5 Common Budgeting Mistakes and How To Avoid Them
This post is all about common budgeting mistakes.
Did you go through all the effort of setting up a budget, but always seem to run into roadblocks? Whether you’re going over budget, or not meeting your savings targets, it can be very frustrating to feel like you’re failing at your budget. I’ve definitely been there before. Set yourself up for success by learning all the common budgeting mistakes, so you can plan to avoid them.
This post is all about common budgeting mistakes!
Common Budgeting Mistakes
In my recent post on How to Make a Monthly Budget, I outlined a step-by-step guide for budgeting. That post was meant to help you get started with budgeting. In this blog post, I’ll go one step further and discuss common mistakes to avoid. You’ll learn what are some common pitfalls of budgeting and how they can be avoided. Learn from my mistakes to help you stay on track with your budget!
1. Your budget doesn’t account for “unusual” expenses
A common mistake in budgeting is forgetting about infrequent or unusual expenses. These costs can really add up and totally throw you off your budget goals. This has definitely happened to me before – I’ve been totally on track with my budget for months and then had a huge cost that I didn’t account for, which puts me over my budget.
For example, if you celebrate Christmas, this can be a huge expense (costs of travel, gifts, eating out, etc. can easily add up to hundreds). It’s an unusual expense, since it only happens once per year, not monthly, but is totally predictable…it happens every year! So, think about what costs come up annually, or bi-annually, and account for these in your budget.
The key here: the more you plan for, the less surprises you’ll have (and therefore the more likely you are to stay on track with your budget)!
2. You budget for spending before saving
Another common mistake is budgeting for all the different areas you’ll spend money, and considering savings an afterthought. Many people don’t plan for savings at all, they just dump whatever money is leftover (if there is any) after they’re done spending.
If that sounds familiar to you, it’s time to switch your mindset. It’s really important that you set away your savings first, before you start spending in other categories. A lot of financial gurus call this “paying yourself first”. Basically, it prevents you from accidentally over-spending and not having enough money leftover for savings.
When it comes to dividing up my paycheque, I consider my top 3 priorities in this order: savings (ex. emergency fund), spending on essentials (ex. rent, groceries), spending on discretionary (ex. entertainment, clothes). So, I am only spending what I have leftover after I’ve met my savings goals, and have all my necessities covered. The amount I have for discretionary spending in my budget is determined after I’ve removed the money needed for savings & essentials, not the other way around!
3. Your budget is too restrictive
In my opinion, if you cut out everything from your budget that brings you joy, you’re likely to be unmotivated to stick to your budget. Being careful about where you spend your money is one thing, but being over-restrictive isn’t helpful.
To introduce some balance into your budget, I highly recommend incorporating “conscious spending”. When I first heard about the concept of “conscious spending”, it went against logic to me. I thought, how could it possibly be OK to spend $5 on a latte every day…it’s a total waste of money!! But, after learning more about conscious spending, my mindset shifted.
If buying a latte is the most joyful part of your day, then according to conscious spending, you should make room for it in your budget by cutting from somewhere else where your spending doesn’t fulfill you. That doesn’t mean you add extra costs that you can’t afford, but instead you spend mindfully on things you absolutely love and don’t feel guilty about these purchases.
4. You don’t update your budget
There are tons of different factors that can impact your budget. I recently experienced a few major changes including moving, and starting a new job. Both these experiences resulted in changes to my budget in terms of rent, income, etc. When your circumstances change, you need to update your budget to reflect your new situation!
Avoid this budgeting mistake by setting up regular budget reviews! Whether it’s monthly, quarterly, or bi-annually, building in regular reviews will help ensure your budget stays relevant. During a budget review, you may find small tweaks such as upping your savings slightly, or decreasing spending in one category.
5. Your budget is not realistic
Another common pitfall for budgeting is setting unrealistic goals. If you set an overly ambitious goal and don’t achieve that goal for a few months in a row, it’s easy to get discouraged and throw the whole budget out the window. It’s good to challenge yourself, but don’t set expectations that you’ll never reach.
For example, if you are spending $100/month on clothes and want to cut back, don’t drastically reduce your budget to $10 the next month. Try reducing it to $75, and if that’s manageable, slowly bring the budget down even lower. Setting smaller, incremental goals will keep you motivated as you achieve them!
This post was all about common budgeting mistakes.
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