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Episode 271 - 4 Beginner Budgeting Mistakes Most People Make

Do you feel like you're spinning your wheels, trying to escape the paycheck-to-paycheck cycle, but nothing seems to be working? Chances are, one of four common budgeting mistakes is keeping you stuck. 

 

Welcome to this discussion inspired by the Debt Free Dad podcast, where normal, everyday people are empowered to take control of their finances for a happier, less stressful life. The journey of Amber and her husband, who saved and paid off over $54,000 in just 20 months, offers valuable insights. Here’s a deep dive into those mistakes and how to avoid them. 

1. Cutting Too Much Too Soon 

Many individuals begin their budgeting journey by slashing all enjoyable activities, believing this strict approach will expedite debt repayment. While cutting unnecessary expenses is essential, eliminating all forms of enjoyment often leads to burnout. The key is to budget for fun activities as well. 

For instance, if a weekly coffee outing is important, reduce the frequency instead of cutting it out entirely. Plan for occasional dinners with family or friends, and budget accordingly to ensure these activities are funded with cash. 

Amber’s experience highlights the importance of balance. Despite initial strictness, adding modest luxuries like a beer on a summer night or a family vacation kept their motivation high. The journey wasn't about a race but creating a sustainable lifestyle. 

2. Obsessing Over the Perfect Tool or App 

It’s easy to get caught up in finding the perfect budgeting tool, app, or spreadsheet, hoping it will solve all financial problems. However, true success lies in understanding and adapting behaviors, habits, and choices, not in the tools themselves. 

Consistency in using any chosen tool is paramount. Regularly reviewing the budget, adjusting it, and staying engaged with the process will yield better results than searching endlessly for the perfect app. Embracing imperfection is part of the journey – initial budgets might be flawed, but persistence and flexibility are key. 

3. Not Knowing Actual Spending Habits 

Creating a realistic budget requires knowing one’s actual spending habits. Tracking expenses over the last three to six months provides clarity on where the money goes. This practice involves scrutinizing bank and credit card statements to learn spending patterns. 

Such meticulous tracking helps identify areas to cut back. For Amber and her husband, this exercise revealed frivolous spending and waste, enabling them to redirect funds towards essential savings and debt repayment. 

Some categories to always include in a budget are: 

  • Rent/Mortgage 
  • Insurance 
  • Utilities 
  • Groceries 
  • Eating Out 
  • Transportation 
  • Medical Expenses 
  • Entertainment 
  • Debts  

This ensures no surprises and aligns the budget with real spending habits. 

4. Prioritizing Debt Payoff Over Savings 

Often, there's a rush to pay off debt at the expense of building savings. However, emergencies are inevitable, and without a financial safety net, individuals risk reverting to debt for unexpected expenses. Prioritizing an emergency fund of $1,000 to $3,000 ensures there is a buffer for such situations. 

Building this safety net is crucial to avoid falling back into debt when emergencies occur. When an emergency fund is used, refocus on replenishing it before aggressively repaying debt again. 

Conclusion 

Budgeting is not about depriving oneself of all fun but creating a balanced plan that allows for freedom from debt and financial stress. It's a combination of tactical budgeting and maintaining a quality lifestyle. 

For those ready to take their financial journey to the next level, there’s a special opportunity available. By heading to the link in the show notes, a free 15-minute video will show how to reduce financial stress, save money, and get out of debt. This quick session, led by Brad, provides practical tips that can start showing results in as little as 30 to 60 days. 

Check out the link in the show notes and begin the journey towards financial freedom today. 

Resources Mentioned
Get better results with your finances in 30-60 days - GUARANTEED. Watch this video to learn how! - https://www.debtfreedad.com/payoff-debt-in-60-to-90-days 

Free Tools and Downloads at www.debtfreedad.com

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Episode Transcript: 

Amber:  

Do you feel like you're spinning your wheels, trying to get out of the paycheck-to-paycheck cycle, but nothing seems to be working? Chances are you're making one of these four common budgeting mistakes that are keeping you stuck. Hi, I'm Amber, today's host for the Debt-Free Dad podcast, where we help normal, everyday people like you take control of your finances so you can live a happier, less stressful life. Now, myself and my husband saved and paid off over $54,000 in just 20 months, and we have been living debt-free outside of our mortgage since May of 2018. Now let me take you back to a time when we first started budgeting. I was so determined that we were going to get out of debt in 12 months, so I slashed everything. You know everything no more eating out, no more coffee runs and forget the concerts or traveling. I was cutting it all out. I was. I had it planned. I was paying this off, and then this off, and then this off, and this is how long it was going to take me and we're going to do it.

Amber:  

And all of a sudden, we started saying no to all the things that started to come up in our life, and life started to feel pretty crummy. I was focused on saving and paying down debt that I forgot to let us live. And I say I because my husband was like, yeah, I'm on board, we're doing it. But we were getting pretty darn bored and we were just setting ourselves up for failure. Because, let's face it, a life without any joy isn't really sustainable. Without any joy isn't really sustainable. And it wasn't until we learned how to balance saving and paying off debt with enjoying life that we really got progress.

Amber:  

And this is exactly what so many people are getting wrong when they first start budgeting, like myself. We see it all the time. When people come into Roots, they are so ready to just cut everything out, which is great. We need to cut things out, don't get me wrong, but cutting everything out isn't necessarily the way to go. So, number one you may have guessed it, that number one budgeting mistake is cutting too much too soon. So many people will cut out all the fun and the enjoyable activities when they start to budget. I did the same thing. The result is often burnout because life becomes too restrictive. The key to budgeting is to also budget your fun activities. So whatever that looks like for you, it's going to look different for everybody If getting a coffee or two once a week. You know you might cut it down so you're not getting it every day. But if stopping to get Starbucks once or twice a week is really important to you, add it into your budget. If going out with friends and family for a dinner once a month or some kind of activity once a month, add it into your budget if you have the cash to do that and I'm going to give you some tips on ways to find that cash but you want to be able to plan for it and pay cash for it. That's the key.

Amber:  

Now we cut out all the things and then, when we finally realized life was kind of crummy, we started adding some things in. So during those 20 months kind of crummy we started adding some things in. So during those 20 months I totally I added I added an alcohol line because I felt like that was an entertainment, that was a luxury, and I cut it right out and I was like wait, like I do like to have a beer in the summertime outside on my deck, you know. So I added that in. We added a vacation. We took a vacation in those 20 months that we were paying off our debt and we even went to a couple of concerts. Did it slow down our debt payoff? Absolutely, but was I okay with that when I finally realized that, oh my gosh, I'm probably going to fail if I just keep everything cut out 100%?

Amber:  

Now the number two mistake is obsessing over the perfect tool or app. I am guilty. I love a really good spreadsheet. Now, many people will search for that perfect budgeting tool or app to solve all of their financial problems. Right, there are so many out there. You could spend days, weeks going through all the different apps and tools, right? Or creating a spreadsheet. Yes, I'm guilty, but creating a spreadsheet. You could take so much time creating this spreadsheet and then you do your budget or you have it on paper and often what happens is we just toss it in a drawer, right? So the real success in budgeting is not found in a tool, an app, a spreadsheet. It's found by figuring out your behaviors, your habits, your choices and getting that into a good financial mindset.

Amber:  

Now, the other big thing when making sure that you're having a really good budget is consistency. You want to be looking at that budget daily. Don't just toss it in the drawer. Don't just close the app, don't just close the spreadsheet and never look at it again. Once you've created this amazing budget, all right. And just know we call our first budgets in roots the crappy budget. All right, your first budget is often really crappy. Your second, third, fourth, it's probably going to be crappy. You're going to miss things, you're going to forget things, you're going to, you know, maybe go over budget because you thought, oh, I can keep my groceries in under $600. And it's just not realistic. So know that you will have a few crappy budgets along the way. Don't give up. Okay.

Amber:  

Now the number three mistake is not knowing what to write on your budget. Budgeting without knowing your actual spending habits is a super common mistake. So, to create a realistic budget, you want to track your expenses for the last three to six months. So, in order to do that, go back into your bank statements, go back into your credit card statements, print out the last six months of those statements and go through every single transaction. Is it a little tedious? Yes, but it's going to help you know what to budget. Because if you don't know what to budget for, you're going to be spending this, that and the other thing and you're going to realize oh my gosh, I didn't even put these on my budget. What the heck? And chances are it might make you feel like you're failing. You might give up and we don't want you to do that. So go back in your last three to six months and really go through where you're spending.

Amber:  

Now, when we did this, we found areas that we were able to cut out and really cut back on, like eating out. Oh my gosh, like the amount of stops we made because we didn't have what we wanted at home, or we tossed out so much food too that waste right there because we didn't prep properly was just like oh, I don't feel like cooking, I'm just going to go out and eat. So not having those plans is what really we found in our budget. And it gave us a pay raise where we were like holy cow. We could cut out so much of this and now, all of a sudden, I have all this extra money because I thought I was living like super strict, paycheck to paycheck, and realistically, I was just spending my money in frivolous ways. That's not necessarily the case for everybody and I totally understand that, but when we were going through this for us, that's what happened and we ended up giving ourselves a pay raise, which helped us build our emergency fund with that money that we found in our budget by going through our last three to six months.

Amber:  

So some categories you might want to add into your budget, all right, would be like rent and mortgage, insurance, utilities, groceries, eating out they're still enjoyable items on a budget. It's okay. A budget does not have to be bad Gas for your vehicle, vehicle expenses, medical expenses, entertainment debts and other items that everybody's going to have a little bit different items, but in general, those are the categories you're kind of looking at. The number four mistake is prioritizing debt payoff over savings. So a lot of people will focus on paying off all their debt without first building a savings, an emergency fund. Right, and this is for when emergencies happen. So I didn't say if an emergency happens, I said when they happen.

Amber:  

Right, prioritize building an emergency savings before aggressively paying off your debt is going to avoid falling back into debt. Because what happens if you're just paying off debt, paying off debt, paying off debt and then when something happens like your car breaks down oh my gosh, I don't have any money in savings to pay for this car breakdown. Now I'm going back and I'm going to use debt, I'm going to use a credit card. I'm going back into my old habits. So you want to build an emergency fund first. So we recommend $1,000 to $3,000 of an emergency fund, generally closer to the $3,000. So you really want to get aggressive and prioritize saving instead of prioritizing debt payoff, because if you're doing that and you have no savings, when an emergency happens and it will you're going to end up going back into old habits. You want to have that emergency fund and when you have to use it, because you will slow down on the debt again, prioritize rebuilding the emergency fund. Then get aggressive with your debt.

Amber:  

So remember, budgeting isn't about living a life deprived of all the fun things that you love. It's about creating a plan that allows you to live life with freedom Freedom from debt, from financial stress and from paycheck to paycheck living. If you're ready to take your financial journey to the next level, we've got something special for you. Head to the link in the show notes and in just 15 minutes, brad will show you how to reduce financial stress, save money and get out of debt in his quick 15-minute video. The best part is, you'll likely start seeing results in as little as 30 to 60 days. Come on, check it out. Link in the show notes.

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