Budgeting mistakes. Seemingly, the only thing worse than actually budgeting is making mistakes when budgeting. Seriously though. It takes courage, self discipline, and humility to put together a budget. So if you make it that far, I just want to tell you that I am proud of you. For real. When you first put together a budget it is difficult. It was for me at least. I had no idea what I was doing, no idea how to do it, and no idea if I did it right (that is also the story of high school Doug). It was really frustrating.
I made SO many mistakes when I first started budgeting that it is really actually kind of embarrassing. And I’m positive that if you have ever put together a budget in your life, it was a similar experience.
But alas, I’m here to tell you that it gets easier. Budgeting is not very fun but it is a necessary part of the adulting process. And because it is a necessary part of the adulting process, you will get better at it, just as I did.
In order to help you avoid some of the mistakes that I have made when budgeting (especially when I first started), I have come up with a list of mistakes that you will probably make but should try to avoid. Additionally, for each budgeting mistake there are also ways to help you avoid that mistake in the future.
You can do this!
Budgeting Mistake #1: Being too rigid
In my several years experience of helping people with their finances, this has been the number one budgeting mistake that I have seen people who are focused on getting out of debt as quickly as possible make.
If you are anything like me, when you get a new idea you are focused on that idea almost to an obsessionary level. When new budgeters have come to the point of bubbled over frustration of their debt, they often start looking for ways to pay that debt off sooner. Often, they start to budget.
Here is the deal. If you are putting together a budget every month and living on it as well, you will NEVER have a perfect month. Sometimes you will overspend on groceries, sometimes you will underspend on gas. It happens. Don’t try to guess your expenses down to the cent. It will never happen.
Allow yourself some (but not too much) wiggle room. For example, if you underspend on groceries by $25 one month and overspend on gas by $25 the same month, it’s okay! Just take the extra grocery money and move it over to gas money.
I have been budgeting for years. I have NEVER had a perfect budget. You cannot be too rigid on your budget. Cut yourself some slack and show yourself some grace.
Budgeting Fix #1
If you overspend in one area and underspend in another just move the money around as needed. Don’t beat yourself up over this. It happens to EVERYONE. And it happens nearly every month as well.
If you find that you are consistently over budget in one category and/or under in another, then consider adding money to that one category or subtracting from the other.
The issue is that if you are too rigid with your budget you will get frustrated and be less likely to do it. So show yourself some grace and avoid the budgeting mistake of being too rigid.
Budgeting Mistake #2: Overestimating your income
This budgeting mistake is not a problem for most people who are employees and on a consistent hourly wage or salary. This budgeting mistake is more for those of us who are (1) self employed, (2) commission earners, or (3) rely heavily on a bonus structure for our income.
If you are an hourly worker or on a straight salary, you have a really good idea of what your paycheck will look like. It might vary somewhat, but not too much.
But if you are self employed, live on commission, or rely on bonuses, your paychecks can vary drastically. For example, a real estate agent can make $0 in a month but make $20,000 the next month. It happens all the time. Often people working in finance, investment banking, wealth management, etc. rely heavily on their quarterly and yearly bonuses to make up 50%+ of their total pay.
A budgeting mistake that I have seen (and done myself) is overestimating income. This is difficult at times because in so many careers, one’s income can vary wildly from month to month.
Budgeting Fix #2
There are two fixes to this budgeting mistake.
- Be realistic about your income. Don’t count on getting the best bonus in the entire company month after month. You might be one of the top performers, but you should have a good idea on how well you actually performed during the last month/quarter/year. Don’t give yourself credit for earning a huge bonus when you actually only earned a small one.
- Base your income off of the money that you made LAST month. This one has been a game changer for us. All the money that we make in a given month is not spent on bills, luxuries, investing, or adventures until the following month. It took a little while to get to the point of being a month ahead on bills, but since we have it has taken a lot of stress away. To find out more about this process click here.
Budgeting Mistake #3: Underestimating your Expenses
If I could only stress one of these budgeting mistakes, it would be this one. This is the largest budgeting mistake that there is. And I am one of the biggest culprits of it.
When first starting to put together a budget, most people completely miss the mark here. I know I did (and still often do). There are a few main areas that people usually overspend.
- Groceries: Consumers generally OVERspend by more than $7,400/year on groceries! With that, you could book a 10 day European vacation or pay for a 2013 Kia Soul!
- Eating out/drinking: The average American spends about $3,000/year eating out and on drinks. You certainly don’t have to stop eating out (I won’t be). But when you go out, try to not order drinks or skip the dessert to cut back on the amount you will spend.
- Housing: This one can be tricky depending on where you live. But most financial experts say that you should not pay more than 30% of your income on housing costs. This includes your mortgage/rent, upkeep, taxes, insurance, and utilities. If you have rooms that you never go into in your house, you should consider moving down in house. If you are empty nesters, there is probably not much of a financial reason for you to live in the house that you raised your kids in. Don’t try to squeeze you, your spouse, and your six kids into a two bedroom apartment either. Be smart about this.
- Social events/fun stuff: Yes, you should go out and have fun. But yes you should budget for it. You don’t have to go out every weekend. But please don’t skip a big event like a graduation or a wedding because you didn’t have a plan to pay for it. (Within reason of course.)
Budgeting Fix #3
Go to your online banking and look at how much you spend on each category in your budget last month. Use that as a jumping off point. You can trim down where needed, but understand that when you are realistic with your expenses, you can more correctly budget. Will you be wrong or off sometimes? Oh yeah. It happens to the best of us. Just learn from it and move on. Like I’ve said several times now. We all make budgeting mistakes. We just have to learn how to deal with them and try to not let them happen again.
The other budgeting fix that you can have is to set a calendar reminder on your phone when you have a large and/or irregular expense come up. An example of these could be for your car insurance if you pay it quarterly instead of monthly. And another example could be your vehicle registration fees and taxes that are probably only due annually or biannually.
Budgeting Mistake #4: Not sticking with it for long enough
I have struggled with my weight throughout most of my adult life. When I first started losing weight when I was about 20 or 21, I had a really hard time. I would go to the gym, but then I would eat an entire pizza and go out drinking with my friends. My weight would (and still does btw) fluctuate a lot. I would lose 15 pounds, and then gain 20. Then I would lose 20 and gain 10. But over time I lost the weight. It just took a few months to figure things out before the weight loss was more consistent.
Budgeting is no different. Your first budget will straight up suck. Just like the first time someone goes into the gym to lift weights and have no idea what they are doing, your budgeting journey will be the same.
But that’s okay! In my experience with working with people and their money, I have seen it take an average of three months for a person/couple to get the budgeting process down.
The problem is, most people want instant gratification. Most people want to put together one budget and then all of their financial problems are solved. It’s just not that fast. It takes time.
Budgeting Fix #4
Give it time. Your first budget will not be very good at all. After that first month, you will have more success. And by the third month, you will have it pretty well down pat. You will make mistakes every month after that. But they won’t be too bad of mistakes for the most part.
Just like anything else of value, budgeting takes work.
Budgeting Mistake #5: Being too hard on yourself when you don’t get it right
This one is the most important.
I have seen it time and time again. I have also been too hard on myself time and time again.
You WILL make mistakes. I promise it. I teach this stuff to all of you, have a degree in it, and have done it for years and I still make mistakes.
The key is to get up, dust yourself off and move on. Don’t beat yourself up when you overspend on a weekend out with your friends or you have an impulse buy of a 75” TV. Those things sometimes happen.
Budgeting Fix #5
If and when you make budgeting mistakes, just love yourself. Don’t get too hung up on the mistake.
Just give yourself permission to make mistakes. Michael Jordan missed more than 50% of his shots, Apple nearly went bankrupt, and Abraham Lincoln lost eight different elections before becoming the 16th president of the US.
Show yourself some grace when you fail. You will be better for it. Until next time!
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