Today I want to break down for you some of the common budgeting mistakes I see over and over again that cause people’s budgets to fail. And what you can do about them.
A lot of people who decide to try budgeting, much like a diet, stick with it for a couple of weeks and then give up because it’s not working for them. Budgeting is for everyone, you just need to know how to do it in the right way for you.
8 Common Budgeting Mistakes
The first budgeting mistake I see over and over again, is that they are not realistic. Pretending you can feed a family of 4 on €100 per month is going to get you nowhere. It’s like saying you can sustain yourself on 1,000 calories a day. I often see people either under-estimating costs by guessing how much they spend on a particular area or omitting costs that they forgot about.
Don’t guess what your costs are. Work out over a 6 month period how much you spend on items like food, electric or petrol and then take an average. Don’t omit annual, twice yearly or quarterly costs from your budget. They all need to be included.
Not knowing when your bill are due. Sometimes it’s not a case that people don’t have enough money coming in or have too much going out each month, it’s purely a case of disorganisation. Not knowing when your bills are due can lead to overdue accounts and unpaid direct debit fees and charges.
Use a bill tracker to track your bill due dates each month and mark them off once paid. Another idea is to ring your various providers and align your bill dates to the same date each month, where possible. So, for example, all your bills come out the day after pay day.
Improper planning for events like Christmas, Weddings, birthdays and back to school. These events come up and usually costs quite a lot. While the costs are not always fixed they can usually be predicted and planned for. Don’t let these things destroy your budget – they are not emergencies.
Utilise sinking funds. This is where you spread the cost of something expensive over the course of the year and save for it month by month. I wrote exactly how to calculate and set up your sinking funds here. I also wrote extensively about preparing your finances for Christmas here and here – it had so much to say on the subject I wrote two articles.
A lot of times, people who give up on budgeting have either made it way too tight, leaving nothing in the budget for socialising and fun. That is not sustainable. Or by making the budget categories way too granular, so you’d need a forensic accounting degree to be able to figure out what goes where.
No matter how tight your budget or how small the amount, always leave yourself some fun money. Don’t make your budget categories too granular, it makes the whole process far too onerous and rigid. You don’t need a separate category for food, personal hygiene items and cleaning products – capture them all as ‘Groceries’ or ‘Household Goods’.
Not adjusting your budget as you move throughout the month or being flexible. Life will throw you many curve balls. You can be sure of that much.
You have to be able to adapt and roll with the punches a bit. Don’t be too rigid with your budget. Allow for and expect some fluidity month to month. Then take those learnings and plan for them the following month.
Not giving every Euro a job. If you don’t and you have money coming in, that is not assigned to anything, you are guaranteed to BLOW it. And probably regret it.
The number one rule of budgeting, is to give every Euro a job. It doesn’t matter how much you are spending in any one category, so long as you can afford it and it aligns to your values and goals. But give every Euro a job. Assign it either to spending, saving, investing or debt.
Not personalising or customising your budget.
Budgeting, like dieting, needs to be custom to each individual, their lifestyle and their values. There is no one size fits all solution. There is no right or wrong way to budget and no right or wrong amount to spend on any one category. Just make sure your budget is a reflection of your values and goals and tweak your budget to suit your needs.
Not having GOALS! I see so many people getting demotivated or fed up because some of their dreams are so lofty, like buying a house, it feels like they are never going to get there.
Saving or paying off debt is only fun (it can be fun – ok) if you can see how the progress you are making is getting you closer to your goals. I suggest using a savings tracker like this one here to keep track of your progress. I have written ALL about Goal Setting here and here.
I’m sure I have made all of these mistakes over the course of my life, but it’s so easy to course correct and get back on track. Don’t let any of these small mistakes throw you off!