How to Avoid Common Budgeting Mistakes Beginners Make

A lot of people treat budget like a four letter word. I know I did for the longest time. Actually I prefer the term "expense plan" to the word budget. Contrary to popular belief, it doesn't mean you need to live like a hermit and abstain from the pleasures of life.

In fact it's quite the opposite.

Did you know that 65% of Americans don't know how much they spent last month? When it comes to budgeting, what you don't know can seriously hurt your financial future.

I've seen countless people make the same budgeting mistakes over and over - but here's the good news: these mistakes are completely avoidable.

Whether you're just starting your financial journey or looking to refine your budgeting skills, understanding these common pitfalls will help you build a stronger financial foundation.

Why Budgeting Matters for Financial Success

The role of budgeting in achieving financial stability is often underestimated. It's like when you're starting a new fitness program and managing your weight. People who track their calorie intake and output are far more likely to see results.

It's the exact same concept with finances. Cash flow is all about money in and money out. It's about creating awareness with your spending patterns.

At it's core, budgeting really comes down to behavior management. Budgeting helps reduce stress and improve financial security over the long run. This is because you are more aware of your spending patterns and can more easily plan for the future.

The key is being intentional about lifestyle improvements rather than restriction and letting your spending happen automatically. You can certainly enjoy the income you earn, but do so thoughtfully while ensuring your long-term financial security comes first.

I'll share with you some of the most common myths and mistakes about budgeting that hold people back

10 Common Budgeting Mistakes Beginners Make (And How to Fix Them!)

1. Not Tracking Expenses

Did you know that a majority of millionaires still keep a budget, why do you think that is?

Think about it, that's what they were doing from the beginning and it's become a lifestyle habit to not only create wealth but maintain it. You have to measure what you manage and that's why tracking every dollar matters.

Keep it SIMPLE, there are plenty of easy ways to track spending whether it be apps, spreadsheets, or physical planners.

I prefer using a spreadsheet along with my banks dashboard because they're both free. The spreadsheet is for record keeping and the bank dashboard allows me to link my wife's outside bank accounts so we can get a full picture of our household spending.

2. Setting an Unrealistic Budget

Nine times out of ten when I have people go through the exercise of listing out their monthly expenses they are way off. Sure, some categories might be close like normal bills, but those variable expenses (dining out/shopping/entertainment) are typically eye openers!

If you're not creating a budget off your actual data then you're simply guessing. Take the time to at least go through the previous month's expenses to get a feel of how much you typically spend in each category.

This is how you can create a budget based on actual income and expenses and really dial things in.

I am a promoter of using income allocation strategies and this is a key component in how I was able to pay over $100,000 on my mortgage in a year. Income allocation begins with breaking down your needs, wants, and savings targets as a percentage of your income.

Many people can start with the 50/30/20 strategy. For instance you can do 50% of your income towards living expenses, 30% towards wants/lifestyle, and 20% towards saving/investing.

You can mix these in whatever order you choose and then combine it with a hard set budget to manage specific categories.

3. Ignoring Emergency Savings

The importance of an emergency fund is often underestimated, over complicated, and in some cases just flat out neglected. First off, let's just affirm that life doesn't always go our way. It seems that every time we are making progress that something unexpected comes out of left field and knocks us back without fail.

So if we know this then it makes perfect sense to reduce our risk by preparing in advance for these unexpected occurrences. You don't want to have to add more debt while you're trying to pay if off, or dip into your investments, simply because you didn't have cash on hand.

How much should you save for emergencies?

The short answer is whatever helps you sleep better at night and is realistic. Keep the total amount between 3-12 months of living expenses. Whenever those unexpected moments arise just replenish your account back to the appropriate level.

4. Forgetting to Plan for Irregular Expenses

Remember those hiccups we talked about just now? Sometimes they're in the form of irregular expenses that we sometimes forget about because they don't happen all that often.

I'll often be having a great month, thinking everything is accounted for, and then I get an automated reminder that I've got my semi-annual auto insurance premium due the following week.

Examples of irregular expenses could be HOA dues, car repairs, gifts, insurance premiums, and annual subscriptions. If you're home is paid off you've got to take care of property taxes on your own and that can be a pretty substantial bill so prepare well in advance.

Factor these amounts as best you can into the total you keep for your cash fund.

5. Relying Too Much on Credit Cards

It's no secret that there is an epidemic of credit card abuse that stems from consumer purchases. I was literally terrified of the idea of getting a credit card when I was younger for fear I would fall into excessive debt.

These days I've shifted to relying heavily on using credit cards on a daily basis to take advantage of reward points.

If you haven't gotten really dialed in with knowing your spending patterns, or are prone to impulse spending, then avoid credit cards completely.

The danger of using credit cards for everyday expenses stems from not having a strategy in place. This causes debt to balloon to amounts that are no longer manageable and take months or years to pay off.

All the while people are being charged interest and paying far more in the long run for the original item that sometimes isn't even being used anymore!

Use payoff strategies to use credit wisely while sticking to your budget. Know exactly how much you can allot yourself to spend and pay off the balance each month. Take it one step further and pay off the card each pay period.

6. Not Adjusting Your Budget Over Time

Do you act and spend the same way as you did five years ago? If you're single now do you think you'll be making the same purchases as you will when you're in a relationship?

Of course not, that's why a budget isn’t “set and forget”.

Lifestyle creep, also known as lifestyle inflation, occurs when your spending habits expand to match increases in your income. Rather than maintaining your previous standard of living and saving/investing the additional money, you gradually adopt more expensive tastes and habits.

Here's how it typically manifests:

You get a raise or promotion, and instead of continuing to live on your previous budget, you start making small upgrades to your lifestyle:

• Moving to a more expensive apartment
• Eating at fancier restaurants more often
• Buying premium brands instead of budget options
• Taking more expensive vacations
• Upgrading to a luxury car
• Shopping at higher-end stores

The challenge with lifestyle creep is that these changes often happen so gradually that they're hard to notice. Each individual upgrade seems reasonable and affordable given your new income.

Review and tweak your budget regularly. My routines and preferences have changed countless times over the years and so will yours.

7. Overspending on Wants vs. Needs

My stance on this topic is that I want you to have every creature comfort you possibly desire in life.

In order for this to happen we must remember the following:

"When you discipline yourself to do the things you need to do when you need to do them, then the day will come when you can do the things you want to do when you want to do them."

Understand the difference between essential and discretionary spending. For instance, I'm in the process of getting set up for creating video content to post on social media. I could easily spend thousands on a camera, lenses, lights, microphone, and tripod.

What I really need is something affordable, reasonably priced, and that is "good enough" to get the job done so I can make progress and then upgrade as I go along.

When it's comes to cutting back on unnecessary expenses, start with the low hanging fruit first. I'm talking about the things you've been meaning to cut out but for some reason haven't gotten around to yet.

It's hard giving up or restricting what we like so why not start with the things that add zero value to our lives. A little here and there can lead to freeing up some good cash to be used for other purposes.

8. Not Setting Clear Financial Goals

Over the last 18 months I've committed myself to living within 25% of my income and putting 60-75% of my take home pay towards paying off my home. It forces me to be very mindful of my spending because I've got a limited amount of resources to work with.

That being said, every time I consider making a purchase I now consider how it impacts my progress to reach my goal. The power of goal-based budgeting should never be underestimated.

Your WHY needs to be strong enough to make an impact on your decisions.

Most of us start by creating a vision of what their ideal life looks like in the future. This is great but sometimes the picture can be fuzzy because it's so far off. When you take a cross-country road trip, you know your destination and route but you need to focus on the few hundred yards in front of you.

This is the same thing with out long-term financial goals. There must be short-term check points and consistent progress management along the way. Break down 3 to 5 things you want to get done in the 12 months.

From there make actionable goals for each month and quarter that will support getting you to your goal. Then you can refine it even further and make weekly targets that are more manageable.

That big scary number has lost all of its power and that reasonable weekly target now EMPOWERS you to stay on track.

9. Skipping Budgeting Tools and Apps

In order to get any job done you're going to need the right tools. When it comes to expense management it doesn't matter whether it's digital or paper just make sure you're using whichever method consistently.

Technology has it's perks in the form of automation and notifications. There are plenty of apps and services which can make tracking easy so you're not having to remember to record every purchase.

Some services will even put each purchase into a category automatically such as shopping, health, travel, etc. It's not always 100% accurate so be sure to monitor and make adjustments.

The point is that if you're not using a tool to record your expenses then you won't be able to see patterns and improve, which is the entire point.

10. Giving Up Too Soon

Most people fail at budgeting because they try to do too much at once. If you're trying to account for every single dollar in all areas of your life it can be very overwhelming.

I'm all about setting the bar low when trying something new. You've got to give yourself time to create new habits and behaviors.

Repetition is the name of the game.

Choose one area you want to focus on and be diligent to sticking to a plan. For instance, start with your food category total spending and then you can break it down even further and set targets for dining out, groceries, and fast food.

Revisit your goals regularly to stay motivated and committed to your plan. Put pictures on your wall representing what you're working towards and keep the big picture in mind.

Pro Tips for Sticking to Your Budget

• Automate savings and bill payments
• Use cash envelopes for discretionary spending
• Focus on improving in one spending category at a time
• Set up spending alerts to avoid overspending

Budgeting doesn’t have to be complicated, but avoiding these common mistakes can make all the difference.

By tracking expenses, setting realistic goals, and adjusting your budget as needed, you’ll be well on your way to financial success. Remember, creating a successful budget isn't about perfection - it's about progress.

By avoiding these common mistakes, you'll be well on your way to financial success. Start implementing these tips today, and don't forget to regularly review and adjust your budget as your life circumstances change.

Your future self will thank you for taking control of your finances now!