Budgeting is a powerful way to master your spending and take the stress out of your finances. Not only does it ensure your money goes where it needs to, it also helps free up cash for the things you really enjoy. The key is to ensure you create the right budget for you.

That can seem daunting but, don’t worry, we’re going to make it a lot easier by helping you avoid all the common pitfalls other budgeters have come across.

Step 1 – Finding the right budgeting method

Building and sticking to a budget gets a lot easier when it fits your life. We all have different priorities and ways of doing things. Trying to be a detail-oriented tracker when you like things simple or using an advanced method when you’re just starting out will likely only lead to frustration and a discarded budget.

The good news is that there’s a method out there for every need. All you have to do is explore your budgeting options to find the right one for you.

5 budgeting mistakes to spot

1. Budgeting based on gross income
   You may earn, say, $60,000 a year, but with taxes, insurance, and payroll deductions, the amount you actually receive is less. As a result, if you budget using your gross income (i.e., your total earnings before deductions), you’ll be calculating with more money than you have.
    
   What to do differently:
   Make sure you’re using your net pay (also known as your take-home pay) to determine your monthly income. To find this, you can add up your direct deposits or pay stubs for the month. If you’re a contractor or self-employed and your income varies, you may need to approximate a little by multiplying your hourly rate by how much you expect to earn each month.
2. Not expecting the unexpected
   Life sometimes throws us curveballs and they can be irritatingly expensive. Budgeting assigns your money jobs, like covering monthly expenses or saving for goals, but allocating all your income to these buckets can throw off your plan if a surprise cost comes up.
    
   What to do differently:
   Add an “unexpected expenses” category, reserving $100 or so for any surprise expenses that might send you over budget. If nothing happens, you can simply roll it into the next month to give yourself an extra cushion.
3. Forgetting infrequent expenses
   Not every expense is charged monthly. Membership dues, property taxes, insurance premiums and even holiday gifts are all examples of irregular costs that can come up throughout the year. Forgetting to include them in your budget can cause you to overspend, a frustrating and discouraging event. 
    
   What to do differently:
   When you’re building your budget, look back over your bank and credit card statements for the last 12 months and note down any occasional costs you come across. That way you can factor them into their relevant month and ensure every bit of expenditure is accounted for.
4. Making your budget too strict
   You’re only human. Being frugal is good, but it’s not realistic to expect yourself to give up everything you enjoy. If you make your budget too restrictive, cutting back all but your necessities, the chances are you won’t be able to stick to your plan for the long term.
    
   What to do differently:
   Set aside some fun money each month for the things you enjoy – eating out, concert tickets, that new gadget you can’t stop thinking about. This will help keep you motivated and ensure your budget doesn’t feel like a hardship to maintain.
5. Not budgeting as a team
   There’s no I in Team or Budget. If you have joint finances with a partner, budgeting alone will be tricky. One person sticking to the plan, while the other doesn’t will likely lead to overspending and potentially overdraft fees, since you won’t be in sync on purchases and transfers.
    
   What to do differently:
   Create your budget together. That way it matches your spending needs equally, and you can get behind it as a couple. From there, with a quick monthly check in to review progress, you’ll be able to stay on the same page and avoid miscommunication.

Although rewarding, budgeting can be tricky to master at first. So don’t feel discouraged if you forgot to factor in an infrequent expense or an unexpected cost throws things off sometimes. It happens to the best of us. The important thing is to keep going – and if you have questions, aren’t sure how to fix an issue or simply want help starting out, our experts are just a quick chat away.