3. Overspending

Overspending can really derail your financial goals. It’s important to be mindful of your spending habits and create a realistic budget to stick to. Sometimes we get caught up in the moment and make impulsive purchases, but overspending can lead to debt, financial stress, and hinder your progress towards achieving your financial goals.

One way to avoid overspending is using the envelope method, where you allocate a certain amount of cash for each budget category and only spend what's in the envelope. Another way not to overspend is to plan your purchases in advance and not make any impulsive purchases. Creating a shopping list before going to the store is one way prioritize your needs verse your wants.

4. Failing to plan for unexpected expenses

Emergencies and unexpected expenses are a part of life, and it's important to have a plan in place to deal with them. Things like car repairs, medical bills, or even home repairs can arise at any time so you can find yourself in trouble if you don’t plan for these expenses. Failing to plan for the unexpected can lead to overspending and financial stress.

To avoid this mistake, it’s important to build an emergency fund or set aside money for these expenses as part of your budget. Ideally these funds should have at least three to six months worth of living costs. This will help you avoid having to use credit cards or even taking out a loan to cover these costs and stay on track with your financial goals. 

5. Not adjusting the budget as circumstances change

Life is constantly changing so it’s important to be flexible with your budget. This means regularly reviewing your personal budget and making adjustments as needed to reflect changes in your income, expenses, and financial goals. It’s okay to have to decrease your budget if that’s what your income calls for. Failing to adjust your budget can lead to problems down the road and make it difficult to reach your financial goals. Be sure to review them and make adjustments as needed, whether that is cutting back in a certain category or allocating more elsewhere. 

6. Underestimating expenses

When it comes to creating a budget, a common mistake that is often made is only taking into consideration things you pay for on a monthly basis. Cell phone bills, rent, insurance quotes, gym memberships but that’s where we go wrong. It's important to be realistic and account for all of your expenses. This includes both regular and occasional expenses, such as holiday/birthday gifts or annual insurance premiums. Underestimating expenses can lead to overspending and falling behind on your budget.

7. Relying too heavily on credit

While it can be tempting to use credit to make ends meet, it's important to be cautious. Credit card debt can quickly add up, especially if you're only making minimum payments. Ignoring debt payments is a common budgeting mistake that can have serious consequences. Whether it’s a second credit card you forgot about or student loans, failing to make payments can lead to fees, penalties and will negatively affect your credit score. 

A quick fix for this is to prioritize debt payments and make them a part of your budget. Putting aside a certain amount of money each month towards debt payments will help you stay on track and avoid penalties or fees. It's also important to keep in mind the interest rates on your debts. Debts with a higher interest rate should be paid off first followed by ones with lower rates. This strategy will allow you to pay off your credit much quicker. 

8. Not prioritizing expenses

When creating a budget, it's important to distinguish between necessary expenses and discretionary expenses. Necessary expenses are those that are essential, such as housing, utilities, and food. Discretionary expenses are those that aren’t, such as entertainment and dining out.

If you don’t prioritize expenses, it can be easy to overspend on discretionary expenses, leaving you with little or no money left for necessary expenses. One way to avoid this mistake is to create a hierarchy of your expenses. Start with the most important expenses (rent/mortgage, groceries) at the top and then work your down. 

It’s also beneficial to cut back on your non-prioritized expenses. For example, if you're spending too much money on subscription services or unnecessary purchases, consider cutting back or eliminating these expenses altogether. The Hiatus app will allow you to see all your subscriptions in one place and will cancel them for you in just a few taps. This will free up more money for your essential expenses and help you stay on track with your budget.

9. Failing to account for irregular income

For those who have irregular income, it can be challenging to create a budget. Freelancers and other professions may bring in triple their normal income one month and only a quarter of it the next month. It's important to take this into consideration and to be prepared for leaner months. This may involve saving a portion of your income when you have a windfall, or finding ways to cut expenses during slower times. Some may prefer to estimate their income for the month and allocate their money accordingly so they don’t wind up overspending.

Take Steps To Improve Your Finances

Budgeting mistakes can prevent you from achieving your financial goals. By avoiding these common mistakes you can take control of your finances and be on your way to achieving long-term financial success. Remember to stay disciplined, patient, and committed to your plan.