According to a Gallup poll, you’re most likely to budget if you make at least $75,000 per year. Considering I’m a budget coach, and 75% of my clients make under this number, you can imagine how disappointing this statistic makes me. I’m sure there are people under that salary range who’ve tried budgeting and it didn’t work. There were mistakes holding their budget back.
I truly don’t believe the issue is people not taking budget seriously. However, I do believe a lack of knowledge of how to budget and a lack of understanding how important a budget is leads to a majority of the problems. If you haven’t gotten into a flow with proper budgeting, I’m sharing 6 mistakes holding your budget back. Before I get into mistakes holding your budget back, I need to reiterate how important a budget is.
Top 3 Reasons Why You Need a Budget
Without a budget, you don’t have full control of your money
The first, and debatably most important reason you need a budget is because without one, you really don’t have full control of your money. Control comes from knowledge – knowledge of what money is coming in, what money is going out, and what money is left over. Without a budget, you don’t know those things. When you don’t know those things, you can’t fix problems.
Without a budget, you don’t know what you could be saving
Another reason why you need a budget is because without one, you don’t know what you could be saving. You may have an idea in your head about how much you can afford to save, but are you saving that number? If not, it’s probably because you don’t have a budget! A budget will show you what you can afford to save, and keep saved!
Without a budget, you don’t know what you should be spending
Lastly, without a budget, you don’t know what you should be spending. You could be spending much more money than you should be, on things you don’t need. That means it’s going to take longer for you to reach your goals. When you have a budget, you know what you should be spending. You can dictate how your money is allocated to everything. Without that, you’re doing yourself and your finances a disservice.
6 Mistakes Holding Your Budget Back
#1 Not being consistent with it
Now that you know why everyone needs a budget, let’s get into common mistakes holding your budget back. The first one is a lack of consistency. If you don’t give something (including budgeting) a chance to work, it will never work! No one is perfect with anything in the beginning, but successful people don’t give up.
If you aren’t being consistent with your budget, you’re not giving it a chance to work and show you what can be improved. The great thing about budgeting is that it’s fluid. It can be customized to the user. However, without starting and staying consistent, you won’t get the opportunity to make it work for you.
#2 Not following the right method for your situation
There are certain methods for budgeting, and no one is better than the other. However, a common mistake is using a method that doesn’t work for your situation. For example, if you are paid bi-weekly and budget by paycheck, but your expenses aren’t even each pay period, you may need to budget by month.
When you don’t follow the right method for your situation, you run the risk of your budget failing. This can lead you to believe that budgeting overall is the problem, when in fact, it’s the method of budgeting you were using. Don’t be afraid to test different methods to find what’s best for your situation.
#3 Forgetting about variable expenses
It’s easy for anyone to create a budget with the bills they know are due every month – same date and same amount. But, what about the expenses that are necessary but don’t have a set date or amount each month? Things like groceries, gas, prescriptions, and transportation costs.
Forgetting about variable expenses is a mistake that can hold anyone’s budget back. We absolutely need to account for these things, but since it’s not consistent, people tend to leave them out. If you aren’t sure where to start with factoring in variable expenses, start by taking an average monthly amount spent in the past. You can always adjust moving forward.
#4 Forgetting about discretionary spending
Similar to forgetting about variable expenses, forgetting about discretionary spending is a common mistake holding your budget back. Discretionary spending is a necessity for everyone, but often times, people don’t know how to budget for it. That leads to them leaving it out of their budget, but spending money on it anyways.
Like I suggested for the variable expenses, if you don’t know where to start with creating an amount for discretionary spending, find the average monthly spend from previous months. We all need a starting point, and it can be adjusted from there.
#5 Not tracking your spending
While I don’t want to discredit the power of actually creating a budget, unfortunately it doesn’t just stop there. You must work to make sure you’re actually following that budget. The best way to do that is by tracking your spending.
Tracking your spending means you are aware of every purchase made and what category it aligns to in your budget. When you know this information, you can gauge how well you are actually following your budget. Tracking will also let you know if you have forgotten about certain expenses, or if you need to change the amounts allocated to your budget categories.
#6 Being unrealistic with your goals
Finally, the last common of the mistakes holding your budget back is being unrealistic with your goals. You can’t expect to save $5,000 in 5 months when your budget shows you can only afford to save $200 a month. Being unrealistic with your goals sets you and your budget up to fail.
You have high hopes for your goals and you want to achieve them as quickly as possible, which is perfectly fine and commendable, but you need to be realistic. Set yourself up for future success by being realistic about what your situation can allow you to accomplish. Create goals after you understand your numbers. Challenge yourself, of course, but do so in a realistic way. Check out The Best Way to Set Your Money Goals for a few tips.
If your past budgets haven’t been cutting it, it’s time to try something new! Schedule a free consultation with me and let’s make your next budget a success!
Related: 5 Budgeting Myths to Forget Now
Budgeting can be a lot of fun when you know what you’re doing! If you can fix the six mistakes above, you will see a positive change in how effective budgeting can be for you! Were you making any of the mistakes above? What challenges have you had with your budget in the past? Post a comment below to share!
The CGS Team