This is the month you decided to get serious about this whole budgeting thing. Does this sound familiar? You got an app or downloaded a worksheet, listed all your income and expenses, and now, here it is, at the end of the month, and your budget is a little more than blown. Ugh.
Time and again, this occurrence can be especially discouraging after you put all of this work into organizing your finances. I have been there, admittedly, many times. Although it can be difficult — and perhaps confusing — to construct a budget, it does get easier.
If you feel like you’re failing at budgeting now, take a look at these 5 mistakes you may be making and learn how to fix them.
Mistake #1: You started with zero past data.
The most important action step in creating your budget happens before you sit down to write it. To envision where you want to go with your finances, take a look at your current spending habits. Before you jump right into budgeting, allow 30 days to track your expenses. This gives you a ballpark number of how much you actually spend per month so you can then adjust each category accordingly.
Think of it this way: Would you hop in the car to travel across eight states to a new destination without any kind of direction? No, right? You would get so lost and end up way off track from where you needed to go. Expense-tracking is like your budgeting GPS. It determines your initial behavior (starting at home) and helps you forecast your spending habits to reach your financial goals (your final destination).
Mistake #2: You underestimate expenses.
Your budget is heavily contingent on estimating your expenses. Without a foundation of tracked expenses, you’re likely to be way off base on your first month of budgeting. For example, it’s extremely easy to set yourself up for failure if your new spending plan allots $100 for eating out per month when in reality, you typically spend $300.
This isn’t only related to discretionary spending. Consider what the specific month means for utilities. Is it the dog days of summer? Or the dead of winter? Proactively estimate larger utility bills for those months when A/C and heaters run more frequently. Account for any special-event spending coming up this month, like birthday or holiday gifts, or irregular expenses, like vehicle tag renewals.
Mistake #3: You don’t allow for wiggle room.
Okay, you’ve tracked your expenses, carefully estimated and crafted spending categories, but you’ve still busted your budget. This is to be expected in the first few months.
When you estimate expenses in your budget, particularly in your discretionary categories, go ahead and give yourself some wiggle room as you get used to the idea of living on a spending plan.
(Pro tip: Estimate high on expenses and low on income to ensure you are completely covered.)
Allowing flexibility in the budget for the first few months saves you from the disappointment of overspending in a category. This is especially relevant if you tracked your expenses first and decided to cut back on a few areas in your new budget. Going from $300 of eating out to $100 is a BIG adjustment. Provide wiggle room by gradually decreasing the amount you spend each month instead of cutting back cold turkey.
It can be easy to want to cut back on everything all at once, but spending habits will not change overnight. So, in the first few months of budgeting, give a small allowance (perhaps 5–10%) to each of your discretionary categories should you need the excess funds.
(Bonus tip: If you’ve tracked expenses and decided to cut back, be sure to use empowering and positive language to make this change. Instead of telling yourself “I will not eat out this month at all,” try “I will give myself permission to eat out only on the weekends.”)
Mistake #4: You don’t anticipate barriers.
Another sneaky budget buster is outside forces that may increase your spending for the month or test your discipline to stick to your plan. Ask yourself, what situations might arise that will derail my budget? I like to call these instances budget barriers. Examples of budget barriers may be:
- Transportation restrictions. If you do not have a car or reliable vehicle, do you need to budget for public transit or car-sharing expenses?
- Housing. Consider high utility bills. If you are homeless, do you have high living expenses, such as hotel fees, or evictions preventing you from getting into a lower cost housing option?
- Relational. Do you have a family member or kiddos asking you for money throughout the month? Is your spouse on board with this new spending plan?
- Occupational. Consider work-related travel that will be reimbursed at a later date or items needed to be bought (like new work boots).
Because your budget is personal, other factors could be unique budget barriers for you. Brainstorm these areas and prepare for what you will do if this situation arises. For example, if your child is asking for a new video game, what will your answer be? If a new game isn’t in the budget, how will you suggest alternatives?
Mistake #5: You don’t give yourself grace.
Finally, recognize that today is day one. It will not be perfect in the first month, nor will it be perfect in the first several months. Give yourself grace when you overspend or make a mistake. You are learning a completely new discipline and simultaneously changing spending habits that have been set in place for a long time. As you continue to budget, you will adapt and adjust to a process that works best for you. Once you get going for six months or so, it’ll become a well-oiled machine. Your budget prep each month will get shorter as expense categories settle into a monthly rhythm.
If you are struggling with initiating a budget, try the above tips, and see if they take your budget from frustration to fruition. Let us know in the comments if these tips proved helpful for you and comment your additional tips!