How to make a budget: 5 rookie mistakes to avoid when you're budgeting for the first time

How to make a budget: 5 rookie mistakes to avoid when you're budgeting for the first time
Making a budget
Source: WAYHOME studio/https:
Making a budget
Source: WAYHOME studio/https:

Budgeting can seem like a hassle. And making an unrealistic one or forgetting to budget for big expenses can make it hard to stick to one. That may explain why three out of five adults don't bother budgeting at all. 

But creating a budget doesn't have to be a downer. Having one creates a road map for your money so you don't end up broke AF. It also helps you to reach fun goals like saving for a vacation, buying a car  or a house

Start by checking out Mic's 5-minute guide to making a budget, then read on for mistakes to avoid while you're at it. 

1. Budgeting without knowing how much you actually spend

Don't let your spending surprise you.
Source: northeastern.freshu.io/Giphy

Making a budget with no connection to your actual spending is setting yourself up for failure. If you normally spend $400 a month on groceries, but you only you only budget only $100, that's not going to work. 

"People write out budgets all the time without knowing where their money is really going," Jim Tehan, a spokesman for Myvesta Foundation, told Bankrate. "What they've created is a wish list of how they'd like to spend their money, but it's not realistic. It's a page of lies."

The best way to get started on budgeting is to track your spending for a month or two to get an idea of where your money is currently going. Use apps, a spreadsheet or plain old pen and paper to track everything. You may forget cash purchases or things that are automatically deducted from your paycheck at first, but after a few months you'll get the hang of it.

2. Setting an unrealistic budget for basic living expenses like food and rent

You're not going to be able to budget $500 a month for rent in NYC or $50 a month for groceries anywhere. So try to figure out what's reasonable. If you aren't sure if your basic spending goals make sense, compare your budget to others in your age group and area. 

Start by using MIT's Cost of Living Calculator. If you're moving to a new area, check Craigslist to see how much rentals cost there. Next, try this sample budget from Time for the average spending for a recent college grad. And don't miss Mic's (very generous) guide to budgeting for food.

3. Not leaving any wiggle room

Leave room to wiggle in your budget
Source:  /Giphy

"The tough part of budgeting is that you just never know what will come up," Bianca Lee, owner of White Rose Marketing Solutions, told US News & World Report.

Unexpected expenses are a fact of life, with 3 out of 5 Americans experiencing a major unexpected expense each year. Allot at least $50 or month for surprise costs that you don't want to take out of your emergency fund

It's also wise to set aside money to spend on things like entertainment or even $100 in "free money" to spend however you want. If you make your budget too tight, you'll never stick to it. 

4. Not budgeting for seasonal and one-time expenses 

Don't let the holidays creep up on you. Plan your budget in advance.
Source: Giphy

Wedding gifts, summer vacations and holiday spending can all put a wrench in your budget. And while Christmas may feel like a long time away, it's never too early to start setting cash aside. Considering that the average spending on Christmas gifts was $929 in 2016, if you start saving in April, you'd need to sock away about $100 month to cover your expenses.

Don't forget other one-time costs like car registration renewals, insurance premiums and tax prep fees, US News & World Report recommends

How to budget for all these extras? Add up all the cash you'll need to cover these costs and divide by 12. Then plan to save that much extra each month.

5. Not making long-term savings a line item in your budget

Keep some money in your pocket.
Source: Giphy

A budget isn't just about your day-to-day or month-to-month expenses. It's also about building your nest egg for the long term. Once you've got your basic expenses under control, make sure you're saving enough for retirement and building an emergency fund, if you don't already have one.

You should be saving at least 15% of your income for retirement and have an emergency fund to cover around three to six months of living expenses. 

Allocate as much money as you can to accomplish your long-term savings goals. Then you won't just have a budget — you'll have a real financial plan.

Sign up for The Payoff — your weekly crash course on how to live your best financial life. Additionally, for all your burning money questions, check out Mic’s credit, savings, career, investing and health care hubs for more information — that pays off.

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Christy Rakoczy

Christy Rakoczy is a graduate of UCLA School of Law and the University of Rochester. She is a full-time writer based in Florida and Pennsylvania.

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