The 7 Most Common Budgeting Mistakes & How to Fix Them

Having a budget should give you peace of mind and help you reach your financial goals. But unfortunately, common budgeting mistakes can easily leave us feeling too restricted and uninspired. You might be wondering — what is a common mistake made in budgeting? Having any budget at all is better than having none, right?

The truth is that some common budgeting mistakes can actually make financial goals harder to reach. But don’t feel discouraged. Whether you’re starting from scratch or revising your plan, you can create a budget that feels empowering — not constraining. Here are seven budgeting mistakes to know, and simple ways to avoid them.

The 7 Biggest Budgeting Mistakes You’re Making & How to Fix Each

1. Not having a clear financial goal

Setting a budget (and sticking to it) is nearly impossible if you don’t know what you’re working towards. Whether you’re trying to pay off debt or saving for a down payment on a house, having a “why” behind the work will give you the extra motivation needed to plan your spending and then commit to it.

Solution:

Start by choosing your priorities and get specific about your goals. If your goal is to pay off your credit card debt, plan how you want to achieve that goal. Will putting an extra $100 per month toward paying off your credit card help you erase the balance within six months? Or do you want to wait for your annual tax refund or work bonus and put all of that money toward your debt? Once you’ve set a goal and a timeline, you’ll have a better idea of what you need to do to achieve it.

2. Playing the guessing game

To create an accurate budget, you need to lay a good foundation. That means replacing guesstimates with facts. Tally up your true living expenses, including monthly costs you pay on a regular basis as well as irregular expenses that pop up now and then. The budgeting process isn’t always fun, but when it comes to planning out your financial future, putting together a realistic budget is the best budgeting tip.

Solution:

Think about the bills that you pay every month. This includes your rent or mortgage payment, utilities, cell phone bill and debt payments such as student loan payments. To ensure you include everything, look at your checking, debit and credit card account statements and list the recurring payments you’ve made over the past few months. Then you can set up spending categories to understand your spending habits and how much money you should allocate for each category per month.

3. Not revisiting your budget

A budget isn’t written in stone. It’s dynamic, ever-changing, and meant to be revised as needed. For example, perhaps your rent rises or gas prices climb. Maybe your budget changes with the seasons. During the holidays you might expect to spend more on gifts and get-togethers with friends and family. During the summer, you might plan to splurge on a vacation. During spring and fall, perhaps you put away a little extra money into your savings account for those holidays and vacations.

Solution:

Every budget process will involve some trial and error, and some adjusting and modifying.  Do a budget checkup when you spot changes happening, so you can make the necessary fixes. As your financial priorities and circumstances change, your budget can, too.

4. Forgetting an Emergency Fund

Not to be confused with your normal savings, an emergency fund accounts for just that: emergencies. Not planning for the “what ifs” is one of the biggest budgeting mistakes because it can derail even the best-laid plans. A good budget should make you feel secure in your finances no matter what life throws at you.

Solution:

Create a separate emergency fund that’s apart from your regular savings. Earmark it for unexpected expenses such as car repairs and purchasing a new appliance if your old one stops working. Then, add this safety net as a spending category in your budget and allocate money to it just as you would with any other category.

5. Making your budget too strict

One of the most common budgeting mistakes is being too strict with yourself. It might seem counterintuitive because the whole reason to set a budget is to take control of your finances. However, tight budgets that leave no wiggle room for flexibility can backfire. Just like a restrictive diet can lead to overeating, a rigid budget can break under pressure.

Solution:

Give your budget some breathing room to treat yourself and make adjustments along the way. Include the little things that matter to you, whether it’s pizza on a Friday night, happy hour with friends, a trip to the movie theater or getting a massage. Use a “fun” or “miscellaneous” spending category to make room for personal flexibility.

 6. Using the wrong budgeting tools

The best budgeting apps and free budgeting templates can make managing your money easier, but you have to find the one that works best for you. Before you choose, know that different methods, apps or software can track budgets differently — and just because one has thousands of five-star reviews doesn’t mean it’s the right one for you.

Solution:

Experiment before deciding on a budgeting tool. Think about what’s important to you and weigh the benefits of free tools versus those that come with a cost.  Do you want something simple and feel comfortable enough to set your categories and track your expenses on your own? If so, a spreadsheet may work for you.  But if you want a tool that can connect to your bank accounts and alert you when you exceed the budget, you might find a money-management app more helpful.

7. Not budgeting at all

Financial planning can feel daunting, especially if you’re worried you’ll make budgeting mistakes, but it’s well worth the effort. The alternative —not planning or tracking your spending, not saving, and not setting goals, might feel acceptable at the moment but ultimately can lead to money stress and failure.

Solution:

Remember that budgeting takes practice, and you don’t have to get it perfect the first time. There’s no one-size-fits-all method of budgeting. The trick is to dodge the common budgeting mistakes that may prevent you from crafting a workable plan that helps you make sense of your spending and save for goals that are important to you.

And though it does take discipline and planning, the reward for avoiding common budgeting mistakes is a more financially secure present and future.