Are These 6 Small Mistakes Ruining Your Budget?

by Allison Martin · 11 comments

Have you ever spent hours working on your finances and spending plan, only to come up short month after month?

Following a budget isn’t as simple as it seems; if it were, everyone would have one and live within their means. The key to developing a workable spending plan is identifying and eliminating the loopholes that are hindering you.

Here are some minor mistakes that may be destroying your budget:

6 Common Budget Mistakes

1. You don’t list goals

When starting out, it’s extremely difficult to stay on track if you have nothing to look forward to. There’s no logic to conforming to a spending plan without any real objectives. Following a spending plan without working towards any financial goals is the equivalent of taking a slew of college courses without intending to actually graduate. Get out a piece of paper and write down your financial goals — stat.

2. You’re unrealistic

What about the little things that cost a few dollars here or there, but add up quickly? If you assume your budget is iron clad and doesn’t have wiggle room, then expect it to implode before your eyes each month. To prevent this from happening, incorporate money for miscellaneous expenditures.

Also, be realistic with your expense projections. If you spend $100 each week on groceries, don’t expect to suddenly get by on $25 — or you’ll be in for an unpleasant surprise.

3. You’re reactive, not proactive

Do you make a plan before income hits your account, or do you roll with the punches? Waiting until you’re on the brink of an overdraft fee to take action is not the proper way to handle your finances.

Another note: balancing your checking account or using online applications to track your spending won’t cut it either. These are both proactive, and each dollar needs to have a title before it’s deposited, to hedge against the risk of overspending.

4. You feel entitled

You work hard, so you deserve to treat yourself, right? Well, not necessarily. Keeping up with the Joneses because you think you deserve the finer things in life can be a recipe for disaster. Rewarding yourself must be done within reason — or your budget won’t work for you.

5. You allow debt

Guilty of swiping away when funds are running low? This is another huge budget buster. As the minimum payment increases, your budget will feel the pain, forcing you to rob Peter to pay Paul just to make ends meet.

6. You don’t think about emergencies

Do you have an amount set in stone to pay yourself as soon as income hits your account? Or are you like most consumers, paying your bills first and attempting to save whatever’s left over? The latter approach won’t help you reach your savings goals. And any unexpected occurrences, such as a hospital visit, auto repair, or loss of employment, will send your finances on a downward spiral since you won’t have an emergency fund to absorb the costs.

How to Turn Your Budget Around

Struggling with any of these issues? Here are some action steps to help get your budget back on track:

  • Establish financial goals
  • Track your spending for one month to get a realistic idea of how you should allocate funds in the future
  • Compose a realistic spending plan that incorporates your financial goals
  • Reward yourself for each successful month and any milestones you reach

What action steps have you taken to make your budget more successful?

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  • red says:

    I think undisciplined spending is the mistakes too. We create a good budget but we break it.

  • Abigail says:

    I was guilty of the “unrealistic” one time and time again. I’ve very nearly made my peace with reality. Nearly.

  • Tammy Corbett says:

    The second point about being unrealistic stands out to me if you don’t factor in the unfortunate reality that you may get sick, and if you do, how that will affect your budget. Having a health and dental insurance plan customized to fit your needs is a wise choice when you’re considering medical situations.

  • Josh Sheehan says:

    I find myself being stuck in this same vicious cycle. Every time my paycheck comes in, I pay my obligations, (rent, tuition, etc…) but then the leftover money becomes a free-for-all. I end up spending the money without any direction of where it SHOULD be going. I have made note of these tips, (as I struggle with nearly all of them) and need to start putting them to action. Thanks so much for the great advice! This will be the turning point.

    • David @ MoneyNing.com says:

      Mark this day Josh. When you are financially independent, it will be fun to look back to this turning point!

  • Phil says:

    Going from a debt lifestyle to one where you have thousands, if not millions in your bank accounts takes true dedication. I call it “flipping”. My wife and I had to find a way to stop borrowing for cars, and then have the money to buy them. Negative $20,000 to positive $20,000 is a $40,000 swing, or “flip”.

    But now we could go write a $20,000 check today for a car. It allows us to look for the best deals as well. My favorite part will be the look on the sellers face when he/she realizes you actually have the money to pay for the car. I imagine them asking, “What do you do for a living?” “We are both teachers,” I will tell them, which is true.

    Work hard, save money, and “flip” the situation around from being in debt to having money in your accounts. You will be glad you did.

    • David @ MoneyNing.com says:

      Being able to amass a fortune on a modest salary is the ultimate win in personal finance success stories.

      Congrats Phil! Try to capture the moment when you tell the car salesman what you do for a living!

    • Demex says:

      Car loans are pretty low, a local dealer is offering a .9% APY loan for 60 months. You could actually make money if you put that money for the car into a high yield CD or even pay off your higher yield mortgage instead of paying in cash upfront. Sometimes being smart about where your money is going is more important.

  • Aldo@ Million Dollar Ninja says:

    These are great. I’ve made all of these mistakes at some point, but I’m dialing it in and have had great success for the last year or so. I still find myself tweaking my budget every month or every other month but those are minor.

    • Phil says:

      I heard it takes 3-4 months to get the budget right. I still remember how badly I bungled my first monthly budget back in Spring of 2007. Stick with it. You will be glad you did.

    • David @ MoneyNing.com says:

      Continually monitor and improve your budget and you’ll be well on your way to financial freedom. I’m glad you are tweaking things and making the mistakes because most people who think they are mistake-free simply aren’t aware that they are making them!

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