Common budgeting mistakes and how to avoid them

Many people think budgeting means denying yourself of the things you want. But in reality, it’s the opposite. Making a budget is an important first step to gaining control over your finances, so you can achieve your financial goals and the lifestyle you want. 

Having a good understanding of your income and expenses is critical to building a solid budget. It also will help you to better prepare for unexpected financial challenges. 

Whether you’ve tried a budget in the past or are creating one for the first time, it may take a few attempts to hit on one that makes sense for you. 

To help make the process easier, we’ve outlined five common budgeting pitfalls to avoid.

It may take a few months of fine-tuning, and trial and error, to find a budgeting method you like. 

Your budget can be basic or detailed — it’s up to you. You may want to try a few different budgeting methods to find what works best, whether it’s a spreadsheet, paper list or a tool  like Scotia Smart Money by Advice+, available on the Scotia mobile app.

Not all budget methods work for everyone. For some people, a budgeting app helps keep them motivated so they stick to their budget. Others prefer a simple notebook and have a pen always at hand to make quick updates or notes.

The best budgeting method for you? Whichever one is easiest and most convenient, so you’re more likely to stick with it.

Failing to account for changes in spending during certain months can really throw off your budget.

For example, your energy costs will vary during warmer or colder months if you’re not on an equal billing plan, which spreads the cost of your annual electricity bill over 12 equal monthly payments.

It’s easy to track expenses every month, like rent or mortgage, groceries and utilities. But don’t forget those less frequent costs such as insurance payments, quarterly property taxes, tuition fees, and gifts at the holidays or for birthdays.

Make sure you plan for each month separately, and incorporate both routine expenses and things you pay for only every once in a while.

Scotia Smart Money makes this easy: You can set up a budget based on your spending over the last six months. You can lean on this and create one based on this data, and then update your budget at any point to align with your current spending and savings goals.

Did you get a raise? Have to buy an unexpected gift? Spend more than you planned standing up in your best friend’s wedding?

While having a budget is a great start, it’s important to remember to continually review and update your budget to reflect changes in your life that affect either your income or expenses — or both. 

When you don’t update your budget to reflect life changes, it becomes out of date and ineffective. You may be tempted to abandon budgeting altogether. 

Even if there are no significant changes in your income or expenses, it’s a good idea to periodically review and revise your budget. Based on your income stream, you might need to review your budget every pay period. But whether you set aside time monthly, bi-monthly, semi-annually or annually isn’t important — what is, is choosing a frequency that you’ll follow. 

For couples, consider reviewing your budget together. It’s also a chance to make sure you’re both on track and on the same page financially — and to provide each other with encouragement and tips. 

Some questions to ask when reviewing your budget:

• Am I accounting for my regular and less frequent payments, like gifts and tuition payments?
• Have I included additional money that comes in sporadically, such as a tax refund or bonus?
• Is my debt repayment on track, and can I accelerate payments so I’m debt-free sooner?
• Am I reviewing my bank or credit card statements each month for unauthorized charges or savings opportunities?
• Am I using all of my subscriptions, memberships or product warranties or am I paying for things I no longer use? 
• Am I setting aside enough money to meet my savings goals?
• Am I overspending on something that I don’t need or want? Can I divert those funds to paying down debt or increasing my savings?

Unplanned expenses, such as car and home repairs, always seem to happen at the worst possible time. With this in mind, it makes sense to set aside money in an emergency fund as part of your budget.

Having access to a ready reserve of cash when the unexpected happens will keep you from taking on additional debt and potentially disrupting — or even bringing an end to — your budget. Many experts advise having an emergency fund to cover at least three to six months of total living expenses to get through difficult times, should they arise.²

Building an emergency fund is typically considered a short-term financial goal because it requires less than three years to achieve. A savings account is a great option to park and grow your money while you work toward this goal. Ideally, you want to keep savings in an account separate from the one you use for day-to-day purchases but still provides quick access to your money, should you need it.

Pre-Authorized Contributions (PACs) make building an emergency fund convenient. You choose the amount you want to automatically deposit and how often — for example, weekly, biweekly or monthly. Start by contributing whatever you can — even if it’s only $25 a month — and then increase the amount when you’re able.

Try our short interactive video to see how quickly your savings can grow.

A budget should help you control spending, so you have money left over for the things that make you happy — whether that’s taking a vacation, buying new clothes or going to concerts or restaurants. If your budget is too rigid and doesn’t include money for enjoyment, chances are, your budget won’t last very long.

To make budgeting a little more fun and to keep you motivated to continue, treat yourself to a small, budget-friendly reward if you stick to your budget for a certain amount of time. For example, at the end of every month, you could go to a movie or splurge on a pedicure.

Remember, finding a budgeting method that works for you and building momentum may take some time. But the reward of creating and maintaining a budget is the ability to live the life you want.