Experienced a pay cut? Here’s what to do next:
- Discuss a plan with family members
- Adjust your budget or create a new one
- Trim non-essential expenses
If you’ve blown your budget before, you might end up thinking that budgeting just isn’t for you. There are common budgeting mistakes that could impact your financial progress, sure. But many have simpler fixes than you think.
Before jumping ship at the first sign of difficulty, know that creating a budget—and sticking to it—is a skill. And all skills take time and effort to master.
What are some common budgeting mistakes? To get on the right track, review these common budgeting pitfalls and budgeting hacks:
If you’re considering budgeting mistakes to avoid, know that you’re less likely to stick to a budget if you don’t have clearly defined financial goals. You’re more likely to commit to your budget and be disciplined in your spending if you’re working toward a specific milestone.
“I initially created a budget because everyone said it was the responsible thing to do,” says Chonce Maddox, the personal finance writer behind My Debt Epiphany, a blog that focuses on eliminating debt and budgeting. “After a while, I started to resent my budget because it felt like it was keeping me from doing the things I wanted to do.”
Her “aha” moment came when she realized she actually did have motivation to start budgeting: She wanted to get out of debt. “At this point, I realized I wanted to budget, and it helped me be consistent with planning my spending,” Maddox says. She ended up using a budget to pay off more than $30,000 in student loans in less than three years.
Elle Martinez, the founder of the relationship-focused website and podcast Couple Money, had a different money motivation with her significant other: to live off one income and save for big financial milestones with the other. Any essential expenses (think housing and food) would be covered by their first income, while the second would go toward traveling, paying off debt and starting a business. “This goal has been a huge factor in staying consistent with our budgeting routine,” Martinez says.
Do you want to pay off those student loans once and for all? Save for a down payment for your dream home? Travel around the world? To avoid this common budgeting mistake, write down the goals that make you tick and how much you’ll need to save to accomplish them. When you’re tempted to stray from your budget, review your goals for the motivation to stay on course.
One of the biggest budgeting mistakes to avoid is being unrealistic about your spending. Under-budgeting in some or all of your spending categories may leave you with less money than you need to allocate toward your needs. If you chronically under-budget and then spend more than you intend, you could get discouraged with budgeting altogether.
Maddox admits that she encountered this budgeting pitfall and failed to be realistic when she started to budget. “I was comparing myself to others and creating a ‘realistic’ budget based off of their lives,” she says. “That fell through quickly because I wasn’t being honest with myself about my situation, my spending habits and my own goals.”
If this budgeting pitfall is holding you back, consider using a budgeting and spending app to help you aggregate your spending across bank accounts and credit cards. You can connect your financial accounts to a budgeting app and get regular reports of your spending in different categories. You can then begin to adjust your budget and cut back in categories as it realistically makes sense for your lifestyle.
Maddox’s process of cutting back was simple after she began tracking her spending. “I realized that I couldn’t spend so much on things like going out to eat, so I learned to cut back by cooking at home,” she says. “I do like dining out at times, but I had to keep it to a minimum.”
“I was comparing myself to others and creating a ‘realistic’ budget based off of their lives. That fell through quickly because I wasn’t being honest with myself about my situation, my spending habits and my own goals.”
Leaving things out of your budget is another budgeting mistake to avoid. Let’s say you have a family reunion coming up. In the past, maybe you relied on “winging it” when it came to paying for one-off costs like transportation and accommodations. But without incorporating these costs into your spending plan, you risk having to dip into other budget categories (goodbye, streaming services) or falling short on other goals.
Since your spending habits will likely change based on different life circumstances, you’ll need to regularly review and adjust your plan to avoid this budgeting pitfall.
Martinez, the founder of Couple Money, has a specific way of handling budget revisions with her husband to avoid this common budgeting mistake. “We have ‘money dates’ where we discuss our spending plan and any changes we might need to make to it,” she says. “Most couples forget that yes, we do have steady expenses, but we also have things that come up—trips, weddings, school, etc.”
Rather than omitting special events or irregular occurrences in their budget, Martinez and her husband make sure to capture every possible expense related to these spending “anomalies” when they have their budget reviews. “Once we do that, we can make adjustments in other categories or in other months to make sure the money is there and ready to go when we need it,” she says.
To avoid this budgeting pitfall, take time to figure out any future expenses that don’t fall into your regular spending patterns, and decide how much you need to save for them ahead of time. It can take time and practice to anticipate every expense imaginable, but it will be worth it to keep your budget as accurate as possible. You can also start an emergency fund to help cover unexpected expenses.
While it’s helpful to have an accurate budget, having one that is too restricting is actually a budgeting mistake to avoid. It’s possible that your willpower will wane as you try to cut things out. There’s even such a thing as “frugal fatigue.” Just like you can’t diet restrictively or engage in other extreme activities forever, you can’t expect to stick to a hyper-strict budget long term without burning out. Long periods of restriction can be both demotivating and tiring.
After a while, people tend to bend under the pressure of trying to meet perfection. If you remain extremely strict with your spending, you could go on a spending binge under the pressure.
“Most couples forget that yes, we do have steady expenses, but we also have things that come up—trips, weddings, school, etc.”
To combat frugal fatigue and this common budgeting mistake, be sure to celebrate what you’ve accomplished. Of course, you don’t want to indulge in anything so extreme that it sets you back financially, but you should make room in your budget to recognize financial progress and reward yourself accordingly. It could be something as simple as buying your favorite ice cream after reaching a saving milestone.
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