Common Budgeting Mistakes and How to Avoid Them

We all have a glorious vision as to what our financial goals are. Some of us want a huge yacht, others want to get away from the world and live on a cattle farm. Regardless of what your goals are, they all require money and to get this money… Well, there are a few ways, but today we’ll talk about why budgeting plays such an important role in reaching financial goals. While it remains one of the most trusted and “tried and true” ways to accrue wealth, a lot of people stumble over common budgeting mistakes which sometimes derails their progress entirely. 

But, you shouldn’t just take our word for it – or maybe you should – A 2023 survey conducted by Payroll.org highlighted that 78% of Americans live paycheck to paycheck, a 6% increase from the previous year, which sometimes might results from errors in budgeting rather than a lack of income. Understanding the pitfalls of budgeting can make a huge difference in your financial stability and financial confidence. We’re going to uncover some of these mistakes and offer our own two cents (get it, because it’s financial, haha) as to how you can navigate budgeting effectively. 

Not Tracking Your Spending Categories

Unknown to many, this is one of the most common budgeting mistakes. A lot of people will set what is known as a “general budget,” meaning they say “I’m only going to spend $1,000 this month.” However, they don’t know exactly where the money goes each month, making it easier to overspend. For example, you might budget $500 for groceries and $200 for entertainment, but these two categories aren’t easy to track – they’re very unclear. You might end up spending $600 on groceries, cutting into some other planned expense. 

Avoiding the Mistake: Given the fact that BudgetWidget offers a peer comparison model, you can see the average spending for similar households in various categories. By comparing your budget with that of your peers (who might just be your next door neighbor) you can gain insights into whether your grocery budget aligns with others in your area. This guidance helps you set realistic category-specific budgets and might make you feel more confident in your budgeting since you’re not comparing to the pseudo millionaires of Instagram. 

Failing to Adjust Budgets for Life Changes and Failing to Review Your Budget Regularly

Life happens – which means life changes constantly and being able to adapt is key. Moving, getting a new job, or even starting a family can have a significant impact on your finances, yet many people continue to budget month after month as if nothing happened. A static budget quickly becomes outdated and thus irrelevant to your current situation. At the end of the day, you can’t sleep because you now have unnecessary stress due to overspending in unforeseen areas. 

Outside of random situations brought on by life, it’s probably a good idea to take some time to review your budget here and there. Budgeting isn’t a “set-it-and-forget-it” process and you shouldn’t go into this with the mindset of “if it ain’t broke, don’t fix it.” Without these regular reviews, you might miss overspending patterns or evolving financial needs, especially as prices and life circumstances change. 

Avoiding the Mistake: Adjust and review your budget. It could be as simple as that. However, using any budgeting tool, you can adjust your inputs to provide a fresh perspective as to what you should be saving compared to what you’re now spending. You might also find new trends in spending which can help you gain control over your budget before it gets out of hand. 

Underestimating Irregular Expenses

Some of your expenses won’t come up every month and that’s another part of life. This would include things such as car repairs or holiday gifts which are both easily forgettable when we set up our budgets. When these expenses aren’t accounted for, they can blow your budget and lead to increased debt. Recent data suggests that 37% of Americans just can’t afford an emergency expense of over $400. So yes, budgeting for the unexpected is something you should do. 

Avoiding the Mistake: We’ll make this one quick and easy: start an emergency fund. Now, this emergency fund will vary person by person. With BudgetWidget’s comparison tool, you can see how much peers allocate for similar expenses, helping you realistically estimate and prepare for unexpected costs which can save your butt later down the line. 

Setting Unrealistic Saving Goals

We want to save and we want to be ambitious about it, but setting targets too high can be discouraging and eventually lead to “savings burnout.” If saving 20% of your income feels impossible right now, you’re more likely to abandon the budget altogether. 

Avoiding the Mistake: Realistic savings targets are difficult to pinpoint. However, using BudgetWidget, you can gauge realistic savings targets based on comparing your current financial situation with similar households. If peers with comparable income levels are saving 10% instead of 20%, you may want to start smaller and gradually increase your goal. Setting attainable goals can keep you motivated and consistent.

Ignoring Debt Payments in Your Budget

Another very common oversight is ignoring debt repayment in your budget. You have to make the payment, so why wouldn’t you include it into your budget? The answer lies in our own systems – we always focus budgeting solely on everyday expenses and saving. Keep in mind that neglecting debt payments can lead to accumulating interest, making it harder to achieve long-term financial stability.

Avoiding the Mistake: Remember earlier when we said to track your spending categories. Make one of those categories debt payments, even if that means adjusting other categories to make room for it. BudgetWidget can help you estimate what debt allocation looks like amongst your peers in similar financial situations which can give guidance as to how much of your budget should ideally be allocated toward paying down debt. Our advice? If possible, pay it all down quickly. 

Takeaways

Budgeting mistakes add up and just add more headache to the already existing headache of finance and budgeting. But, by being proactive, you can build a plan that supports your goals without feeling restrictive. BudgetWidget provides a unique perspective, offering peer-based insights to guide your budget effectively, helping you avoid common financial mistakes by aligning your spending and saving habits with others in your demographic. With the right tools and mindset, you can turn budgeting into a powerful ally in reaching financial stability.