7 Common Budgeting Mistakes That May Be Holding You Back

Creating a budget and not spending more than you make is possibly the most basic financial advice that you'll receive. Although it's not sexy advice, living off of a budget is an effective way to ensure that you're maximizing the money that you have, and minimizing waste. Unfortunately, there are a number of budgeting mistakes that are very common. Let's take a look at some of these mistakes so you can avoid making them.

1. Not Budgeting at All

The first mistake is not budgeting at all, or budgeting inconsistently. It needs to be included on this list because most people are making this mistake. By simply making the effort to budget and consistently sticking with it, you'll be ahead of most of the population.

2. Not Tracking Your Expenses

Creating a budget is great, but it's only the start. If you're not keeping track of your expenses, you really have no idea if you are actually sticking to the budget. There are a few different ways you can track your expenses. There are a number of popular apps, like Mint and Every Dollar for example, that aim to help you. However, not everyone likes using apps and some people find that they actually take more time instead of saving time. Alternatively, you could use a simple spreadsheet or even pen and paper. The method that you choose doesn't matter, but be sure that you are recording every expense each day so you don't miss anything. Then you can total up your expenses to be sure that you are actually living within your budget. If you're not, you can make adjustments as needed.

3. Overlooking Necessary Budget Categories

Some budgets accidentally omit important budget categories. Possibly the most common mistake here is taxes, especially if you're a freelancer or self-employed. The easiest way to be sure that you are not missing any important categories is to use a budget template. There are many of them available for download, or make use of a budgeting app that will help to make sure you're not forgetting anything.

4. Not Budgeting for Savings

When you are creating your budget, don't forget to have a category for savings. If you're filling up your budget with all of your bills and expenses, you will only save money when something extra is left over, and that typically doesn't happen. When you budget for savings, you'll emphasize the importance of savings and it will become a regular part of your financial habits.

5. Using Too Much of the Budget for Housing

How much of your budget should you use for housing? It depends on who you ask, but most experts recommend that housing should account for 25-30% of your budget. This includes rent/mortgage, property taxes, and insurance. There's no doubt about it, housing is expensive. It's very easy to spend more than the recommended percentage on housing, but that won't leave enough for all of the other budget categories. Staying within the 25-30% range may require some sacrifice or discipline, but it will make your overall budget work much more effectively (especially if you want to be able to save).

6. Not Prioritizing

Most people have negative feelings toward budgeting. We think of budgets as being restrictive, but really, the budget gives you the freedom to control how you are spending your money. It's important that you know your priorities. You don't need to feel guilty about spending money, but you should be able to identify what is important to you and what is not. The key is to cut back in the areas that are not important to you so that you have the money to spend on things that matter the most. You can try to follow Dave Ramsey's suggested budget percentages (or some other expert), but the way you breakdown your budget is likely to be different, based on what matters to you.

7. Not Accounting for Fluctuations in Income

Do you have a steady income each month? Even if you are a salaried employee, the answer is probably "no". For example, if you are salaried but you are paid every other week, there will be two months each year when you get paid three times. Your budget should allocate all of the money that you are making so every dollar has a purpose. But this means that you may need to change your budget based on your income. For example, those two months out of the year when you get three paychecks should have a different budget than the other months out of the year. Many of your bills will be the same, but maybe you can allocate more towards saving during those months. Be sure that you are adjusting your budget according to your income. Typically, this is pretty easy and will only require 5-10 minutes of work each month to make sure you're budgeting for the right income.