Budgeting Mistakes and How We Fixed Them
In my previous post about how budgeting changed our marriage, I talked about how we finally decided to get our “feet wet” with this whole budgeting idea. We had watched Dave Ramsey’s Financial Peace University, so that meant we were ready, right?!
Yeah, not so much…
The first month that we made our beautiful, perfect budget, we had quite the wake-up call at the end of the month when we realized that we overspent in almost every category. We then pulled our bank statements and compared them to our budget to find out what and where we went wrong. Surprisingly (well, not really), we made several mistakes that first month, followed by a few more the following month before we really got the hang of this whole budget thing.
Here were the reasons why our budget wasn’t working and how we fixed them:
1. We had no idea how much we actually spent every month.
When we started out, we honestly thought that we were very responsible with our money, and that we didn’t spend a lot on extra things. Well, after we finally took a good look at our bank statements and compared them to what we thought we would have spent on our budget, we realized oh how wrong we were! Not only did we overspend in every category, but we found out that we were spending HUNDREDS OF DOLLARS on restaurants and bars.
Yes, we were overspending, but we were also completely unrealistic with our budgeting. All of our bills, (electric, mortgage, water, etc.) were easy because we had to make a deliberate action to actually pay those bills. We knew almost exactly how much to allocate for those expenses. However, when it came to things such as “restaurants”, “groceries”, or “pocket money” we kind of just took a shot in the dark and guessed. Our guesses were completely unrealistic in most cases. This really started us off on the wrong foot.
How to Fix it: It would have been a tremendous help if we would have examined and compared our bank statements for the previous month before we did the budget. This way, we could be at least slightly informed when allocating money to certain categories and create a more realistic budget.
2. We forgot the little things.
As previously mentioned, we were unrealistic in budgeting for groceries or restaurants, but we completely forgot about all of these little things that can really add up! This process really took us several months to be able to account for everything. Before we started budgeting, many of these things we would just buy or do on autopilot. You just swipe a card and forget about it…. Well surprise, surprise, we forgot to include them on our budget too!
For us these things included: dog food (because we order online), vehicle oil changes, hair appointments, yard supplies, gym memberships, seasonal clothing, my husband’s hunting gear, trip/vacation expenses etc.
How to Fix it: One resource that we found really helpful was Dave Ramsey’s Allocated Spending Plan. It listed a TON of little things that helped us start thinking outside of our “normal” monthly expenses. After a couple of months, we finally were able to account for all of these little things, and had fewer surprises pop up. This really helped us stay on track with our budget throughout the month.
3. We had no way of tracking it.
When people talk about budgeting, it seems like everyone recommends the “cash envelope system”, and with good reason I am sure! It teaches you to actually start feeling the money that you are handing over for those groceries or at a restaurant, but honestly, we knew from the start that we would NEVER stick to the cash envelope system. We knew that it would be too inconvenient for us, and we wanted to stick with using our debit cards.
However, we forgot one REALLY important detail… We had absolutely no way of tracking how much money we were spending throughout the month. Looking back, my husband and I both do a forehead slap for this one. I have no earthly idea why we thought we would be able to mentally keep track of the money that we spent for the month. After the first month of not keeping track of anything, the second month we tried to keep track by writing our expenses down; however, this too, was extremely inconvenient.
How to Fix it: Finally, before our third month, we found out about the EveryDollar Website and App. We just use the free version, where you have to manually enter your expenses. This was a GAME CHANGER, people! This made it so much easier for us to keep track of our expenses and stay on budget. My husband and I log on to everydollar.com before the beginning of every month and fill out our budget within the online template. We both have the app downloaded on our phones, and use the same account. Whenever either of us purchases something, we just log it in the app! It gives us a “real time” look into how much we have left in every category and does all the math automatically for you!
4. We didn’t really commit.
As I have mentioned before, we had our Dave Ramsey “Ah-Ha” moment while listening to him talk about budgeting; however, it really took that first month when we compared our expenses that made us finally commit to doing the budget. That first month, we truly were just wanting to “get our feet wet”, and by that, I mean: Do this beautiful budget, talk about it, but don’t actually follow through with anything that you talked about. Yeah that was us. So, when expenses or our “wants” came up throughout the month, we just continued to do what we always did and buy it right then and there.
How to fix it: Unfortunately, for this one, it is not a one-size fits all. I think every person and every couple will have their own reasons for finally committing to doing a budget every month. For us, it was our debt. We had a mortgage, car loans, student loans, and medical bills. We felt like we were completely out of control and we couldn’t get traction. After that first month of budgeting and comparing our expenses, we said right then that we had to change, or we were going to feel like we were “drowning” in debt and bills for the rest of our lives.
5. We didn’t do a Zero-Based Budget.
A zero-based budget is when every penny is accounted for and has a “place” to go. The first 2 months, we would sit down and do our budget (the second month using the allocated spending plan), and when we got to the end of the budget we would say, “WOW, we have X amount of money leftover”. What we came to find out was that this leftover money tended to find its way out of our bank account. When we didn’t give this leftover money a purpose and allocate it to a specific category, it became money that we didn’t really account for and as a result it flowed into someone else’s pocket.
How to Fix It: We do our budgeting a little different than Dave Ramsey recommends, but it is important to find an effective method that works for you (Note the emphasis placed on effective method). Dave Ramsey recommends that you save first and then put all your bills and expenses in. However, this never really worked for us. Particularly because of the number of bills and debit payments that we had. Therefore, when we do our budget, it is ordered like this:
1. Household Expenses (mortgage, utilities, cell phone bill, internet, etc.)
2. Food (restaurants and groceries)
3. Transportation (gas, car maintenance, repairs, etc.)
4. Insurance (auto, health, etc.)
5. Debit Payments (medical bills, student loans, car payments)
6. Personal (pocket money, clothing, gym fees, hair appointments, “all of those little things”)
Now the argument here is that by the time you get down to number 7, there will be nothing left. I think your method of budgeting depends on what works for you. We found that if we used Dave Ramsey’s method, we ALWAYS OVERSPENT. When we decided to start budgeting in this order, we finally got traction with our budget.
However, it is important to practice discipline and a little self-control when budgeting this way. Particularly because your “Personal” category comes before your savings category. The way we were able to combat this is by giving ourselves the exact same amount of pocket money every single month. We each get $150 of pocket money no matter what. If we know that we have an additional expense coming that month (i.e. winter clothes, a hair appointment, wedding gifts, etc.) then we budget that it, but we try really hard to always limit our spending on our extra things to $150 each per month.
Additionally, after we make our budget and get down to our “savings”, we immediately take that money out of our checking account and put it in our savings account or apply it to a debt payment (depending on your financial goals at the time). This way that money does “leak out” and it is always accounted for.
These were some of the mistakes that we made early on that really affected our motivation and our budget. I hope these budgeting tips can help you on your journey to reach whatever financial goal that you are wanting to reach. For my veteran budgeters:
What were some of the big mistakes that you made early on and how did you fix them?
I love hearing other’s stories about how they made budgeting work for them because it helps keep me motivated, and I hope that these tips help motivate you too!