: Everyone should have an emergency fund. If you don’t have one, start saving before you start paying down debt or saving for other things. Aim to save at least 3-6 months of living expenses, not your monthly income.
If you or your spouse lost your job, you would go into what I call emergency mode. You would cut out all discretionary expenses like entertainment and personal fun spending money. Calculate your minimum living expenses like the mortgage, rent, insurance, food, transportation, utilities, and medical expenses.
The problem is that most people think that they have an emergency fund. Simply saving in a regular savings account is not what I’m talking about. Say you have $10,000 in your savings account. Do you know how much is for emergencies and for other savings goals that you have? Having a large amount in your account and not allocating a certain amount for your financial goals is a big mistake.
You may be saving for a vacation, a down payment for a house, or for unexpected car repairs. Your emergency fund can be easily spent if you don’t know how much you should have in the first place.
14. Failing to save for expected expenses (saving in sinking funds)
Failing to save for expected expenses in sinking funds is another budget mistake. Not taking the time to save for Christmas, birthdays, and car maintenance will lead to frustration when they come around and you don’t have enough in your budget to cover it.
SOLUTION: Systematically save monthly for expected expenses. Don’t think that the money will magically appear when you need it. Setting a small amount for these expenses will prepare you for when you need it. Use your budget to help you set realistic expectations for your money.
15. Saving too much in retirement accounts, and not saving in “gap” retirement accounts
Most finance experts preach the importance of retirement savings, which I don’t disagree with. Where most people fail is not investing in non-retirement accounts. We don’t plan on retiring early. Why would you need a “gap” retirement to begin with?
This budget failure is close to my heart, as I have seen firsthand how saving in a “gap” retirement account early on will save you if you find yourself having to retire early. My sister was diagnosed with leukemia back in early 2018.
Because she has diligently saved in other non-retirement investments over the years, she has been able to choose whether she wants to return to work or not. Without her “gap” investment accounts, she would have been forced to return to work or withdraw from her retirement accounts and face steep early withdrawal penalties.
We don’t anticipate any loved ones requiring extra help, but what if something happens? What if you or your partner had to retire early due to an illness or an unexpected accident? What if something happened to a loved one that forced one of you to stop working for a period of time to help take care of them? Do you have any non-retirement investments that you can tap into?
SOLUTION: Invest a portion of your long-term savings into non-retirement accounts. Think of this as an added safety net in case the game of life throws you a curveball.
16. Saving too much, and being too restrictive on regular spending
Budgets also fail when you save too much money and neglect to fund basic spending or debt repayments. For those savers out there, you may be tempted to save every penny you can squeeze out of your budget, but please don’t go down this route like I did. Building such a restrictive budget sucks the fun out of life. Your honey and family will start hating budgeting, especially when they’re sacrificing for no apparent reason.
SOLUTION: Strike a balance between saving and spending. Ask yourself if it takes you a few more months to save for an expense, is the world going to end? If not, chances are you can ease up a bit. Don’t save every last penny and make your life miserable in the process. You’ll end up resenting your budget and your financial goals.
17. Failing to be too specific or too broad with your Budget Categories
Budget categories help you break down your major budget items into manageable bites. When you create budget categories that are too broad or too narrow, you are setting yourself up for failure.
If your categories are too broad, it will take you longer to pinpoint problem areas. For instance, if you set up your food category as one major category, you may not know if your grocery budget or dining out budget is the problem. On the other hand, if you make a category for every single item, tracking your budget may become tedious and something you start to resent.
SOLUTION: Strike a balance when setting up your budget categories. Make sure you create categories that align with your spending habits and break it down if it will help you. Read this post on budget categories for inspiration.
18. Failing to calculate costs.
All budgets are estimates, but failing to take the time to set up a realistic budget will hurt you in the end. Guessing your entire budget will only leave you frustrated in the end.
SOLUTION: Take the time to look at your past history and try to calculate your income and expenses as best as possible. You won’t have to redo your budget as often if you try to budget accurately.
19. Failing to take budgeting seriously.
I leave you on this note because I see so many people giving up on budgeting because they don’t take their finances seriously. Just because you have money in the bank, haven’t bounced a check, or make six figures doesn’t necessarily mean you’re good with money. Are you saving for retirement? Do you have a plan of where you want to be financially in five, ten, or even twenty years?
Believe me, when I say, no one else will create your to-do list and check the boxes off for your goals other than yourself. Take responsibility for your future. You don’t want to be the majority of Americans not prepared for retirement.
SOLUTION: Budgeting is not just for broke people who need to get a handle on their money. Take it seriously and you’ll be shocked at how fast you will see financial progress. Budgeting is merely a spending plan. It brings clarity to your finances and aligns your goals with your financial plan.
Don’t risk your family’s financial security by winging it and hoping for the best? You wouldn’t pack up your family and jet set to your dream vacation without planning it. In the least, you have to ensure that your family has a safe place to stay and enough money to pay for food.
Why treat your life the same way? Budgeting takes all of those “what-ifs” out of the equation. You’ll be prepared for all of those lofty dreams you have in store – buying or paying off your house, sending your kids to college debt-free, or retiring with enough money to do whatever you damn want to. You’ll also be prepared for all life’s curveballs you can’t anticipate.
Final Thoughts on Budgeting Mistakes that May Be Costing You Part 2
Budgeting is the best way to truly understand your financial situation. In the beginning, budgeting may be confusing. Setting it up correctly is hard when you’re not sure where to start. These common budgeting mistakes will help you avoid those common pitfalls.
Please share your struggles with budgeting. If you have struggled through any of these common mistakes, please comment below and share your advice and experience.