5 Mistakes That are Killing Your Budget + How to Fix Them
I tried to create my first budget in 2018. I had just gone to college and I had thousands of dollars in savings to be used (sparingly) over the course of my first year.
Long story short I blew through my savings within the first two months of college. This isn’t uncommon, but what made it even more depressing is that I had created a budget and yet I still overspent.
That gave me a good lesson that I didn't know I needed. A budget SHOULDN’T be a wish.
I wrote my budget wishing that I would stay in line but not knowing that without will power and some serious habit change that budget wasn't doing anything for me.
So many of us were taught that if we think real hard and come up with some number that’s what a budget is, but it’s not. Far from it!
A budget should be an informed decision meaning you need to understand yourself, your needs, and what motivates you. The point of the budget isn’t to limit your spending but to make sure you're allocating your spending to things that matter to you and that have the most impact in your life.
It took me 2 years of failed budgeting to figure out the biggest mistakes I made when creating my first budget and by fixing these five things I was able to go from constant overdrafts to finally build my savings back up to a $1000
Here are the budget mistakes I made when I created my first budget and what you should actually do with your budget instead
Mistake #1: Choosing super conservative numbers
The biggest budgeting mistake that most people make and most certainly one I did for an embarrassingly long time was pretending like the cost of living did not exist?!
While my budget may say i’m only spending $50 on transportation, Atlanta transportation prices would definitely disagree.
We don’t get to pick what the prices of things and we can only make informed decisions using those prices. By pretending that things don’t cost as much you’re only setting our budget up for failure because we can’t will things to be cheaper.
By using the info you have to decide just how much you can afford then you can use your budget to decide when you've actually spent more than you can afford.
It’s better to overestimate than underestimate because constantly underestimating how much things will cost will eat into your budget until its all gone and you’re wondering how you spent so much.
How to fix this:
Starting taking note of what you actually spend in a month by going over your transactions and doing some quick calculation.
You can do this with apps such as Mint or Clarity money (they help you group your transactions!). If you don’t feel like going the app route you can also just go through your bank transactions with a calculator and do that bad boy yourself.
While the numbers you calculate may hurt, it only after you see the FACTS can you reasonably decide what you can actually cut down on!
Mistake #2: Pulled random numbers with no data to back it up
When I created my first college budget and I sat down in front of that google sheet I just started pulling numbers out of my ass.
Oh yeah, suuuuuure I’ll spend $50 on clothes because how many new clothes do I need anyway? Oh and an emergency fund? Who needs that!
Needless to say, don’t be like freshman year me.
All the things you think you don’t need/ won’t use/never buy anyway NEWSFLASH ya do.
It goes back to my first point of your budget should actually reflect your lifestyle. You will need clothes, you will need small luxuries and you will buy them whether they are in your budget or not.
How to fix it:
The key is to decide what is the minimum you need to sustain your variable purchases ( the things you don’t spend a set $ amount on) and once you decide what is the least you can actually spend on those things without going broke/ compromising your lifestyle that will be your sweet spot.
When picking budget numbers remember to factor in things like where you usually shop, how often you actually go out and the type of places you like to eat at.
After you have all those facts you can reassess your lifestyle and decide if those lifestyle choices are worth the money you pay for them and start looking for an inexpensive alternative to your usual choices.
Read: How I created my first budget (with Free excel link!)
Mistake #3: Pretending to be someone you’re not
We all have a vision of who we are and the crazy part is we spend like we’re that person in order to feel like we’re doing something right. I’m looking at you who thinks you’re gonna get up every morning and go to the yoga class knowing damn well you haven’t woken up that early since you were in the uterus.
It happens to the best of us. And it happens to our budget too.
When you’re creating your budget you need to get real with yourself about who you are and how you operate. So stop putting a zero dollar coffee budget saying “you’re gonna make coffee at home.”
The simple fix to this is to account for your negative behaviors. You don’t need to pretend they’re not there or your budget is doomed for failure, but if you know you’re particularly tempted by something either make room in your budget by making a trade-off to stop purchasing one other item or decide a more cost-effective route while still getting what you want.
Take me for example I love a good mani-pedi and in my head “sure, I’ll buy the stuff and do an at-home treatment” and guess what I did? I took my butt right to the nail salon, so after realizing this was an expense that I wasn’t ready to give up.
I asked around for recommendations for budget-friendly nail shop and while I was originally paying around $80 for acrylics (with tips) I was able to reduce my cost $50.
While I still have to pay for it, I was able to keep the expense but make it more reasonably fit into my tiny budget.
Get your FREE copy
Learn How I got a 700 Credit Score
Mistake #4: Didn't account for surprises
This one.
A beginner budget almost always falls into this pitfall. And it makes sense why! you can’t predict the unexpected so you create plans based on what you think is going to happen which is usually flawed because no one knows what’s going to happen in the future.
I realized this the hard way, after I had created my excel budget, I felt so happy to finally start taking control of my money and I went through March following my budget for the first time in forever and then BAM my jaw swells shut and I find out I have to get my wisdom teeth out.
Now if you’ve ever had to get a wisdom tooth out you know that sucker cost thousands of dollars especially with no dental insurance (can you say big yikes).
I didn’t see it coming but there was no way I could have. I’m not saying you need to predict the future but we all know that somethings going to go down we just don’t know what and the biggest discouragement when you’re getting your financial life together is having an unexpected expense that derails your budget.
How to fix this
First, ALWAYS leave the padding in your budget. Never budget to spend all of your money and no I’m not talking about savings (that a different beast) I’m talking about keeping your expenses low enough to leave about a $100 a month (more or less depending on your income) for unaccounted expenses.
I promise that the money will be spent.
This is your “when shit hits the fan money” its a “sinking fund (which is just short terms savings that going to be spent quickly)” so that you have a buffer for unexpected events.
Lucky for me I had about $100 of this buffer to get a consultation for my wisdom teeth and I had to go on a payment plan to cover the rest but if I hadn’t had that little bit of cash to pay for my consultation, me and my budget would have been screwed.
Mistake #5: Having no budgeting goals
I’m guilty of this one. As a young adult in college with no looming expenses I couldn’t think of a financial goal outside of being able to go out with my friends.
This doesn’t just apply for young adults though. Plenty of people grown up hearing to “save, save, save!!” and while we know it’s important we don’t exactly know what to save for.
I had a coin jar when I was little and I saved in it for a year collecting coin until it was filled to the brim and after I had hit the top of my coin jar I simply forgot about that money. You see my parents didn’t explain that savings were supposed to do anything so I was just stacking money for the sake of watching it grow.
And I’m going to tell you a piece of pretty controversial advice, money isn’t meant to look at. Yeah sure it’s nice to see those zeros in the bank, but what does that even mean? Money is a social construct but what it really means is an exchange for goods and services that brings you value.
So you collect that money so you have more leverage to get value.
Do you know what I did a few years later when I discovered that coin Jar? I decided to use that money buying everything under the sun.
I bought myself my favorite meals, books, and entertainment. I blew through that money within two weeks but I think it was a valuable lesson because I still look back on those memories with fondness because, to be honest, I didn’t have anything else to pay for so I spent that money to bring me joy.
Now I’m not saying you should save to blow all your money but I’m just reminding you that the reason you feel the impulse to spend is that that’s what money is made for! It doesn’t bring value unless you use it to bring value.
Here’s how to fix this.
Start getting comfy and cozy with your future self. Yes, the reason we tend to find it hard to have savings goals is that we haven’t taken time to analyze what our future self wants and needs.
This is crucial because guess what, future you is looking at you six months from now just hoping that you save enough money to move out or travel or whatever else.
Start visualizing yourself six months from now, a year, and even five years and see what’s in that picture. Is it travel, is it a house, is it pets, is it an awesome social life?
All those things cost money and that’s where your savings goals come in, they should directly address the life you want to have in the future and that money should be building so that one day you can use it to purchase the things that bring you happiness and fulfillment.
Start using apps like Pinterest to map out your dream life and spend your downtime thinking of your future self. This exercise will make your goals feel more tangible and give you even more of an incentive to get your financial life together and start saving.
Money in the bank doesn’t mean shit if you can’t use it to make your life better.
I hope you enjoyed reading this article, my journey with money has been filled with pitfalls but I hope you can learn from my mistakes and see where this is applicable in your life. Financial literacy is a journey and learning how to correct along the way is a part of learning and growing.