4 Budgeting Mistakes You're Probably Making

Kay T.
Photo by StellrWeb on Unsplash

I’ve been budgeting for over two years now, and it’s given me the ability to pay off nearly $20k in debt while managing to save an additional $50k. I don’t make a ton of money and I live in the wildly expensive San Francisco Bay Area. Budgeting has not only given me better financial status, but it has also afforded me invaluable peace of mind and confidence in my ability to control my future.

However, I’ve been far from perfect in my budgeting journey and plenty of mistakes have been made along the way. Once I identified and corrected the errors and oversights that I was making in my monthly budget, I’ve been able to nearly double my monthly savings and avoid falling back into debt. Here are four major budgeting mistakes that are likely holding you back from reaching your financial goals.

Forgetting to track your expenses

If you have never budgeted before and have no idea where to begin, start by tracking all of your expenses over the course a month. This will give you an idea of how much you spend and may open your eyes to areas of overspending that you weren’t aware of.

I’d be lying if I said that tracking every single expense isn’t tedious; it definitely requires discipline. But one of the biggest mistakes that people make when they try to stick to a budget is neglecting to track their spending along the way. It isn’t enough to set a budget at the beginning of the month and evaluate your spending at the end. You need to be mindful of your spending as the month goes along.

I prefer to track my expenses on a daily basis, but a weekly check-in will also serve you well. I’ve done pen and paper budgeting in the past, but for the last year, I’ve been using the free version of Dave Ramsey’s Every Dollar budgeting app. And while it is definitely monotonous, it is the most important part of budgeting.

Regularly tracking your expenses will help you identify categories where you are at risk of overspending, such as entertainment, and areas that you may need a little more cash, such as groceries. Remember, your budget is fluid and may require mid-month adjustments to help you stay on track.

Rolling over your budget to the next month

Once you’ve created your first monthly budget, you might think you’ve come up with the blueprint to follow each month. But copying last month’s budget for the upcoming month is only preparing yourself to be unprepared.

While some expenses, such as housing costs may be recurring, not all expenses are consistent. And if you don’t treat each month as a brand new, unique month of spending you’re bound to overlook upcoming expenses.

I have a ‘month specific’ category in my monthly budget template and I use my calendar to help me set my budget each month. For example, in this month’s ‘month specific’ category I have budgeted for Father’s Day, a dentist appointment, and my anniversary. Had I not looked at my June calendar while planning out my budget I would have overlooked at least one of these expenses and risked overspending for the month.

Not creating sinking funds

It’s not enough to mindlessly save money; you want to be sure that you have a plan for the money that you are setting aside and are prepared for unexpected expenses that may arise.

I’m sure many people are familiar with emergency funds — most financial gurus advise that you start by saving $1,000 and build your emergency savings up to 3–6 months' worth of living expenses. This will act as a cushion in the event you find yourself in a position where you suddenly lost your income.

But what people often overlook is the importance of creating sinking funds, which are strategic savings accounts that you contribute to on a monthly basis in order to prepare for an upcoming expense.

An example of a sinking fund that I have is Christmas gifts. I try to stick to a budget of $500 for all of my Christmas gifts, and rather than trying to find $500 in my December month’s budget, I set a little bit of money aside throughout the entire year so that I have an extra $500 to spend in the month of December. Given that there are 12 months in a calendar year, I put aside about $45 every month starting in January to ensure I reach that $500 mark in December.

Sinking funds ensure you can balance out your budget not just on a monthly basis, but for the year. You can rest assured that a large expense, like car registration fees, won’t blow your monthly budget out of the water. It also protects you from having to dip into your emergency fund. To determine which sinking funds you need, start by looking at your anticipated, one-time expenses for the next 12 months. When you know what you’ll owe, you can figure out how much money you need to put aside each month.

Depriving yourself of fun

Budgeting requires a lot of discipline and sacrifice; you need to be wise with your spending. But one of the problems with budgeting can be finding the motivation to stay on track, and recording every dollar you spend can start to feel very restrictive.

I remember the guilt that I felt in my first month of budgeting when I went out for coffee with one of my friends. We hadn’t seen each other in a few months and wanted to spend some time catching up at a local cafe. Looking at the menu, I really wanted a caramel latte but felt a pit in my stomach over the thought of spending $4.50 on a fancy drink. I ended up getting a black cup of coffee to keep my costs low, and I found myself questioning whether I was cut out for this budgeting lifestyle.

I had made the mistake of not budgeting for myself to have a little bit of fun that month. Sure, I was working on getting out of debt and maximizing my savings, but I worked hard for my money and wanted to be able to enjoy it without feeling like I was committing a crime.

After that month, I made sure to plan for $50-$100 dollars of allowance money for myself to enjoy however I pleased. During months where I have a few more financial obligations, my allowance is lower. But no matter what I have to pay for during any given month, I know that giving myself an allowance is critical for staying motivated to be disciplined with my money.

Learning to budget is a process; you’re bound to make mistakes along the way. To avoid repeating the same mistakes time after time, be sure to create a new budget each month that accounts for all of your monthly expenses while proactively planning for future obligations. And don’t forget that having a little bit of fun with your money is an important part of staying motivated and disciplined with your finances. Your budget isn’t just a tool to keep you accountable, it also gives you permission to responsibly spend money on things that you enjoy.

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San Francisco, CA

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