Committing to a budget is one of the best things I could have done to improve my finances and get out of debt. I know most people cringe when they hear the ‘B’ word, but that’s because they’re probably doing it all wrong and making common budgeting mistakes.
A budget is basically a spending plan for your money. In other words, it involves you regaining control and telling your money exactly where to go instead of wondering where it went. It’s pretty empowering actually.
I read a book a few months ago from a very prominent person in the personal finance space and I was shocked to see that they were encouraging people not too budget. According to this person, budgeting is too hard and stressful which is why people don’t stick with it long-term. They suggested you can meet your financial goals just as quickly without a budget.
In my opinion, this is completely wrong and counterintuitive. Budgeting is a very intentional action and can lead to some great results. You won’t just luck up on saving $10,000, buying your dream home, or paying off your debt. You need to budget for it!
Related: How to Save Your First $1,000
The problem with budgets is that they can be confusing since there is so much misinformation out there and people telling you what you should and shouldn’t do with your money.
Here are some of the most common budgeting mistakes I see people making along with what you can do to avoid them.
1. Not Even Getting Started Because You Don’t “Make Enough”
I’m not going to lie, I held off on budgeting for a while because I felt I didn’t earn enough to actually budget. I thought budgets were limiting ever since I was a little girl and heard my mom constantly say, “we’re on a budget” in the grocery store.
To my siblings and I “we’re on a budget” meant we couldn’t afford to get the food we really wanted. It meant we had to sacrifice and couldn’t have any fun. As a low earner during my young adult years, I didn’t want to feel broke or deprived any more than I’d already been feeling which is why I avoided budgeting at all costs.
In all honesty, budgeting is more about mindset and habit than it is about the numbers. When you view a budget as a negative tool and a barrier between the life you have and the life you want, it becomes just that.
Instead, change your mindset to view budgeting as the bridge that connects you to financial goals and lifestyle you’re longing for. Since a budget is just a spending plan and not this big bad villain, as long as you earn an income, you can start budgeting and create a plan for your money.
In college, I only earned $500 per month. Yet and still, I could budget that income and stretch it in order to meet my expenses and give myself a small treat every now and then.
Related: My Journey of Overcoming Poverty
2. Using the Set It and Forget It Method
Creating a budget is one thing, but the word ‘budgeting’ is a verb so it’s a very active process. You can’t just set everything up then disappear. Even though some of these apps out here are great, you can’t truly automate the process entirely and that’s good news because you want to be fully aware of what’s going on with your money.
You can to constantly check in on your spending and adjust things as you go.
The first year I got serious about budgeting, I literally created a pretty decent budget, then left it as is and never reflected on my spending and saving each month. That’s why I chose to share monthly budget reports on this site for a while to remain accountable.
It helped me a lot because situations change all the time. Your budget won’t stay the same for long and you need to actively manage your financial activity in order to adjust things along the way.
3. Trying to Meet Someone Else’s Standard of Living
It’s common to have a competitive nature when it comes to your finances. You may see one person spending or not spending money on something and think you can do it too.
It’s unhealthy and unrealistic to compare finances and model your budget or spending habits on what someone else is doing. It’s fine to be inspired by what someone else is doing or even take advantage of their tips and advice but you need to carefully apply everything to your specific situation and make it your own.
This is why no two budgets should ever look the same. You have a unique situation, your own goals, and your own values. Make sure your budget is realistic and reflects that. So, if you want to budget to spend $50 per month on lattes and you can afford to do, go for it!
If you find value and joy in throwing extra money toward your debt, do that. When you make your own choices based on your wants and needs, budgeting doesn’t feel like such a chore because you’re staying true to yourself.
4. Forgetting to Establish a Cushion For Extra Expenses
Who said budgeting had to be so strict and precise? Life is unexpected and things change all the time. This is why it’s best to be prepared financially for whatever expenses might come your way.
Too many people don’t create room for a financial cushion in their budget. So when the kid’s soccer fees are due, your spouse gets sick and has to miss work for a few days, or your check engine light goes on, it’s a 911 situation.
Having an emergency fund is crucial, but you should also budget for extra expenses that aren’t dire emergencies but could tip your spending by the end of the month.
Related: Why You Need a Full Emergency Fund
I have a miscellaneous category in my budget and it gets used each and every month on something different. If in the event that I don’t use the money, it gets rolled over to my checking account buffer until something comes up.
When it comes to budgeting, there are many ways to get it right and wrong. Past failures shouldn’t discourage you though. Budgeting DOES work. It just takes commitment, patience, and a clear strategy.
When you start to get the hang of it, it feels great to have full control over your money and plan out what you do and don’t want to do with it.
Now I want to hear from you. Are you making any of these common budgeting mistakes or have you made them in the past?
Learn How to Budget Better
Remember when they taught us how to realistically budget our money and live comfortably within our means? Me either. That's why this spring, I'll be releasing my own DIY budget course to help you create a realistic action plan for your money so you can live happily on a budget and meet all your goals. Hop on the waiting list to be the first to hear about it!