Budgeting can provide an accurate picture of your personal
finances, and it's the perfect tool for deciding how to spend
your money. But a budget is only as good as your strategy, and
if you don't have much guidance, you might make a few
Your budget doesn't have to be perfect to work, but you'll
need to recognize common mistakes that can throw your spending
plan off balance. Here's a look at 17 of the biggest budgeting
mistakes you're making.
1. Estimating How Much You Spend
Before you can create a budget, you have to know where your
money goes and your true cost-of-living expenses. Estimating or
guessing your expenses isn't going to work because you're
likely spending more than you think each month.
"It's a good idea to track your spending for a month or two
before you try to come up with a budget," said Barry Choi,
personal finance expert at
. "Make a log of everything you spend money on, this way you
can see where your money is going and then come up with a
2. Forgetting to Save for the Unexpected
A budget isn't only useful for managing bills -- it's also a
tool to help grow your personal savings. As you create a budget
for fixed and variable expenses, don't forget to pay yourself.
Treat your savings account like any other expense in your
budget and you'll slowly grow a rainy day fund.
"Something always comes up that is outside of your budget,"
said Pamela Capalad, owner of the financial planning company
Brunch & Budget. "As a solution, I have clients open a 'Now
Fund' which is essentially a savings account where they put
away a set amount of money every month for unexpected
5 Easy Steps to Set Up an Emergency Savings
3. Unrealistic Expectations
You might be eager to improve your financial outlook, but you
shouldn't set your standards too high. Extreme budgeting looks
good on paper, yet this approach isn't always effective or
"Novice budgeters, especially those trying to pay off credit
card debt, often get the numbers to add up on paper but they
have no basis in reality," said Stephanie Genkin, a financial
planner in Brooklyn, N.Y. "I look at these budgets and ask
these folks, are you really going to stop eating lunch out
EVERY day when previously you were always eating out?"
Instead, Genkin suggests starting small with baby steps,
perhaps packing your lunch twice a week and gradually adding an
extra day until you're no longer eating out five days a
4. Budgeting Based on Your Gross Income
You might earn $40,000 a year, but after taxes, health
insurance and other payroll deductions, your actual earnings
are much less. For a realistic budget, you'll need to create a
spending plan based on your net or take-home pay.
5. Not Considering Cheaper Alternatives
Lowering expenses is one way to keep costs within budget, but
you might feel like there's little you can do about the cost of
utilities. However, utility rates aren't set in stone, and you
have more options than you realize.
Money-saving expert Andrea Woroch recommends reviewing
monthly utility bills and looking for ways to save, such as
searching for new providers and comparing rates, or
speaking with a retention specialist
to see if you're eligible for a discount or special
promotion. The company might lower your rate to retain your
6. Too Many Financial Accounts
If you have a handful of credit cards and multiple checking
accounts, it's easy to lose track of how you're spending your
cash. Woroch suggests simplifying and streamlining all your
"With so many store cards and credit cards, you won't be
able to track spending nor stay on top of payments which can
lead to costly disasters, including
credit score damage
, late fees, revolving balances and overspending," Woroch
7. Buying Too Much House
Most people wouldn't dare walk away from their dream homes, but
buying more house than you can afford is a budget killer. If
you're creating a budget and discover that your mortgage or
rent payment is the underlying cause of financial anxiety, it
might be time to downsize and move into something cheaper.
6 Options When You Can't Afford Your Mortgage
8. Spreading Yourself Too Thin
Whether it's paying off debt, building an emergency fund,
saving for a vacation or helping a relative financially, it
only makes sense to include these expenses in a budget. But
your cash only goes so far, and saving for multiple goals
simultaneously or taking on too many responsibilities might be
unrealistic and unnecessarily strain your budget.
9. Never Adjusting Your Variable Expenses
Budgeting doesn't work unless you're willing to change your
spending pattern, if needed. If an assessment of your
expenditures reveals you're spending too much on categories
like entertainment, shopping and recreation, you'll need to
make adjustments or else you'll continue to overspend each
10. Never Updating Your Budget
Your income and expenses can change from year to year.
Therefore, the budget you create today might be irrelevant this
time next year.
"Costs change all the time so avoid any cash flow problems
by updating your budget on a regular basis," Choi said. "Don't
forget to add any increases to your income."
11. Choosing the Wrong Budgeting Software
Between computer software programs, apps and websites, there's
no shortage of
helpful budgeting tools
. Just know that a budgeting tracking system that works for one
person might not work for you. You have to compare available
options and choose a program you're comfortable using.
"About 3/4 of the clients I see actually hate Mint.com,"
Capalad said. "But often it's the one they've heard of, so they
try it and then forget about it. It's all about experimenting
with and finding a tracking system you can see yourself using
day to day."
12. Trying to Keep Up With Friends
The reality is, your peers might not share your financial
mind-set or be as budget-conscious as you, which can stall your
"In an effort to keep up with your spendy friends, you may
be blowing more money than you should," said Avery
Breyer, best-selling author of "Smart Money Blueprint: How
to Stop Living Paycheck to Paycheck."
This doesn't mean cutting these people completely out of
your life, but be conscious of who you shop with.
3 Signs You're Secretly Keeping Up With the
13. Dictating the Family Budget
In the case of couples, one person shouldn't dictate or control
the family budget or household funds. A budget is only
effective when both parties communicate and agree on the
14. Forgetting About Irregular Expenses
It's good that you're budgeting for unexpected expenses like
gifts, car repairs and home repairs, but you'll also need to
budget for irregular expenses, such as annual insurance
payments and tax payments.
"I try building those expenses into my budget by estimating
the annual cost, then dividing by twelve," said Stefanie
O'Connell, millennial finance expert and founder of
The Broke and Beautiful Life
15. Stealing Funds From Other Categories
As tempting as it might be, don't dip or steal cash from other
spending categories. For example, if you've already spent your
recreation or shopping budget for the month, don't take money
from your grocery or transportation fund just because there's a
sale at the mall.
16. Depriving Yourself of Fun Money
Getting serious about your money and spending less doesn't mean
you have to sit at home bored. Everyone needs to blow off steam
from time to time, and having a little fun with your money
"No budget on earth will work long-term if you don't allow
for some fun stuff, even if it's as small as a chocolate bar
once a week," Breyer said.
17. Thinking You Don't Need a Budget
If you never take time to actually sit down and write out a
weekly or monthly budget, don't expect your personal finances
to improve. Fixing your financial outlook takes effort and
work. It isn't enough to say you want change, you have to take
the first step.
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17 Biggest Budgeting Mistakes You're Making
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