Have you thought about starting a budget? Are you ready to be more in control of your money, but aren't sure where to start?
Are you holding onto the totally unrealistic hope that you’ll be the first person in the history of budgeting that gets it all right the very first time?
Is this kine of perfectionism what's been holding you back from getting started?
Well, I'm here to tell you that if your first budget happens to be imperfect (and it will), you're in great company with the rest of us mere budgeting mortals.
Honestly, I'm just excited that you're here and that you're looking into the process of budgeting to begin with.
I can tell you for a fact that if you're willing to suffer through the initial phase of learning, you WILL see major improvements in a relatively short period of time.
By the way, if you’re looking for some resources to get started with budgeting, you can download our Free Budgeting Forms.
So now that we’ve set the expectation that you just might be disappointed the first time you attempt a budget, let’s roll up our sleeves together and talk about the 7 most common budgeting mistakes everyone makes and how to correct them.
As you read through these, just realize that you either have already made some of these mistakes or that you likely will at some point in the future.
It's okay, just keep in mind that it will not be perfect the first time, and we're going to help you get to a place where you make fewer and fewer mistakes.
Also, as a means of tracking your progress, you may want to bookmark this post in your browser and come back to it regularly to see where you are and how far you've come and share your progress in the comment section.
One thing I can promise is that if you keep at it, you WILL get better.
If you need budgeting forms, here's where you can get them.
No plan, no direction, no money. The problem is when you don’t have a plan, someone will be happy to give you one (i.e. MasterCard, Visa, AMEX, the bank, the car dealership), right?
My strong suggestion is that you don’t wait to start a budget, just do it. Just start. On your first try, fill out everything you possibly can as fast as you can.
Congratulations, you JUST started budgeting!
Now, you’ll spend the next 90 days refining this ever evolving “rough draft”. And every month, you’ll rewrite it. It works, I promise. Just get started!
Again, you can remedy not having a written budget immediately, by downloading this awesome free budgeting form, here and getting started immediately.
Not having a budgeting tool or system will cause you to fail immediately. You have to have a systematic regular means of capturing your income and outflow in order to become a successful budgeter.
For new budgeters it's very important to note that we always recommend a hand written budget on paper for the first 90 days.
The reason being is that when you're new to the budgeting process, you want to just focus on the one skill of learning how to budget, rather than the two skills of 1) learning how to budget and 2) learning the functionality a new software program or phone app.
In order to make progress toward becoming and 'expert' budgeter, you need to have consistent categories.
The tool or the system is not as important as the actual action of capturing and categorizing the information regularly.
Again, we always recommend doing it by hand for the first 90 days. It doesn’t even matter if it’s just a pen to a pad of paper, just write it down.
Whether with a budgeting form or with your own handwritten list, this practice of writing it down will help you avoid the excuse of, “that budgeting software is just too complicated for me to figure out.”
In this familiar scenario, the budgeting software becomes the "noble obstacle" that causes you to quit.
No bueno. Forget the budgeting software for now.
One thing at a time and again, the one thing for now is the budget. If you want to move to software or to an app after the first 90 days, that’s great.
Here are some great options to try: YNAB, EveryDollar, Mint, Excel or Google Docs. Whichever tool you use, just make sure you're rewriting it every single month.
Whether it's one person doing it all the budgeting and not communicating to their partner or a single person that has no accountability partner, having no external 'checks and balances' can cause lots of problems.
Having accountability, no matter what your situation, is going to not only help you to stay on track but also help you to identify problems or shortcomings early on. As I always like to say, "four eyes are better than two".
Ongoing talks throughout the month about how things are going, what changes need to be made. Constant communication is the key to maintaining forward motion.
Even if you have to have a weekly "check in" at first to help establish a process and boundaries, it's okay. The more you check in and correct course, the faster you'll build the skill.
Not doing a written budget every month, talking about it, executing it consistently can lead to budget failure. Even though my wife and I been budgeting for well over a decade, we literally look at our budget just about every day. No slacking here, just keep doing it.
We also still track receipts. Literally, every time we get home from “the store” or spend money online, it gets tracked in the budget.
What gets measured gets managed and budgeting is one of the most important things you can manage. Consistency is the key here.
Patience is definitely a virtue when it comes to budgeting. If you’re new to it, it will take some time to get it right. Remember it’s a skill, not a talent. And again it usually takes about 90 days of consistent effort to get it right.
When we’ve coached new budgeters through the process, there are inevitably mistakes particularly in the first couple of months. This is when they’re trying to get their arms around all of the dollars that are flowing outward every month.
It’s okay. It’s normal. Don't let it frustrate you to the point that you give up on budgeting altogether. That would not be #winning...
For irregular expenses or large purchases, creating separate budgeting categories, even if they’re not monthly, can greatly reduce the stress of things like: back to school, Christmas, birthday and anniversary expenses.
Some examples of irregular expenses would be (clothes for growing children, oil changes, new tires, new roof, etc.).
If this is something you're still struggling with after your initial few months, you may want to read my blogpost "2 Strategies For Predictably Budgeting Irregular Expenses".
This is definitely one of THE most important practices and was definitely a mistake I made when I first started budgeting.
I thought that I had monthly basics of what was coming in and going out down pat and that I could just put it on auto-pilot. Well, then as the year went on, vehicle registrations, life insurance policies (billed annually), Christmas gifts and various other “irregular” expenses crept up and threw a monkey wrench into my whole budget.
So, make sure to rewrite the budget every month. Even though there are things that don't change, you'll be surprised at how many things do and you'll want to be on top of them.
Besides free budgeting forms and free programs like "Every Dollar" and Google Docs, another great and free tool that we've been using to track our accounts for years is called Personal Capital.
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Personal Capital is an awesome and free online tool that gives you simultaneous visibility into all of your bank accounts, credit card accounts (while you’re paying them off, of course), investment accounts and others like mortgages and car payments.
Using Personal Capital is gives you the ability to see both the big picture of where you are with your debt snowball as well as how each of those are being paid down.
We have found it particularly helpful for us and for our clients in helping to track all of those 'hard to track' monthly expenses.
Besides saving and tracking receipts manually, Personal Capital gives you a "double check" redundancy on what is coming out of your accounts so you can stay on task.
The fact that you can log into one account and see everything is a huge time saver. Using Personal Capital eliminates the excuses for not diligently tracking all of your expenses.
Because I check all of my accounts every day (upwards of 30 in all), I'm saving immense amounts of time by using Personal Capital which allows me to login to this one site and see all of my accounts in one place at the same time (for free). Awesome!
Additionally, once you’re completely out of debt, it’s a fantastic resource for you to keep track of your overall net worth as it creates summaries of all of your balances (bank accounts, 401k accounts, investment/brokerage accounts, HSAs, precious metals, etc.) in one place.
That's what my wife and I now use it for and we love it!
You can sign up for Personal Capital here. I highly recommend you check it out. It will make your life a little easier, just like it has for me.
In full disclosure, if you do sign up this blog will receive a small affiliate commission (at no additional cost to you) which helps us to keep the lights on.
0. Stop All Retirement Investing (Until Step 4)2. Starter Emergency Fund of $10003. Eliminate Debts Smallest To Largest (a.k.a The Debt Snowball)4. Full Emergency Fund of 3-6+ Months’ Expenses5. Invest A Minimum of 15% Income Into Retirement Accounts (and increase savings rate to 50%+ if possible)6. College Funding (if applicable)7. Pay Off The Home Mortgage8. Build Wealth, Serve, Be Ridiculously Generous And Go FI (Financial Independence)!