Budget not working? It’s no secret that budgeting can be the key to getting back on track financially and regaining control of your money. A budget is just a spending plan for your money. However, in order to meet your financial goals, your budget has to work. So many people make budget mistakes that turn them off from the idea of ever using a budget again.
If your budget hasn’t been working for you, there are many potential reasons why. Below are 5 budget mistakes you could be making. These mistakes are easy to fix so you won’t be deterred on your financial journey anymore.
1. Being Unrealistic
One of the biggest budget mistakes you could be making is not being realistic. If you set amounts for your expense categories that aren’t realistic in terms of what you actually spend, you could be setting yourself up for failure before you begin. Don’t budget to spend $300 per month on groceries if you know you truly spend $500. That $200 difference could throw off your cash flow and financial goals in a major way.
Instead, it’s always best that you track your spending first. See what you’re truly spending in certain categories and assess whether you should realistically increase or decrease your budget categories. That way, your budget is based on real numbers and not amounts that you made up.
2. No Room For Savings
When you create a budget, you’ll need to account for savings if you want to get ahead financially. The whole idea of budgeting is to see exactly where your money is going, then making changes or improvements as you see fit to help you meet your goals.
If you don’t budget for savings, you’ll never get ahead. People don’t just randomly wind up saving money to build an emergency fund or cover a large expense in the future. Saving is planned and budgeting for savings is the best way to do this. Even if you only budget to save $5 to $10 at a time, something is better than nothing. Getting into the habit of budgeting for savings will help you be consistent as you increase your savings over time.
3. Not Budgeting For Fun
When I used to offer financial coaching services, I was surprised when I saw some of my clients’ budgets. One woman said that she enjoyed going on outings with her kids and occasionally taking them out to eat. But I saw no room in her budget to accommodate these expenses.
You may think that you’re doing yourself a favor by cutting out nonessential spending on entertainment and dining out. However, you could be causing yourself to endure more financial stress.
To avoid these common budgeting mistakes, you need to be honest with yourself. If you enjoy going out with friends or grabbing lunch or dinner during the week, be sure to add these expenses to your budget. Be realistic about how often you can dine out or what a reasonable amount is for entertainment would be each week or month.
That way, you’re not feeling guilty about spending extra money on fun. Budgeting doesn’t mean that you can’t have any fun. Money is meant to be enjoyed and spent so long as you can maintain control of your finances and meet your basic needs.
4. No Room For Miscellaneous or Unexpected Expenses
Another common budget mistake people make is not accounting for miscellaneous or unexpected expenses. Life is unexpected and so many things can pop up in any given week. It’s not fair to set a strict budget with no wiggle room for the unexpected.
What do you do if your child comes home with a flyer for a fundraising event and you end up making an unexpected trip to a restaurant? What happens if you grab a few extra items at the store or have to buy new clothing? Smaller unexpected costs will pop up all the time and since you can’t predict the future, you probably won’t be able to budget for those specific expenses.
One thing you can do, however, is create a miscellaneous budget category so that you already have built-in funds to cover any costs that could come up during the month. I usually budget anywhere from $25 to $100 for miscellaneous costs and it really works. If that money doesn’t get used for some reason, I transfer it to savings or use it for something else.
5. Not Knowing How To Budget With an Irregular Income
An overwhelming number of Americans have an irregular income these days. This means how much they earn can fluctuate from month to month. As a freelancer, my income is rarely the same each month. This doesn’t mean I can’t budget. Rather, it just means I have to budget a little differently.
When your income varies, it’s important to outline your base monthly expenses. This should represent how much you need for housing, food, utilities, and transportation. Then, you can start to add in nonessential expenses but understand that you may not always be able to cover them each month.
For example, if you typically spend around $3,500 but you calculate that your non-negotiable expenses are only $2,000, this can take a lot of pressure off you if you have a lower income month. During your higher income months, you should set a little extra money aside to help accommodate for the lower income months. However, knowing your baseline expenses can help you budget accordingly regardless of what your income is.
Another technique I like to consider is switching from fixed amounts for flexible expenses to percentages. For example, instead of saying that you want to save $500 per month, you can say you want to set aside 10% of your income for savings. That way, regardless of what your income is, you’ll still be saving something.
Summary – Budget Mistakes Are Always Avoidable
Remember, personal finance is very personal, and developing the right budget for you is going to be a learning process. If you’ve been making any of these common budget mistakes, there’s always an opportunity to fix it and keep tweaking your budget. A solid budget that works for you and helps you reach your goals doesn’t happen overnight. Through trial and error, you’ll learn to find what works for you and your budget will start to make you feel empowered and in control. That’s when you know that your budget truly works. Your budget is a tool that you don’t want to miss out on even if you’ve struggled in the past. Use these tips to help as you refine your process.
Have you ever made any of these budget mistakes before? After reading this article, what are some steps you think you’ll take as you work to improve your budget?