Common budgeting mistakes

By Matt Mayerle
Modified on May 8, 2023
Common Budgeting Mistakes

Building and maintaining a budget is one of the best financial habits you will ever form. Looking at your money through your budget will make tracking expenses easier by clearly showing you how much you have and where it needs to go. But, budgeting is not an exact science. It takes time and effort to build a budget that meets all your needs. And during that building process, you’re guaranteed to make some common budgeting mistakes.

Let’s break down some of those mistakes now and find ways to catch them early and get that clear view of your money.

What is a Budget?

Simply put, a budget serves as a spending plan details your income and expenses. It lists different necessities that can be categorized and prioritized to cover your financial needs effectively.

How To Build a Personal Budget

For many people, budgeting seems like a task that requires an accountant or tons of know-how. But in fact, a budget is just a bunch of lists. These lists are spending categories that you fill with the bills you have to pay each month.

Start building your budget by understanding exactly how much money you’re working with. Gather your pay stubs, bank statements, and anything else that reports your take-home pay and total everything up. You need to know your net income, so be sure to apply all applicable taxes if you are self-employed.

Next, start making the lists that will become your spending categories.

Identify Your Expenses

Your monthly expenses come in two forms.

Fixed expenses are the same amount every month. These expected expenses include items like your rent or mortgage, loan payments, or tuition.

Variable expenses are irregular expenses that can total different amounts every month. These bills depend on your usage or needs, like groceries, utilities (like an electric bill), credit cards, or transportation (gas money, Uber rides, bus fare, etc.). As you can see, living expenses can be both fixed and variable expenses.

Budgets aren’t just for bills. Make separate categories for the other things you put money into, like entertainment, charitable contributions, or savings and investments. You can either write your budget out with pen and paper or use a budgeting app that will do the math for you.

Total each spending category. That number is the total amount of money you need for your monthly spending. If it is larger than your take-home pay, you’ll be able to see where you need to make adjustments or cuts. This part of budgeting can be the most difficult. You’ll have to decide what is most important and prioritize those things, so you pay them before less critical things. It’s in this prioritizing where we make many of our budgeting mistakes.

What is a common mistake made in budgeting?

If you’re working with a budget every month, congratulations! You’ve already got the hard part out of the way—getting started. But, since you’re human, you’re going to make some budgeting mistakes. Let’s take a look at some of the most common budgeting mistakes.

You Didn’t Stick to Your Monthly Budget.

Budgeting monthly is one of the most manageable ways to stay financially organized. But, the only way that it can work is by accurately anticipating your spending needs.

You may have the same creditors to pay every month, but that doesn’t mean that you’ll be spending the same amount every month. Failing to adjust for monthly fluctuations is a common budgeting mistake for beginners. There will be times during the year when you’ll spend more money or have fewer needs. For example, you may buy lots of gifts during the holidays or use less electricity in the summer. These factors will mean making changes to your spending categories.

Before the end of each month, take time to think about what you’re going to need for next month’s budget. Look at your calendar for celebrations or events that may require a bump in your spending. Then use your current month’s budget as a starting point for the next month; you may find that you only need to add a few items here and there to make sure that you can pay for everything. To keep it consistent, do this task every month on the same day.

Not Including All Your Expenses

Another common budgeting mistake is leaving regular financial commitments off your budget.

Let’s say your first budget version works well for two months. But on the third month, your quarterly water bill is due. With a “new” expense added, your spending plan will need to be adjusted so that you can pay your bill. Making one change in one spending category will affect the others.

A budget works best when you include all parts of your spending. Many people will try to budget but fall short when they don’t include the little things. For example, it’s great that you’ve planned for your phone bill, but what about the 3 dollars you spend every weekday at your favorite coffee house? That’s over $600 in annual spending that you aren’t accounting for! You can make better decisions when fully aware of how your spending habits affect your cash flow. Like brewing coffee at home!

Not Planning Your Fun

When people try to handle their spending habits, they realize that entertainment or outings may eat up a lot of money. So, they cut those things out.


No matter what is going on, relaxation is critical to your overall health. You don’t need to have “extra money” to do fun things. Instead, you need to plan for your fun.

Create space in your budget for seeing movies or going out with friends. Or, you can make a long-term plan to do something big, like a dream vacation or a concert featuring your favorite performer. If you use your budget to plan for fun, you can make it manageable.

Living Outside Your Means

When you list your expenses, you may discover that some life changes may help your cash flow. Sometimes we identify our wants as needs and overspend in some instances where we could have saved a dollar or two.

For example, you may not need to have all of the streaming services available. Or, perhaps your car can run on regular-grade fuel instead of the premium?

It can be a tricky process to get rid of the little comforts in life. However, with budgeting discipline, you can set goals to eliminate debt or other expenses that will allow you to have money for all the little extras. Learning how to budget on a low income is very important.

No Savings Plan in Your Budget

We learn early on that paying bills is essential, but beginners’ budgeting plans rarely include paying themselves.

Even if you start budgeting small, setting aside savings should be second to caring for your basic needs. When you retire or are unable to work, your savings account can be a safety net that keeps you afloat until you can get back on your feet. When the unexpected pops up, your bills will still be due. Having a savings account will help make sure you stay on top of things.

Not Building an Emergency Fund in Your Budget

An emergency fund is an account that has money set aside to cover the unplanned expenses in life. An emergency fund holds the cash you would need to handle issues like sudden health care needs, a car repair, or a loss of income.

There are two essential things to remember about emergencies:

  • You will have one at some point in your life
  • You don’t know when it will happen

You can budget to build your fund slowly; your basic, everyday needs must take priority. But, putting aside anything will mean less of an impact on your finances when an emergency does happen. This reserve will help you avoid adding more debt in the future.

A good long-term goal is to build a fund that has money to cover three to six months of your expenses.

It’s also important not to use your savings account as an emergency fund. Your savings needs to be left alone as often as possible so that they can grow on regular deposits and bank interest.

You Didn’t Make a Budget at All.

There isn’t a budget mistake that will do more long-term damage to your financial health than not creating a budget at all.

When people don’t make a healthy Financial plan for their spending, they set themselves up to overspend and run out of funds to pay their necessary expenses. With no budget goals to meet, the chances that you will be able to save for big purchases (like a home or a car) are slim. And funding your retirement without a budget will be next to impossible; living on a fixed income requires a great deal of financial planning and forecasting.

If you’re getting by now without an effective budget, you may never financially improve. You will continue to live paycheck-to-paycheck, panicking to pay bills paying bills when they become past due.


Budgeting is a big part of being financially stable. And learning what it means to be financially stable will benefit you for years to come.

Life can throw some unexpected curveballs that can throw even the most detailed budget off course. Whatever the budgeting mistake is, it’s crucial that you take steps to learn from it—and how not to repeat it. Making common budgeting mistakes will happen. Be okay with that, and know that many of them are inevitable; sometimes, we learn best from our mistakes. Stumbling down your financial path is not a failure. Just be sure to pick yourself up and keep working towards a solid financial future.

For more stats and facts about financial health, visit the rest of the CreditNinja blog! And if you’re struggling to make ends meet with a poor credit score, consider a no-credit-check personal loan!


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