You’re Probably Making These 12 Budgeting Errors — Here’s How to Fix Them

I consider myself a sort of personal finance junkie, trying to soak up as much information as possible to hone my budgetary skills. I like to binge-watch YouTube videos of George Kamel, The Money Guy, and Caleb Hammer, to name a few.

My grandmother and I used to spend time together watching Suzie Orman’s show and Gail Vaz-Oxlade’s ‘Til Debt Do Us Part. I’ve read a bunch of books on the topic and countless blogs and put much of what I’ve learned into practice. I also learned quite a bit from my mom, who worked in the banking industry for over 30 years.

My husband and I have paid off over $65,000 in debt in a few years (that’s crazy to type). We’ve learned a lot along the way — especially what not to do when it comes to making a budget.

Here are 12 budgeting errors you’re probably making (besides not having a budget at all) and what to do instead.

1. Budgeting Based on Your Gross Income

A big mistake budgeting newbies tend to make is basing their budget on their gross income. In other words, they start with their full salary instead of their take-home pay.

However, setting up a budget before you account for things like taxes and deductions for insurance, 401K, etc., can lead to big problems. When figuring your income, look at what actually hits your bank account each month and budget based on net income.

2. Your Budget Doesn’t Include an Emergency Fund

Dave Ramsey’s popular Baby Steps include two separate points concerning building an emergency fund. He recommends saving $1,000 first to handle small emergencies that could derail the rest of your goals. Then, after tackling debt, saving up to three to six months of your income is advised.

It’s common for people to leave emergency savings out of their budget, making it difficult to save anything.

Pay yourself first when you receive money, setting aside 10% toward savings. If you can’t swing 10% yet, start with what you can and work up to it — but save something.

3. Leaving Out Certain Categories

My brother-in-law recently asked us to peek at their budget to offer suggestions. I scanned it and saw the expected expenses, like a mortgage, utilities, car insurance, gas, car payments, and debt.

What I didn’t see were any lines for health, clothing, pets (they have a dog), or their kids (they have three). I asked my husband, don’t the girls take gymnastics?

They quickly saw why they were running out of money each month even though they were “sticking to their budget.” Make sure to think about everything you spend money on when determining your spending plan.

4. Forgetting About Annual Expenses

My friend mentioned to me once how he was frustrated about random expenses that kept popping up. He said he had a budget, but then the car insurance would be due or property taxes.

When the bills came, it threw off his plan. He had forgotten about these non-monthly expenses.

My hubby and I add up everything we pay once or twice yearly, like insurance, alarm monitoring, membership fees, etc. We divide it by 12 to get a monthly amount that goes into a high-yield savings account to pay for these bills when they come due.

5. You Don't Change the Budget Each Month

For the longest time, I tried to follow the same budget every month. After I got married, my husband and I struggled to stick to our plan because we didn’t allocate funds properly.

We realized we needed to adjust our budget to fit the upcoming month. Certain things always remain the same — fixed expenses, like the mortgage, internet, and insurance. However, many discretionary items change from month to month.

Each month, we tweak our budget, discussing what’s needed in each category. It makes things so much easier, and we stay on track because we’ve planned for the month.

6. There’s No Wiggle Room in Your Budget

Depending on your financial situation, leave some wiggle room for wants. Our current short-term goal is to save up for termite damage repairs (ooh, what fun). We plug in fixed expenses, what we think we’ll need for other items, and then set aside the rest for repairs.

However, we’re more likely to veer off course if we set amounts too tightly. Instead, we leave some margin for last-minute birthday parties or a clogged toilet. Then, inevitable surprises don’t throw off our big picture.

One of the best ways to free up margin in your budget is to eliminate debt.

7. You Don’t Pay Attention to Percentages

I first started thinking about my budget in terms of percentages when I read Gail Vaz Oxlade’s book Debt-Free Forever. I watched her show, ‘Til Debt Do Us Part, and read more of her books.

I consistently saw the recommendation to divvy up income over broad categories like housing, transportation, savings, debt, and life. Many personal finance gurus suggest specific benchmarks to determine if your budget is on track.

For example, the 40-30-20-10 Rule recommends earmarking 40% of your after-tax income to housing and food. Then, 30% goes to discretionary funds, 20% to savings and debt, and 10% to giving.

8. Underestimating Costs

A survey by Nerd Wallet found that roughly 83% of Americans who budget admitted to overspending. There could be many reasons for this, but I find that people underestimate what things cost when they plan their budgets.

Therefore, when they start tracking expenses, they inevitably go over certain categories because they assume they would need less. We fell into this trap before we became more vigilant with steps five and six (tweaking our budget each month and allowing wiggle room).

9. Being Unrealistic With Financial Goals

You’ve probably heard the example of if a person’s 5’3”, they probably won’t be playing in the NBA. (Of course, there’s always a chance — just ask Muggsy Bogues.) But it’s certainly not the norm.

Imagine you want to be debt-free in a year with $20,000 in debt. You would need to put approximately $1,700 a month toward debt repayment. If all you have after fixed expenses and being super frugal is $500, one year isn’t realistic.

Improbable goals increase the chance you’ll give up. Goals are important, but make sure they’re attainable, even with sacrifice and hard work.

10. Not Using the Right Budgeting Tool for You

Ramit Sethi (I Will Teach You to Be Rich) has his Conscious Spending Plan, and Ramsey Solutions praises the EveryDollar app. My accountant husband and I use an Excel spreadsheet, and my mom saves her receipts and writes everything down.

The point is that everyone is wired differently, so we all shouldn’t be using the same budgeting tools to track our expenses. You need to find what works for you so that you’ll stick with it.

Try out a few over several months to discover which one is your favorite.

11. Handling the Budget by Yourself

If you live solo and have absolutely nobody else sharing finances with you, then fine, budget by yourself. However, if you live with someone whom you share your money with, budgeting needs to be a partner practice.

It’s much easier when both parties are on the same page and know what’s happening with the finances. My husband and I regularly touch base on our financial goals, current budget, and any necessary changes.

12. Not Tracking Expenses

Caleb Hammer, host of the YouTube show Financial Audit, often asks his guests how much they think they spend in a month. They almost always have no idea what they actually spend because they don’t keep track.

If you don’t have any idea where your money is going, you can’t create a realistic budget. Also, if you don’t keep track of what you spend, you have no idea if you’re under or over your budget.

Use an app like Expensify or Shoeboxed or an old-school pencil and notebook to track your expenses each month.