Budget mistakes happen. But, in order to succeed with your money, you need to know which budget mistakes to avoid.
Budgeting your money doesn’t require a magic skill, it just requires the right method and some commitment.
When we first started using a budget in 2011, I thought that budgeting my money meant that I needed to restrict myself. Who gets excited about having more restriction?
I was of the mindset that I didn’t need to budget if I made enough money. Budgeting was for people who did make enough money or were having financial trouble, right?
It’s actually the exact opposite. Budgeting is for everyone, especially those who want to avoid financial trouble.
In our early stages of budgeting, I remember realizing how freeing it felt. I actually knew where my money was going and I had full control over how I spent it.
Aside from bills, I was able to optimize my grocery budget, I was able to start tackling my debt, and I could finally foresee a family vacation in the near future.
It was really cool how my mindset transformed because of my budget. I was shocked to know that I had been missing out all those years, living paycheck to paycheck.
But, there were pitfalls I had with my budget. Thinks I hope to help you avoid so that you can have success with your budget much sooner and start managing your money better.
Budget Mistake #1- Setting up an Ideal Budget
It’s about being realistic, not idealistic.
The first mistake I made was idealizing my budget.
We should put X amount into savings. We should not spend on any entertainment or eating fast food. And list goes on.
That mindset felt restricting and felt like I was doing a crash diet. That’s not the way to budget.
Your budget needs to cater to your lifestyle. It should reflect the things you enjoy and also account for every single thing you spend money on.
If you like fast food, add a category in your budget for it and make sure to stick to the amount you put there.
Budgeting is not about deprivation, it’s about allocation!
If you want to create a realistic budget but don’t know where to start,
If you want to create a realistic budget but don’t know where to start, join the Budget Workshop that walks you step by step through the process.
that walks you step by step through the process.
Budget Mistake #2- Not Adding Up Total Income
Make sure that you include side income and any other income that comes in, even rebates!
I never used to add those in, but I was spending them, so my budget wouldn’t balance and I would be so confused.
Eliminate the confusion and account for all your income that month and make sure you add your net income, which is the take-home pay you get after taxes and deductions.
This is the first step to budgeting.
If your income or paycheck is variable, then you may want to budget per paycheck, to manage your spending easier. Select the bills you’ll pay during that time and divide your other expenses accordingly.
Budget Mistake #3- Forgetting about the little expenses
In fact, savings should be the very first line item on your budget.
After all, you work really hard for your money, you deserve to keep as much of it as possible.
Every single month, you should pay yourself first, before any other bills.
This should be called an “Emergency Fund” and should be used as a cushion when emergencies come in your life.
Because we all know emergencies are inevitable.
Budget Mistake #5- Not having a Zero-Based Budget
What’s a zero-based budget?
It’s essentially when your income minus expenses total to zero.This means, you are allocating (or assigning) every single dollar of your money to a specific purpose.It’s the most effective way to budget and manage your money completely.A zero-based budget leaves nothing to chance or circumstances. Instead, you have the power to tell your money where to go.
All of it.
If your expenses include all of the essentials and add up to less than your income, then you can add the remaining amount to savings, emergency, or investment/retirement, or vacations.
If your spending is more than your income, then you need to make some hard decisions.
Decide on which non-essential items can be reduced.
When I added my expenses the first time, I realized that I could probably reduce my grocery and entertainment budgets.
A zero-based budget helps you spend within your means.
Budget Mistake #6- Being Too Rigid
Your first draft budget will not be your final working budget. It is merely your first go at this whole budgeting world.
I noticed in the first few months of budgeting that my budgeting lines needed to be tweaked based on my real-life spending.
In some cases, it was my spending that needed to be adjusted.
But, in other cases, it was the budget amount that was unrealistic.
For example, at one point, I gave myself $250 in groceries for the month for our family of four. Sure, my kids were under six, but they still ate, haha.
Living in a high cost of living area like Los Angeles, food is expensive, so my budget should have accounted for that.
Instead, I thought I had to work harder to meet that budget goal, it was frustrating and I felt like a failure when I couldn’t meet those expectations.
Then, I realized, it wasn’t me who was failing, it was my budget and I needed to tweak and adjust to make it fit my real life. I was being too rigid and strict and not giving my budget room to evolve and change with my season of life.
It’s important to recognize where your budget needs to adjust. This doesn’t mean to just increase whenever you want or when you feel like spending more in a category.
But, your budget should be a living, breathing document. Something that evolves and changes over time to suit your needs based on your lifestyle right now.
Adjust so you don’t end up feeling so restricted that you quit your budget altogether.
Budget Mistake #7- Not Holding Yourself Accountable
It’s hard when you have good intentions of making your budget work, but unexpected expenses unravel all of your effort.
To combat this, plan ahead for the month and think about birthdays, events, holidays, and such, and include them in that month’s budget plan.
But, there are times when we don’t hold ourselves accountable for not sticking to the plan.
If you’re not being honest with yourself about your spending triggers and habits, it will be hard to change for the better.
Monitor your spending and make sure it aligns with your goals.
You are the driving power between succeeding or failing. Making the necessary changes in your spending will ultimately get you closer to your financial goals.