Introduction: Is Your Budget Leaking Money?
If you couldn’t tell from Budgeting 101, I strongly believe the key to building wealth starts with a budget. Unless you’re making more money than you know what to do with, you need a plan to get ahead. You then must execute that plan and continually review it. This plan is your budget. Once it is created though you are likely to find yourself making some key budgeting mistakes.
So once you have your budget, you’re on the right track but you work is not done.
Even the most thought out budgets can go sideways due to small, often unnoticed errors. These budgeting mistakes can quietly get you off track, drain your bank account and derail your financial goals.
In this post, I will discuss 10 of the most common budgeting mistakes and discuss how to fix them.
In no particular order, here we go:
1.FailingTo Include Irregular or Annual Expenses
If you are working with budgets for the first time, it is easy to remember the obvious items like rent, car payments, food. But to be successful, you really want to try and account for everything. You pay some expenses once a year but you need to be setting that money aside throughout the year. Good examples are car registration and car insurance. If you own a home and don’t include property tax/insurance in your mortgage payment, you must set money aside for these significant expenses. My budget even includes categories for gifts because they add up over the year.
2.Not Tracking Your Budget
A budget is useless if you do not track your progress against it. You can use apps to track your expenses or you can go old school (sort of) like me. I use an Excel spreadsheet for my check register. It has 30 columns that track every budget item. I allocate my income to budget categories when I get paid, and I subtract each expense from the total as I spend. If any column goes negative, I have a spending problem!
3.Using Gross Income For Budgeting Purposes
If you are following #2 above, you will quickly learn the error of your ways if you allocated your gross income to expenses and savings. A $60,000 income does not put $5,000 into your checking account. Taxes, insurance and, retirement contributions (hopefully) reduce your spendable income. This is an easy fix. Just utilize your take home pay to allocate your budget.
4.Forgetting Smaller Expenses That Add Up
Sometimes you may have smaller cost items that you spend money on quite frequently. If you go to Starbucks once a month you might be okay without budgeting for this expense but if you are going 3 times per week, your monthly total is worth an appearance on your budget.
In the early days of iTunes, prior to Apple Music and Spotify, I fell prey to this bad habit. I would buy a song for $1 and think nothing of it. That is until my wife pointed out I was spending over $100 per month in total. It was so easy to make that transaction that I didn’t even think about it.
The fix for this is truly to review all your expenses each and every month. If you do, you will catch some bad habits and can make corrections. While you can certainly add these mistakes to your budget, you also should alter your actions if these mistakes are getting in the way of paying down debt and building savings.
5. Not factoring in Credit Card Debt
These days most people use credit cards for their expenses. If you are getting to the end of the month and your credit card debt is increasing, you are missing the point of the budget. A budget is designed to live within your means and start to save. Saving doesn’t mean a thing if your credit card debt is on the rise at the same time. If you enter this budgeting process with credit card debt, one of your budget items should be an amount you set aside to pay off that debt. Once you have paid off your credit cards, the goal is to pay off the balance every month.
At the end of each month, you have to break down the credit card activity and apply that activity within your budget. As I mentioned, I have a crazy detailed check register that tracks all of this. When I enter my credit card payment, I spread that amount over all of the items that I budget for.
6. Not Building Fun Into Your Budget
While the budgeting process will force you to think about your spending habits, you absolutely must allocate some money towards fun and entertainment. My budget item for this is called ‘Entertainment’ and I allocate movies, concerts and things like dining out. It is up to you what to call this category and what to include in it but life is short and the budgeting process isn’t designed to cut all fun out of your life. Perhaps ‘entertainment’ looks a little different after you build a budget but it isn’t realistic to cut out all forms of enjoyment.
7. Not Adjusting Your Budget Over Time
Let’s begin with what this topic does NOT mean. You are not to adjust the budget because you continually overspend in a category. In this instance, the budget should teach you to adjust your habits.
Life changes though and your budget needs to change with you. Perhaps you joined a new gym, or take up golf or upgrade your car. As you add or subtract things to your life, account for those changes in your budget.
8. Allocating Your Entire Raise to More Expenses
Over time, your earnings should increase. As you begin to bring in more money, you need to make sure some of that increase is going towards building your wealth. Sure you can increase some of your variable expense budget items like Entertainment but as you earn more, you should be able to set more aside.
Similar to this, if you receive an annual bonus, put it to work to build your wealth. Set it aside for a downpayment if you are looking to get into a home or put it to work in the stock market if you are comfortable in that space.
9. Failing To Have An Emergency Fund
I discuss the need for an Emergency Fund in great detail here. When beginning the budgeting process, if you do not have funds set aside for emergencies, build this into your plan. The money is still yours and technically it is saving but it is money you should not touch. It is there for unexpected situations and will allow you to cover your necessary expenses for 3-6 months.
Once you have built your emergency fund, allocate that money to savings or investments of your choice.
10. Not Including Your Partner In The Budgeting and Review Process
If you’re married or have a significant other you are building a life with, you must budget that life together. I know there are mixed opinions from folks about consolidating finances. I am married and every account ‘I’ have……..’We’ have. Even if you’re not of that opinion, it doesn’t make sense to build a household budget without including the household!! You should not only do this when building a budget but when reviewing the budget. Remember my wife correcting me about my iTunes spend!!
Final Thoughts: Fixing Your Budget Is Easier Than You Think
The best budget isn’t perfect—it’s flexible, realistic, and honest. By avoiding these common budgeting mistakes, you can build a plan that works for your lifestyle, not against it.
Remember: budgeting isn’t about restriction—it’s about freedom and control over your money.
