The 5 biggest budgeting mistakes & how to avoid them

Have you ever started a budget only to throw your hands up in disgust because “it’s not working” after a few months? Are you perhaps afraid to make one because you equate budgeting with financial dieting and deprivation? Whatever your reason, if you are currently one of the 60% of Americans who avoid the budgeting process, keep reading.

Proper budgeting is an essential ingredient to financial success. Do it right and you will be in control of your money, not the other way around. The good news is: creating a budget that works is neither painful nor difficult. The trick is to avoid the most common mistakes that discourage even the most well-intentioned budgeter.

Mistake #1: You don’t track your spending.

A lot of budgeting processes are overly general and will have you list your monthly bills and estimate reasonable amounts for other things such as lunches, gas, groceries, etc. The problem with such a general approach is that your estimates may be way off base. Marsha Baker, CPA and Professor of Consumer Finance at Lindenwood University, explains, “A lot of people are absolutely amazed as to where they spend their money. They have no idea that their daily coffee habit adds up quickly or that going out every weekend pushes them beyond their means.” If you haven’t tracked and observed your spending (and earning) habits, what you don’t know will almost always knock you off track and lead you to conclude: “budgeting just doesn’t work,” a conclusion that’s just plain, wrong.

You must track your spending for at least one or two complete months before creating your first budget. There are high-tech and low-tech ways to do this, but the bottom line is you have to take a clear-eyed look at where your money is going. If you’re a fan of pencil and paper like we both are, you can download a free monthly spending chart (or two) from Keep a copy in your wallet or purse, stick a copy on the fridge, and put one on your desk so you’re always ready to jot down what you spent right away. At the end of the month, tally it all up in a fresh worksheet. If you’re more digitally inclined, there is no better free tool than Register for free to create your account and link all your bank and credit card accounts to it easily. Just remember though, unless you pay for every, single thing with a linked debit card, you will still have to manually input cash expenditures so you can track them too.

Mistake #2: You mingle fixed & variable expenses in the same accounts.

Fixed expenses, like mortgages and car payments, recur every month with little to no variation in the amount due. Variable expenses, like groceries and entertainment, fluctuate. By co-mingling fixed and variable expenses in the same account, you increase the complexity of managing your money and budget unnecessarily. You also put your money for critical fixed expenses at risk from “oopsy” (or shall we say, unplanned) overspending on variable items.

Lee Roesner, entrepreneur and developer of the MoneySlinger Speed-Budgeting Personal Finance System, advocates managing each of these two groups independently by first determining the average monthly cost for each group of expenses: fixed and variable. He explains, “these two figures simply become monthly deposits into two separate bank accounts; each dedicated to one of these groups. Throughout the month, individual expenses are paid out of each account accordingly.” Untangling the two accounts makes your budget far easier to manage, and we can both say from experience, the easier something like a budget is to manage, the more likely to you are to stick with it.

Mistake #3: You consider savings last.

When you are forced to cutback or micromanage your budget, it’s painful. But rather than associating that pain with budgeting, recognize it for what it really is: a warning sign that you’re failing to save adequately. Too many people think about saving last, when in reality, it should drive the budget.

Amy Suardi, our savings expert and author of, advocates what she calls reverse budgeting for savings. She explains, “you put as much as you can into savings at the beginning of the month, and then you let things work themselves out for the rest of the month.” The folks at call this same approach the “Save-to-Spend” plan. No matter what you call it, saving first ensures that you are socking away for the important stuff, but still allowing yourself freedom to spend when things come up.

Mistake #4: You forget take into account expenses that recur irregularly, but frequently.

Every August for the past 75 years, my dad has a birthday. For at least half of those years, I’ve gotten him a present. Every Christmas I also buy presents for my rather large family. Then there’s school clothes and supplies for Will & Lachlan, car insurance, property taxes, etc. While these kinds of expenses aren’t regular in the sense they come up every month, they DO come up every year, or quarter. The same is true for everyone and if you fail to plan for them, your budget gets stressed and often you incur debt to meet the unexpected expenses – a budget breaker for sure.

Marsha Baker, CPA advises tallying up these recurring non-monthly expenses, dividing them by 12 and depositing that amount into a discretionary savings account on a monthly basis. If you get a paycheck directly deposited, split the deposit accordingly so you don’t have to think about it, or just sweep the amount into a savings account each month. Then when the inevitable expense comes up, there’s no stress, just an online transfer to cover the expenses. Easy peasy.

Mistake #5: You don’t comparison shop.

From grocery stores to clothing stores, if you’re not in the habit of comparing before you buy, you’re throwing away money that could be channeled into discretionary or emergency savings funds. You are also much, much more likely to engage in budget-busting impulse buying.

The internet has made it much, much easier to get what you need and stick to your budget, so before you head anywhere to buy something, check online first. Many times retailers have better deals online than they do at their brick and mortar stores. In addition, websites like compile promotional codes for everything from tax software to baby furniture from all the biggest retailers. Sites like sell gift cards for up to 35% off the face value and you can find discount gift cards for most any purchase need including apparel, groceries, gas, electronics, home goods, travel like airfare and lodging, movie tickets and much more. The bottom line: if you’re not comparison shopping, you’re hurting your bottom line.

Do you make any of these mistakes? Which ones get you? Do you have any other budget “watch-outs” that you think others should be careful to avoid?