15 Most Common Budgeting Mistakes You're Making & How to Fix Them

most common budgeting mistakes

Have you blown your budget one too many times before? Do you now believe you’re absolutely incapable of budgeting?

Making budgeting mistakes in the past isn’t a reason to give up all hope of healthy financial habits. We’re only human, after all — mistakes come as part of the package.

It’s more admirable to own up to your mistakes and work to fix them instead of never making mistakes at all. There’s no such thing as “too late” when it comes to fixing your budget.

You don’t have to be scared or intimidated.

Budgeting isn’t only about depriving yourself of nice things. When you do it right, budgeting allows room for the best things, and some peace of mind to boot. Your budget is the blueprint of your financial future — good budgeting habits increase the chances of you living out a comfortable life.

If you’re interested in starting your budgeting journey but you don’t know where to begin, don’t worry. You’ve come to the right place.

In this article, we’ll walk you through a list of the most common budgeting mistakes people make and how to avoid making them again.

Mistake #1: Not Having a Budget

This might already be obvious, but it bears repeating — the biggest mistake is not having a budget at all.

Ignorance might be bliss, but that doesn’t mean the problems you ignore stop existing just because your eyes are closed. Making a budget can be scary, but being in crippling debt is infinitely scarier.


If you never take the time to sit down and take a hard look at your finances, don’t expect everything to be sunshine and roses.


Even if you’re making enough income to live comfortably right now, how sure are you that it’ll continue years into the future? Do you know what your retirement is going to look like?

This goes double if you’re not making enough to live comfortably. Having an objective view of your finances will let you know what you can trim off to improve your situation.


Mistake #2: Lacking Motivation

Creating a budget is hard. Sticking to it is even harder.

If you don’t have clear goals that you genuinely want to achieve, it’s unlikely that you’ll stick to your budget, no matter how carefully you created it. If you’re only budgeting because it’s what people say you should do, you’re quickly going to get resentful or bored.

Ask yourself what you want to achieve with your budgeting:

Even smaller goals like upgrading your gadgets or getting a new table can provide a boost of motivation that encourages you to stay on track.


Mistake #3: Not Keeping Track of Expenses

Imagine if your bank statements just said “You have around $3000, don’t worry about it.”

That wouldn’t cut it, right? You’d want to know exactly how much you have.

The same should go for your expenses. Don’t just estimate how much you spend.

“I spent about that much on food, right?” “I think I spent about that much on the electric and water bill last month. I’m sure it’s close enough.”

Your estimates can range from slightly off to wildly inaccurate. When these little discrepancies pile up, you’ll find a lot of glaring holes in your budget.

Before you draw up a budget, take a month or two to examine your spending and write down every dollar that comes out of your bank account. This’ll allow you to plan an accurate budget that won’t leave you feeling squeezed.


Mistake #4: Failing to Save for Emergencies

You can’t predict emergencies — that’s a big part of what makes them emergencies in the first place.

These emergencies often bring surprise expenses. If you’re caught unprepared, a few hundred dollars could mean the difference between living comfortably and having to make significant sacrifices to keep up.

It’s foolish to hope that you’ll never face emergency expenses, so the best thing you can do is to put some breathing room into your budget in case they come up. Generally, the recommendation for an emergency fund is enough to cover three to six months of your typical living expenses.


Mistake #5: Having Unrealistic Expectations

Having a goal in mind that you’re excited to save for is great, yes, but you shouldn’t let your enthusiasm cloud your expectations.

If you set your standards too high, you might just end up disappointed. Sure, you can save up half of your income for a few months and hit your goal immediately, but that’s just unrealistic.

Achieving your goals will take time — start with baby steps instead of taking a running jump straight into the deep end of the pool.


Mistake #6: Forgetting About Income Taxes

Say you have a salary of $50,000. You don’t take home the entirety of that — income taxes, insurance, payroll deductions, and more will put a sizable dent in it before it ever reaches your hands.

If you’re calculating your budget based on your gross income, you’ll be short several thousand dollars every month. That’s not the greatest situation to be in.

When you’re creating a budget, always use your net income or take-home pay instead of trying to account for money you never actually had.


Mistake #7: Leaving No Room for Fun

So, how much would you save if you only ever drank water, only ever ate food from home, and never stepped foot outside the house for leisure?

It’s a lot, yes, but there’s no way it’s reasonable.

Leaving absolutely no room for fun is just setting your budget up for failure. The point of a budget isn’t to deprive you of literally everything that makes life worth living — the point is to take control of your finances and carve out room for the things you want to spend money on.

A good rule of thumb is to allot at least 5 – 10% of your budget towards fun, depending on emergencies and your big goals.


Mistake #8: Never Revisiting the Budget

Your financial situation isn’t static — it could change from month to month or year to year. When big changes happen, like a pay raise or a major emergency, change up your budget to reflect it.

No matter how carefully you plan out your initial budget, it should never be set in stone. Prices change all the time, and you can’t even predict what your financial situation will look like in a year, so be sure to update your budget often.

You might not need to update it every month, but you should at least revisit it once a year to ensure you’re still on track to reach your goals.


Mistake #9: Settling for Expensive Options

We live in a world where convenience is king, so it’s common for people to take the first choice offered to them.

Being willing to hunt down cheaper alternatives can improve your budget significantly over time. Here are some avenues you should consider:

  • Searching for new utility providers with cheaper rates or negotiating with your current provider — speak to a customer retention specialist and ask for discounts or special promotions
  • Refinancing your loans to get better interest rates
  • Looking for bank accounts with better interest rates
  • Negotiating with a service provider to keep charging introductory rates after the introductory period is over


Mistake #10: Having too Many Accounts to Keep Track of

Can you list every credit card and checking account you currently have? If you can’t, that’s a clear sign you’ve opened way too many accounts.

Having your money split between many different accounts breeds nothing but confusion. It’s significantly easier to lose track of how much you’re actually spending when it’s spread out over multiple accounts.

Not only will you have trouble creating an accurate budget, but you may also face:

It’s best to keep your accounts streamlined and simplified.


Mistake #11: Overcomplicating the Process

If you’re not particularly tech-savvy, apps and programs designed to make budgeting easier could be a huge help. That being said, just because they’re helpful doesn’t mean you have to use every single one you come across.

Try out the ones that serve your needs the best — a budget tracking system that works for someone else might not work for you. Your budget system should make your work easier, not harder, by being easy enough to use daily.


Mistake #12: Spreading the Budget too Thin

What are you trying to achieve with your budget? Are you trying to pay off loans, build an emergency fund, save for an extravagant vacation, and help your parents out at the same time?

It’s great to have goals, but you need to understand that what you earn can only go so far. If you’re handling too many financial responsibilities or saving for too many things, it can put great strain on both you and your finances.

If you find yourself in this scenario, either cool it with the spending or find a way to increase what you’re earning.


Mistake #13: Forgetting About Non-Monthly Expenses

Most bills come in monthly, so it’s the default time period people use for their budgets. However, some recurring expenses might only happen once or twice a year, so it’s easy to forget about them.

To avoid this mistake, make a list of all your annual expenses, such as:

  • taxes (whether annual or quarterly)
  • subscription services (e.g. streaming services, website hosting, delivery services)
  • contributions (e.g. membership fees, union dues, retirement contributions, charities)
  • insurance payments
  • tuition
  • holiday expenses (e.g. gifts, parties)

Take the amount you’re charged annually and divide it into 12 so you can account for that expense every month.


Mistake #14: “Stealing” From Other Parts of the Budget

Sometimes, you might slip up a little here and there — maybe you’ve already spent your “fun” budget for the month, but there’s an online sale that you just can’t miss. Surely it couldn’t hurt to take a bit from the grocery budget?

Being too lenient with the boundaries of your spending categories is a slippery slope. It undermines the calculations you put into your budget and promotes a lack of discipline, which will only make it harder to stick to the budget in the future.


Mistake #15: Giving Into Peer Pressure

We’re social creatures by nature. Wanting to fit in with the group is understandable, but sometimes it’s not the best for you.

Being around peers that don’t have a similar financial mindset or are frivolous about their budgeting can do more harm than good. You might be tempted to spend outside your budget just to belong — at the cost of your financial goals.

It’s best to be conscious of those around you. You don’t have to cut them out of your life, but maybe just go on fewer shopping sprees with them.


Recap: Your Most Common Budgeting Mistakes

In summary, some of the most common budgeting mistakes are:

  • not having a budget,
  • lacking motivation,
  • not keeping track of expenses,
  • failing to save for emergencies,
  • having unrealistic expectations,
  • forgetting about income taxes,
  • leaving no room for fun,
  • never revisiting the budget,
  • settling for expensive options,
  • having too many accounts to keep track of,
  • overcomplicating the process,
  • spreading the budget too thin,
  • forgetting about non-monthly expenses,
  • “stealing” from other parts of the budget, and
  • giving into peer pressure.

You might not realize you’re making these mistakes, but once you’re aware, it’s easy enough to fix them. This is especially true if you’re fully committed to making your budget work.


Next Steps

At 121 Financial Credit Union, we’re dedicated to improving financial literacy and helping our members meet their financial goals.

If you need further help with your budgeting skills, check out our free financial counseling or browse through our robust library of resources.

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