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10 Most Common Budgeting Mistakes

By Austin Kilham · August 16, 2022 · 7 minute read

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10 Most Common Budgeting Mistakes

Sure, a budget is an important tool to help you balance your income and your spending, keep your savings on track, and help you avoid debt. But, like many good things, it sometimes goes off the rails. A person might start a budget with the best of intentions but then find it hard to stick to it. Or they might encounter an emergency expense and have a hard time getting back in the groove.

Here, you’ll learn what the common pitfalls are and how to avoid these most common budgeting mistakes so your financial life can thrive. Among the topics covered:

•   What is budgeting?

•   What are the benefits of making and sticking to a budget?

•   What are the most common budgeting errors?

What Is Budgeting?

A budget is essentially a road map that helps you guide where your money is going each month. To set up a monthly budget, you first tally your post-tax monthly income. Then list and add up your fixed expenses, like rent, utilities, debt payments, and groceries. You may also want to include savings, whether for retirement or an emergency fund, as a necessary expense. Subtract this total from your income, and the money you have left is what you have available for discretionary spending. It could go towards things like vacations, charitable donations, and entertainment.

There are a number of budgeting strategies that you can follow. These may include:

•   Zero-sum budgeting, in which you give every bit of income a purpose each month

•   The envelope system, in which you divide a month’s cash into envelopes, each of which represents a spending category, and you only spend that amount

•   The 50/30/20 money rule, in which you allocate 50% of your take-home pay to necessities, 30% to wants, and 20% to savings and debt.

To find a budget that suits you, read up online and consider the tools available, including journals, spreadsheets, and apps.

Recommended: Budgeting for Beginners: An Easy Way to Get Started

Benefits of Creating and Sticking to a Budget

Creating and sticking to a budget helps ensure that you are able to cover the bills that need to be paid. It allows you to allocate money each month toward savings goals, such as an emergency fund, saving up for a down payment, or retirement. And it helps keep you from spending money that you don’t have and going into debt.

A budget can also help you bounce back from a financial misstep that’s caused you to fall behind on bills or savings. It gives you guardrails for your spending, that, when heeded, help boost your fiscal fitness.

Now, here are 10 of the most common budget mistakes people make. Get familiar with them and try not to fall into their traps.

1. Not Having a Budget

Some people make the budget error of…not having a budget at all. Maybe it seems too hard, too time-consuming, or too boring; you’d rather be watching a hot new streaming series or playing with your dog.

Nevertheless, if you don’t create and follow a budget, you’re missing out on major benefits:

•   You may not save enough for your future

•   You may feel stressed about reaching your long-term goals

•   You might spend beyond your means, which could land you in debt and strain on your financial resources.

Recommended: Common Financial Mistakes First-Time Parents Make

2. Not Tracking Spending

Tracking your spending can be one of the more tedious tasks required for budgeting, but it’s also an incredible, truth-revealing tool. How else would you know when you are above or below your limits? You risk blowing past your limit by overspending in some categories, meaning you’ll have less (or none) for other categories. For example, overspend on eating out, and you might have less to put toward your retirement savings. Fortunately, there are an array of expense-tracking apps (many are free) that can help simplify this process.

3. Not Having Emergency Savings

Experts recommend that you save three to six months’ worth of expenses in a dedicated emergency fund. This is money you can draw on in case of emergency medical expenses and car repairs, for instance. It also provides a cash cushion should you lose your job, giving you time to get back on your feet without going into debt.

Not having an emergency fund can torpedo your budget, requiring you to draw money from other categories to cover unexpected expenses, or requiring you to take on debt.

If you don’t have a rainy day fund yet, it may be wise to set up automatic deductions monthly. Even as little as $25 can begin building a buffer. Keep your emergency cash in a separate savings account so you aren’t tempted to touch it. And if you need to dip into the account, be sure to budget additional savings until you are able to replenish it.

4. Not Considering Cheaper Alternatives

Budgeting doesn’t necessarily mean giving things up. Sometimes it can mean looking for cheaper alternatives. For example, you could swap out a pricey gym membership for one at a more budget-friendly alternative. Instead of renewing the same car insurance you’ve always had, you could shop around online for a better deal. You might even call your credit card issuer to request a lower interest rate or try to negotiate a medical bill. All of these options can free up cash in your budget that can go toward meeting other goals.

5. Thinking That You Cannot Have Fun While on a Budget

One of the reasons people don’t budget is it can feel like a real slog and a buzzkill. They assume that in order to budget successfully, they have to give up doing things they like. However, that’s not necessarily true. While a budget ensures that your necessary expenses are taken care of first, it can also provide discretionary funds that can be used however you want, from going to see a movie to booking a weekend getaway.

You may also consider making budgeting more fun by rewarding yourself when you meet certain goals. For example, you may want to treat yourself when you pay off a credit card. Just be sure you’ve already earmarked funds to pay for your reward.

6. Saving for Too Many Things Simultaneously

Another budgeting mistake involves trying to save for too many things at once. In this situation, it’s easy to stretch yourself thin. You might start to feel like you’re spinning your wheels and are unable to follow your budget.

A solution can be to narrow your focus. To prioritize your savings, first consider wants versus needs. For example, you may want to drill down on a single need, like creating an important emergency savings fund, rather than upgrading your mobile phone (which is a want, after all). Once your need is taken care of, then you can consider allocating funds for a want. Delaying gratification a bit can be a valuable tool when successfully managing your money.

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7. Not Adjusting Varying Expenses Every Month

Some expenses, like rent and utility bills, are relatively fixed. Others, like how much you spend on groceries can vary from month to month. If you don’t compensate for that fluctuation, you may be making a budget mistake.

If you notice you are suddenly spending more each month in a certain category, be sure to adjust your budget accordingly, or look for ways to cut back on spending in that category. To protect yourself in times of high inflation, it can be especially important to monitor this. Your food, gas, and heating expenses may well run high for a while.

8. Not Taking Into Account One-Time Expenses

One-time expenses can be real budget busters if you don’t plan for them ahead of time. Estimate the cost of the expense, and spread out your savings over a couple of months.

For example, if you plan to attend a wedding that will cost $800, you could start saving $200 a month four months in advance so you don’t end up footing the bill all at once. Or let’s say you know you’ll be needing a set of new tires soon (currently averaging about $764 installed); start stashing away cash in advance so you don’t get hit with a major bill that sends your budget spiraling. Another category many budgeters overlook is gifts; birthday and holiday presents aren’t free, so remember to set aside funds to afford them without a hiccup.

9. Having an Unrealistic Budget

It’s easy to be optimistic and have the best intentions when you create your budget, but make sure it’s something you can realistically stick to. Otherwise, you may have a budget mistake on your hands.

You may be overly optimistic, for instance, if you allocate 20% of your take-home pay towards retirement savings. If you oversave in one area, like retirement savings, it can mean that you’ll incur credit card debt that’s hard to pay off to buy groceries. Be honest with yourself about how much you spend and how much you can save.

10. Having the Wrong Budget Method for You

There is no one-size-fits all budgeting strategy. As we mentioned above, there are a number of strategies you can use to help you build and stick to your budget. The best one is the one that works for you. Just because a budget strategy sounds good when you first learn about it or your best friend swears by it doesn’t mean it will work for you. It’s a budgeting error to cling to a system that isn’t working. If the technique you are using isn’t working, acknowledge that, and try something else.

The Takeaway

Now you know what is a common mistake made in budgeting; ten of them, in fact. By avoiding these pitfalls, you give yourself a better chance of sticking to your budget and meeting your financial goals. What’s more, you’re far less likely to be derailed by debt, whose interest payments can eat into your ability to save and manage your money.

Setting up the right bank accounts can also benefit your budget. Open a bank account online with SoFi and set up direct deposit, and you’ll be rewarded twice. Your money will earn a tremendous 2.00% APY, and you won’t pay any account fees. That’s a win-win that could help your money grow faster.

Bank smarter with SoFi.

FAQ

What are some pitfalls of budgeting?

Budgeting pitfalls that can derail your financial goals include failing to have a budget, not tracking your expenses, forgetting to account for varying monthly expenses, and not building up an emergency fund.

What is improper budgeting?

Improper budgeting can occur if your budget is incomplete, if it’s overly ambitious (not recognizing how much you actually spend), or if you don’t update it with new sources of income or expenses.

Why do people fail in budgeting?

Your budget may fail for a variety of reasons, such as trying to achieve too ambitious or too many goals at once; not tracking your expenses; and sticking with a budgeting strategy that doesn’t fit your needs. If the latter is the case, try multiple strategies to find the one that suits you best.


Photo credit: iStock/Prostock-Studio

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