If you’ve struggled to manage your money in the past, you might have given up on the idea of tracking your spending. But it could be you’ve simply fallen prey to common budgeting mistakes — mistakes which can tank even the best-planned budget.
Ready to get your budget back on track? Here are seven common budgeting mistakes you might be making, along with tips on how to fix them:
1. Setting unattainable goals
2. Forgetting about recurring expenses
3. Failing to account for unusual expenses
4. Ignoring your budget as the month goes on
5. Being too hard on yourself after a setback
6. Not finding the system that works for you
7. Not adjusting your budget as circumstances change
How a budget puts you in control of your money
Maybe you’ve decided to design a budget because you want to transform your spending habits. But if you plan to cut your spending drastically, you might be setting yourself up for failure.
“One of the biggest mistakes people make when they start their budget is that they slash all of their expenses,” said personal finance writer Caroline Vencil. “This usually winds up making the new budgeter stressed and frustrated until, finally, they snap and go right back to their old ways.”
Even if you write a goal down on a piece of paper, your habits are not going to change overnight. And some goals might simply be unrealistic and unattainable.
So while you should feel free to set “stretch goals,” you should also be practical about your expenses and behavior. Otherwise, your new budget will be like a crash diet: It might have short-term results, but you’ll quickly ditch it and go back to your old behaviors.
If you’re auto-paying for paperless subscriptions or bills on a monthly basis, you might forget to include these expenses in your budget. This mistake can derail your plans, with an unexpected amount of money deducted from your bank account leaving you with less than you thought you had.
“Many bills are paperless, and payments are automatic,” said Chane Steiner, CEO of financial advice website and marketplace Crediful. “This makes it easy for people to forget them while budgeting. Just because you don’t have to think about it doesn’t mean the money isn’t coming out of your account. When you’re budgeting, log into your online banking to make sure all your monthly payments are accounted for.”
According to Steiner, it’s also important to remember that bill amounts don’t always stay the same over time.
“Take into consideration that many bills are dynamic,” he said. “You might have an introductory rate on cable or internet service. Keep track of when that period expires so you know when you’ll be paying more. Also, your utility bill might be low in the spring but skyrocket during summer or winter when constantly using heat or air conditioning.”
What’s more, you might have some bills, such as car insurance, that are charged only a few times per year, rather than on a monthly basis. When you’re designing your budget, account for all your automatic expenses, even if they occur on an irregular schedule.
Even if you’ve catalogued all of your regularly occurring expenses, your budget might collapse under the weight of an unexpected or unusual expense. That’s why planning for the unexpected is an essential part of a successful budget.
“I’m a big fan of the ‘emergency fund,’” said financial planning associate Anna Keisler. “A general rule of thumb is to have about six months’ worth of living expenses in a savings account, just in case something happens.”
By setting money aside into an emergency fund, you’ll be covered in the case of medical bills, car repairs or another emergency.
“Life is unpredictable, and something will go wrong that can throw off your entire budget for the month,” said Keisler. “Having an emergency fund can allow you to cover unexpected car repairs or home maintenance without having to take out debt or miss necessary payments.”
While this savings account can be useful in emergencies, try to avoid using it on expenses that can be predicted, such as oil changes for your car or birthday presents for friends and family. Even though these expenses don’t occur regularly, you should still include them in your budget.
When you first create your budget plan, you might feel highly motivated to meet your goals. But as the month wears on, you might forget to check on your progress. As a result, you could start to fall away from your goals and return to your pre-budget ways.
“A big mistake many make is ignoring their budget for a couple of months and spending 20% to 30% outside of their budget,” said Logan Allec, a certified public accountant and owner of personal finance site Money Done Right. “An easy fix for this is giving yourself 1% to 3% wiggle room, but never exceeding that amount and always paying attention to your budget.”
By keeping tabs on your budget as the months goes on, you can make any needed adjustments. If you’re losing motivation, it could also help to write down your goals and the reasons you want to achieve them.
By reconnecting with your big-picture reasons for keeping a budget, it will be easier to follow your spending plan from day to day and stay motivated.
When it comes to managing your money, some missteps are inevitable. Nobody is perfect, and there will likely be times you overspend or fall short of your goals. But getting discouraged and throwing your budget out the window will only ensure that your budget fails.
“Do not get uninspired and ditch the idea of planning a budget,” said finance blogger Siva Mahesh. “Following [a budget] without derailing is totally out of the scenario. Remember it is always fine to splurge sometimes.”
If you’ve overspent one month, considering tightening the purse strings the next month. And remember to include a category for “fun” or “personal expenses” in your budget. Without allowing yourself at least a little money for enjoying, your budget could end up being overly stringent and impossible to follow.
If you’ve tried and failed at tracking your expenses, you might have made a common budgeting mistake: not finding the budgeting method that works for you.
When it comes to budgeting, there are lots of tried-and-true approaches. Some people follow the 50/30/20 rule, which involves spending 50% of your income on necessary expenses, 30% on discretionary expenses, and 20% on savings and debt payments.
Others practice zero-based budgeting, which means allocating every dollar of your income to a certain purpose, whether it’s your student loan payment or savings account. And still others use an envelope system, which involves relying solely on cash.
Not only are there different budgeting strategies, but there are also various ways to track your spending. For example, you might prefer to write out your expenses by hand or track everything on a spreadsheet.
Alternatively, you could outsource this work to an expense-tracking app such as Mint or YNAB. All of these approaches are valid, but you need to find the one that works best for you — and not give up until you do.
Even if you’ve found the perfect approach to budgeting, your work isn’t over. Circumstances change, and you’ll need to adjust your budget along with it.
As in the example noted earlier, the amount you spend on heating might be high in the winter months but non-existent in the summer months. And you might spend a lot more than usual around the holidays than you do the month before.
“When I started budgeting a few years ago, I did not factor in how spending changes each month,” said Chhavi Agarwal, co-founder of Mrs. Daaku Studio, a site about earning money online. “While it worked [for] a few months, my budget was a complete disaster for [the] remaining months. I was clueless about what was going wrong and also thought about giving up budgeting altogether.”
When Agarwal realized how variable her expenses were, she fixed her budget by adjusting it for each and every month.
“Do not let the budget roll over to the next month,” said Agarwal. “In the beginning of each month, sit down to work on it again, and remember to budget for the extra expenses for each month that do not occur in other months.”
By checking in with your budget at the beginning of each month, you can make sure your goals are realistic for your ever-changing circumstances.
Although you might feel like a budget is restrictive or even boring, it can actually give you more freedom. When you have no idea what’s going on with your income and expenses, it’s easy to spend more than you earn and end up stressed over money.
But if you have a plan for your money, you can feel confident that you’re making progress toward your savings goals, whether you’re aiming to save for a vacation, a home or anything else. By tracking your spending, you’ll feel more in control of your money, rather than feeling like it’s controlling you.