12 Common Budgeting Mistakes + Tips to Avoid Them (2024)

Having a budget is a big part of building your financial house. Still, budgeting is easier said than done.

For many people, starting a budget can feel overwhelming. And for the folks who have tried a budgeting process, some don’t stick with it. For others, it seems too restrictive, stressful, and full of budgeting obstacles.

We’ve all been there!

Starting and maintaining a budget – or spending plan – can be challenging. And it’s easy to make mistakes and give up.

But by knowing the typical budgeting pitfalls, you can take steps to make sure they don’t thwart your financial goals.

Read on to learn the most common budgeting errors and how you can steer clear of making them yourself.

12 Budgeting Mistakes and Tips to Avoid Them

Mistake #1: Not having a budget

Even though more people are budgeting now than in previous years, many Americans don’t budget at all.

Of those that don’t budget, many think they don’t earn enough money. Others believe budgeting is stressful and time-consuming.

Yet, not having a budget—or having one that you don’t use—can lead to overspending, lower savings, more credit card debt, and higher financial stress.

Avoid this mistake by making a spending plan and using it.

Budgeting may not always be fun. But it helps you pay your bills on time, keep track of spending, and plan for the future.

In a recent survey of people using a budget, 85% said it’s helped them get out of or stay out of debt. And others said it’s helped them save more and reach their financial goals.

Mistake #2: Guesstimating expenses and income

An estimated budget is better than none at all. But not using accurate numbers means your budget can’t do its job.

Guesstimating your budget leads to inflating income and underestimating spending.

In other words, guesstimates are more wishful thinking than actual numbers. Not only is it ineffective, but it interferes with financial goals.

Avoid one of the biggest budgeting mistakes by tracking your actual living expenses and take-home income for a month.

Be honest about the numbers – not what you want them to be. And then set realistic budgeting categories. Being real about your situation leads to better financial success.

Sure, it might be less than ideal at first. But it’s better to know the actual situation than have a false picture of your finances.

The important thing is to create a long-term budgeting habit that you can stick with and improve in time.

Mistake #3: Using the wrong budget for you

A saving and spending plan does you no good if you don't use it.

If you've tried a budget and it didn't work, you might think budgeting doesn't work for you. Yet it probably means that particular budgeting method didn't suit you.

Avoid this mistake by finding an effective budgeting strategy that you will use. Budgets are as individual as people; not all systems work for everyone.

When your budget does work for you, you’re much more likely to stick with it.

Sometimes you have to try a few methods before you find one that works. If a budgeting method feels super difficult, move on.

Try to find one that's easy and convenient for you to use and maintain.

Whether it's a budgeting app, spreadsheet, or paper and pen, there's something out there for everyone.

Tiller is one popular budgeting and money management tool we recommend.

Mistake #4: Not leaving any wiggle room

It is motivating to set lofty budgeting goals at first. But a super restrictive budget is no fun. If you don’t budget enough each month, it leads to budget burnout.

For some, burnout leads to going on a spending spree and giving up on budgeting altogether.

Avoid this mistake by having some flexibility in your spending plan – for the necessities and some fun too.

If your budget planning is too restrictive, you probably won't stick with it, and before you know it you might be whipping out the credit card and going into debt.

Sticking to your budget can be the difference in reaching your financial goals.

Mistake #5: Giving up too soon

It can be challenging to maintain a budget at first. Some people give up when it feels too restrictive. And others give up after they spend too much one month.

When a budget doesn’t seem to be working out initially, it’s tempting to throw in the towel.

Avoid this mistake by creating a budgeting habit you can stick with long-term.

Like any other habit, it takes time and patience to create accurate budgets.

Do what you need to do to make budgeting easy and satisfying. And incentivize it if you need to.

Start small and take it one step at a time; every step you take will get you closer to your goal.

Most of all, be kind to yourself! If it doesn’t work for one month, that’s okay. The next month is a fresh start.

Maybe you need to revise your initial budget or find a new method. But don’t give up!

Mistake #6: Forgetting irregular expenses

Forgetting about irregular expenses in your annual budget is a common pitfall. While you might not forget to add your mortgage payment, you might forget to include your yearly car registration or the annual cost of your holiday spending.

It might not seem to be a big deal, but doing this too much derails your budget and financial plan.

When you borrow from other spending categories or savings, it can throw off your entire spending and savings plan and make it hard to catch up.

Avoid this error by reviewing your upcoming, irregular expenses often. Break them down and include them in your monthly budget.

You might need to make adjustments to other categories or save for them until they're due.

For example, if you know an insurance bill is coming in 3 months, you can set aside a third of the payment each month until it's due.

Below are a few variable expenses that are easy to overlook:

• Insurance
• Quarterly taxes
• Membership fees
• Retirement contributions
• Holiday/birthday gifts and spending
• Vet expenses
• Vacations

Creating sinking funds to save for the actual expense of these non-monthly items or future big purchases is a helpful strategy to avoid taking on debt or tapping your emergency savings.

Mistake #7: Failing to revise your budget

For most people, income and expenses fluctuate from year to year or month to month, even payday to payday.

When your budget doesn’t vary with these changes, it's ineffective. And it can lead to budgeting gridlock.

Avoid this mistake by scheduling time to review and revise your budget. Ideally, this is monthly, but you could also do it quarterly or annually if that works better for you.

Couples can make it a date and use the opportunity to review spending habits and get on the same financial page to ensure they're both following a realistic budget.

Mistake #8: Not having an emergency fund

Whether it’s medical expenses, car repairs, or home maintenance – large, unplanned expenses can and do happen (even if you don’t think they will).

And if you don’t prepare for them, they will crush your budget, sink you into debt, and impact your financial health!

Avoid this budget buster mistake by having money set aside for emergencies.

Whether it's $100 or $5000, any amount saved helps when unexpected or unpredictable expenses show up so you aren't using credit cards to make ends meet.

Start small and add extra money to your emergency savings each month. Include it as part of your monthly budget, and you'll have it built up to 3-6 months of living expenses before you know it.

Mistake #9: Not having clear financial goals

Financial goals provide an incentive to budget. If you haven’t thought about or written down your goals, you might not have the motivation to create a spending plan.

Everyone has financial goals, though not everyone defines them.

Your goals might be to pay off debt, take a trip to Hawaii, buy a birthday gift, or retire at 55. But if you don’t clarify them and make budget estimates for your goals, you aren’t likely to reach them.

Avoid this mistake by identifying and writing down your financial goals and creating a financial mission statement. They will provide the motivation you need to start a budget – and stick with it.

Think of your plan as enabling you to do the things you want to do, not deprive you.

Mistake #10: Not finding ways to reduce “fixed” expenses

It's a common error to assume that monthly fixed costs, like cell phone and internet service, are set in stone.

But these are often negotiable!

When you stay with expensive providers or plans—you could be missing out on savings (and a reduction to your budget!).

Avoid this mistake by trying to reduce the actual cost of regular services.

Call service providers and ask if they have a different plan. Or see if their competitors can offer you a better deal.

Perhaps you can negotiate a rent decrease or refinance your mortgage.

Do some digging to see what options you have for reducing a monthly expense.

Even small savings on a regular basis can add up!

Mistake #11: Being intentionally vague or leaving spending out

Who doesn't love a miscellaneous category? It can make things easy. Too easy.

When you lump some spending into a catch-all category or omit it entirely you can easily miss overspending and undersaving.

It can also cover up bigger issues in a relationship if money is hidden by one partner. Not agreeing on every purchase is okay and maybe even expected in a relationship. But no one should have to hide it.

Avoiding this error is crucial for those living paycheck-to-paycheck. It might take a little more work, but we're talking mere minutes here not hours. Tracking expenses and categorizing all your spending will help you avoid cost overruns and keep your plan on track.

Mistake #12: Not reviewing credit card and bank statements

Regular review of your bank and credit card statements is crucial to avoid having money leak out of your budget and financial accounts.

Yet too many people fail to review their purchases or automatic bill payments and end up paying for services they didn't request or products they didn't buy, or paying for them twice!

Worst-case scenario you could be the victim of identity theft and not know it until significant financial damage is done.

Avoid this mistake by reviewing your statements at least monthly.

Tiller and Empower, among other budgeting software and financial apps, make this easier by pulling all your daily financial transactions into one system.

You can also set up real-time spending alerts for your credit cards and opt-in to any free identity theft monitoring your financial institutions offer.