4 Beginner Budgeting Mistakes
Fee-for-service financial planner and founder of PlanEasy.ca
No one was born budgeting. It’s not an innate skill we possess. Babies don’t instinctively learn how to walk, talk and budget. There aren’t any kids’ shows about budgeting. In high school we don’t learn how to budget. Maybe you had a part time job, but I’m guessing you didn’t budget.
I’m willing to bet that for most of us our first experience with a budget was when we were already adults.
We all need to start budgeting at some point and when we do, we all make mistakes. Budgeting isn’t easy. It takes skill and practice to be a good budgeter. It might take a few attempts to figure out a good budget for your unique situation.
Remember, no one was born a budgeter, it’s a skill you need to work on. But there are definitely a few beginner budgeting mistakes that you can try to avoid.
Track Your Spending First
To make a good budget you need to know where your money goes in the first place. You need a system to track your spending. That could be an automated app like Mint, it could be a spreadsheet like Google sheets, or it could be something simple like a pen and paper.
Whatever method you choose, the important thing is to track your spending for at least 60-90 days before building your budget. You want a good understanding of where your money goes before trying to manage things with a budget.
Tracking your spending is also important after you build your budget. It’s important to track your spending vs your budget so that you can see how you’re doing. Did you hit your grocery budget this month or did you go over? Do you have money left over in your clothing budget for those new shoes?
Without a good tracking routine in place your budget isn’t going to work.
Make It Realistic
When you first make a budget, there is a lot of temptation to make your ideal budget right off the bat. There is a temptation to cut back on everything, save more money, pay down debt etc.
If you’re too aggressive with your budget cutbacks right off the bat, there is a good chance you’ll get frustrated an abandon your budget all together.
A lot of our spending is driven out of habit, changing habits takes time. It also takes a lot of work. So make it realistic. Take your time. Make small changes each month until you reach your ideal budget.
“To make a good budget you need to know where your money goes in the first place. You need a system to track your spending.”
Don’t Change Too Much At Once
When you first go to the gym, or see a personal trainer, you’re probably excited to get into your new routine, but you also need to avoid injury and give yourself time to recover. Your personal trainer will probably warn you not to overwork yourself on your first day. Budgeting is no different.
Making too many budget changes all at once will lead to budget fatigue. Just like muscle fatigue, budget fatigue has the risk of setting you back.
Warm up your budgeting muscles by focusing on just one or two spending categories for the first month. Get yourself into a new routine with these two spending categories. Build new habits. Get into a new routine and then once you have these two categories under control move onto the next.
Get one or two spending categories in good shape before taking on more changes.
Change Your Budget
Don’t be afraid to change your budget. Things rarely stay the same. Your lifestyle will change. Your first guess at a budget won’t be right. You’ll realize that your spending doesn’t quite match what you value most.
Between our 20’s and 40’s we probably go through 4-6 major spending phases. It’s the most intense period for our personal finances. Don’t be afraid to change your budget as often as you need to.
You might tweak your budget every month when you’re first starting out. That’s perfectly fine.
As you get more experienced you might tweak your budget less and less, or the tweaks might become smaller and smaller, but you’ll always be making changes.
A good budget should always be changing as your lifestyle and priorities change.
Need some inspiration before you start your budget? Check out my personal budget.
Financial planner, personal finance geek and founder of PlanEasy.