A lot of common budgeting mistakes occur because a lot of people don’t realize that building a family budget help them to manage their finances
They give up quickly and never consider budgeting their income again
Let me take it this way
What would make you stick to your monthly household budget is that
You noticed you stopped living paycheck to paycheck
Your budget sorted your priorities into saving money for retirement and building an emergency fund
What is most important you stayed in control to pay off your debt
I recommend you read my common budgeting mistakes below if you are about to start or already started budgeting
It is never too late so let me start with
1) Keeping a rigid budget all year round
It doesn’t make sense to treat all months during any given year with the same allocations for different expenses
For example, in Summer expect your kids to ask you for vacations and weekends activities that require to book for hotels
Even if kids are not pushing you or you don’t have kids at all
You cannot ignore the fact that when summer comes you have to enjoy the weather and pay more to for entertainment
I live in Canada, so I have only short period around 4 months from May to August for the outdoor activities
I have to enjoy every moment as winter arrives fast and I get stuck at home again
To avoid rigid budget mistake
List all expenses you do or don’t pay for on your budget and carry them over from one month to another
Who knows an expense like outdoor activity in winter is zero but in summer you would definitely plan for it
Same for holiday gifts assuming you separate it from birthday gifts
In December you should plan for Christmas or Hanukkah and keep it as zero in all other months
Same concept applies to some expenses like grocery, expect to allocate different amount for each month
For example, in summer you may invite friends and family to a barbecue in your backyard or if you host a specific event like thanksgiving or new year
2) Building a strict budget
I know you may have plans to use the leftover from your income into saving for your retirement or building an emergency fund
It would be appropriate if you plan a lean budget with real allocated amounts to your expenses than a strict budget that can disappoint you later
For example, if your grocery is on the high end of $500 and you create a budget of $450 monthly
How you would expect to meet the $450 grocery unless you already analyzed your numbers and figured out what was causing your grocery to spike
To avoid building a strict budget
One of the common budgeting mistakes not adding wiggly room for expenses and allocate emergency expense to use its money to cover any deficit
Don’t copy any expense amount from previous month as is but do your due diligence for possible things that can happen that would change your numbers
Always track your spending on a weekly basis to spot any deviation
3) Not sharing your budget with the family
If you are married with or without kids, one common budgeting mistakes is not creating a family or household budget not a personal budget
At least spouse should agree together that all values are allocated properly to expenses
According to Dave Ramsey’s book Total Money Makeover
He describes one partner as nerd while the other is the free spirit
This is true as I always debate with my wife on setting the right amount
I act as the nerd and she acts as the free spirit, surprise she is always right
To avoid keeping budget away from family contributions
Always remember that no matter what you cannot handle all the expenditures by yourself
All family members should agree on the approved budget to meet the final goal and all of you should be transparent to each other
Ask your kids if they have any unexpected amount for school activities to include in your family budget
4) Missing setting up your budget before beginning of the month
Why you think your budget fixes your monthly finances
Simply because you agreed to make few sacrifices before the start of the month
For example, let’s say it’s December where holiday gifts are at its peak
You are willing to reduce few expenses like your clothing expense and morning coffee since you will definitely get gifts
It is a common budgeting mistakes as you have to plan ahead before you start the month
To avoid missing your budget before beginning of month
Make it a habit to work on your new monthly budget the last weekend of current month
One common budgeting mistakes not using reminder apps like Any.Do on your Andoird or iPhone
5) Guessing your monthly expenses
One of the common budgeting mistakes is to guess your expenses based on a quick calculation you make
Or maybe based on weekly spending for a particular expense and multiplying it by 4 to get the monthly amount
For example, if you do you grocery weekly and you paid $74 last time
You take $74 and multiply it by $4 so you get around $300 later on you discover you spent $550
I know why? some weeks I go to grocery stores to buy everything including meat and poultry and sometimes I buy fruits and vegetables only
Rule of thumb, not all weeks will be the same as I discussed under rigid budget
To avoid guessing expenses and get right expenses amount
Avoid taking any spending for a short period of time and multiply it to get the monthly expense
If you want to predict a precise amount of any expense or close to the right value
Go back to the last 6 months on your credit card statements and track all of your spending for this particular expense
If you are not using credit cards and you are paying cash then keep the receipts but make sure to remove any items not considered of this expense type
For example, if you go to Walmart for your grocery shopping and you buy a pajama then deduct the amount from the total amount
6) Not using a digital budget
Although I am a big fan of anything and everything that makes my life easy
That doesn’t mean I completely replace paper budget with digital one
Paper budget is great way to enforce holding yourself accountable
But also digital budget instantly calculates all numbers for you with a click of a button
To avoid using paper budget only
Before the beginning of any month, you need to complete your budget assessment
There will be a lot of scratches and recalculations, it is a tedious job and can take a lot of time even when using a calculator
Why don’t you use a digital budget when putting up the numbers before you commit yourself to your budget
Then you can use the paper budget handy to look at your numbers and compare your spending to actual amounts
7) Not tracking your daily spending
The key to keeping your monthly budget on track is to track your daily spending
To avoid not tracking your daily spending
I have an easy spending sheet it can be used as daily or weekly spending
you can use an app like spending tracker on Android and iPhone
8) Cutting entertainment completely
Whether you have debt or loans to pay and you want to take it seriously
I don’t know your current financial situation but I know one thing
We as humans can’t survive without hanging out and spend some money on entertainment such as vacations
One common budgeting mistakes is to cut any kind of entertainment from your budget completely
To avoid cutting entertainment completely think about
It is almost impossible to budget your income without considering entertainment as an expense in your budget
Think about your spouse and kids if you have
If you can do it, they cannot do it especially kids so entertainment is essential core in your budget
9) Not writing down your financial goals
Just write down your financial goals and keep it in front of you
It is as simple as that
Most people don’t see any benefits for writing down their financial goals
They think why they would write their goals down, they don’t forget it
Well, I did not say they have a short memory
It is just that when they write their financial goals, it keeps themselves focused and motivated to achieve their targets
To avoid not writing down your financial goals
I made it simple for you and created already a financial goals roadmap
10) Not building emergency fund
Imagine you already setup your monthly budget and you started to put it into action
All of the sudden, your car stops in the middle of the way and you call a towing company to get your car to the mechanic
It is one of the common budgeting mistakes that can mess up with your monthly budget even if you have taken all of your precautions
To avoid emergencies that mess up with your budget
You have to build an emergency fund by saving $1,000 as a baby step
11) Skipping saving for retirement
Did you ever ask yourself what is the main core for doing your monthly budget?
You may say budgeting is a way to control your spending, pay off your debt and control your finances by making sure you make the most out of your income
All the above are correct but if you don’t include saving for retirement as one of the monthly budget goals
You have to think about your retirement saving plan seriously with at least 10-15% of your income
To avoid skipping the saving for retirement
Keep in mind that when you contribute to RRSP in Canada or IRA in US, it is considered a tax deduction to your total income
This means you get a tax refund when doing your taxes
A lot of companies match your contribution up to 6% so if you contribute 6% that’s 12%
It will not hurt you as it will be deducted from your gross income
Just budget your take home pay after your contribution
12) Forgetting seasonal expenses and tax income
Seasonal expenses are something that come up where you totally forget about them or based on mails you receive
It is better to keep track of them if they are recurring like summer camps for kids, car license plate renewal, regular oil change, annual car maintenance and AAA/CAA membership renewal if applicable
The positive side is the tax refund income when you file your taxes
To avoid forgetting seasonal expenses
Brainstorm on top of all the listed below seasonal expenses and add them to a sheet that contains the expense name, amount and due date to be paid
Put the due date even if the renewal is coming in 5 years or more like Passport renewal
- Occasional clothes like school uniform, a suit or dress for attending a wedding or engagement
- Hobby supplies e.g. my Siteground web hosting annual renewal
- Office supplies e.g. my printer toner around once every 2 years or based on your consumption
- EZ pass in US or 407 in Canada, any other used toll
- AAA in US or CAA in Canada if applicable
- License plate renewal
- Car maintenance and emission test
- Driving license renewal
- Passport renewal
- Doctor’s appointments and any drug you refill every 3-4 months
- Software renewal like your antivirus or Office membership if applicable
- Amazon prime if applicable
- Professional degrees fee like PMP or CPA if applicable
- Property tax or HOA stands for Home Owner Association fee, I recommend to ask your bank to deducts a small percentage with every mortgage payment
13) Giving up too early
If you give up too early or after a while that your family budget is not for you for any or all of the following reasons
- You believe creating a family budget does not benefit you at all
- Working on your monthly budget takes lot of time and you cannot handle that
- Family budget does not save you money
- It always goes out of your control and all of your estimations are wrong
To avoid giving up on your family budget
I will answer the above reasons in order
You say your family budget does not benefit you
I smell one of the spouse does not want to commit to a budget
Please read my post how to convince your spouse to commit to a budget
If your concern that budgeting your monthly family income takes a lot of time
I agree that the first 2 or 3 monthly budget would take more than 2 hours but it should decrease significantly in time every month
Because you have all numbers from previous month and what works for you and what does not
You just need the commitment to stick to realistic amounts that you set on
If you believe family budget does not save you money
I know what is wrong, your income does not align with your expenses
Let’s assume that you stick to your amounts but the root cause is that your cost of living is not aligned to your income
e.g. your mortgage/rent is eating up your take home pay
I discussed that it is highly recommended not to exceed 25% of your take home pay on mortgage/rent
You have to work on a side hustle to increase your income
I recommend to read how to avoid living paycheck to paycheck
Last thing, if your monthly budget always goes out of control and your estimations are wrong
Please review all the above common budgeting mistakes and figure out which mistakes you commit
If you set an amount for certain expense then you will have to commit to that amount
Your family budget is not a commitment tool, it is just a guideline
Finally I hope I covered all the common budgeting mistakes
Now I would like to discuss what to do if your spouse won’t participate in your budget