10 Dumb Little Budgeting Mistakes You Need to Stop Making Today

Did your budget go bust… again?

Instead of promising yourself that it won't continue to happen, you need to fix the roots of the problem, once and for all. Start paying attention to the small, yet important, details that you are leaving out of your budget. (See also: 10 Small Mistakes That Can Ruin Your Finances)

Here are the 10 dumb little budgeting mistakes that you need to stop making today.

1. Forgetting to Cancel That Membership You Never Use

Do you have a Netflix subscription for several DVDs at a time, only to have a single DVD gathering dust for an entire month? Then you're wasting money. Take a second look at all of those memberships that you pay on a recurring basis. A very common one is that expensive gym subscription that goes unused month after month. If you don't use it, lose it.

Also, evaluate your music, movie, and TV show subscriptions and decide whether you should continue it, downgrade it to a smaller plan, or switch to pay-as-you-go. (See also: Buy or Subscribe: How to Pay the Least for the Media You Love the Most)

2. Budgeting Based on Your Gross Income

Let's imagine that you were making $50,000 per year. This would mean that you would count on about $4,167 every month before taxes, right?

Wrong! Even before that money hits your bank account, there may be several deductions affecting it. Some of them are mandatory, such as taxes, union dues, and uniform deductions. Others are voluntary, such as 401(k) contributions, health saving accounts, and parking fees. Make sure to budget based on your net paycheck, not on your gross paycheck.

3. Withholding Too Much in Taxes

Talking about paychecks, 75% of Americans are withholding too much in taxes from their incomes. If you're struggling to make ends meet, one possible cause is that you are unnecessarily limiting every single one of your paychecks.

Review two year's worth of tax forms and determine what should be the right amount to withhold from your paycheck:

Develop these three habits every year and you will increase your available monthly cash flow. Remember that the IRS doesn't pay you interest on the money that you withhold from your paycheck.

4. Buying Christmas Gifts on Credit

During January and February, consumer counseling agencies see a 25% increase in the number of people seeking financial help.

Too many folks fall for discounts on opening store cards or using credit cards. About 60% of Americans keep on rolling their card balances, maintaining an average balance of more than $11,500.

The best way to fix this is by setting a budget for holiday gifts in January and saving up every month to meet that goal. If you have problems resisting the temptation of spending those funds before the holidays, then use a financial vehicle, such as a Christmas Saving account (also known as "Christmas Clubs" at credit unions) or Certificate of Deposit, that blocks access for a set period of time.

5. Forgetting About Your Car Registration Fee

While you cannot predict every single expense related to your car, there are several that you can count on every year. The most important one is your annual car registration fee.

This is no small fee and, depending on the weight and year make of your car, can run into a couple hundred of dollars. For example, between my wife's truck and my sedan, we pay about $500 every year in registration fees. That's enough to mess up any month's paycheck if we were to forget about setting an annual reminder.

Check with your local DMV, find out how much is your registration fee, and set a reminder every year.

6. Buying a Cup of Coffee Every Day

That morning stop at your favorite coffee shop may be throwing off your budget without you even noticing. If you buy a $3 cup of coffee every weekday, it adds up to $780 over the year. And that's being conservative: in New York City shoppers have reported that a Starbucks Cappuccino Grande costs between $5.01 and $5.30.

With what you're spending on coffee in a year you could easily pay off an entire store card or knock off a good chunk of a credit card balance.

Instead of buying coffee every single day, look for cheaper alternatives, such as:

  • Preparing your own cup at home and investing in a good travel mug;
  • Drinking your office's free coffee or starting a coffee pool with coworkers; or
  • Having your own drip machine and coffee bag at work.

7. Not Negotiating Credit Card and Cell Phone Bills

The path of least resistance is the most expensive one. If you don't negotiate credit card interest rates or cell phone charges, then you are paying more than you have to. A 20-minute call could save you a couple hundred dollars over the course of a year.

Don't think that you're being rude for asking for a better deal, you're entitled to do so. Even the Federal Trading Commission provides tips on shopping and saving. Do your homework, compare prices from competitors, and negotiate your way into savings. (See also: Lower Your Credit Card Interest Rate and Reduce Your Phone Bill, Immediately and Easily)

The worst that can happen is that they say no, and you get a freebie for your effort. Make sure to ask for one, such as account credit or a gift card.

8. Relying Only on Credit Cards

You need to start paying with cash more often.

The convenience of carrying a less bulky wallet or purse is killing your spending power. People paying with credit cards spend 12% to 18% more than those paying with cash. Even McDonald's knows this because its customers using plastic spend an average of $7 per order, while those using cash only an average of $4.50.

9. Spending Lucky Money Windfalls

What do you do when any of these happen?

  • Found a $50 bill on the street.
  • Grandma's sends you a $100 check for your birthday.
  • Surprise bonus at the end of the year.

If you answer: "shopping spree!", then that's a dumb little budgeting mistake. Like Will Rogers said, "too many people spend money they haven't earned to buy things they don't want to impress people they don't like."

Curb your spending habit and put all those lucky windfalls into your savings account. Even better, use them to pay down debt. If you often have trouble meeting monthly expenses, then use that extra cash to prevent you from breaking your budget.

10. Not Having an Emergency Fund

Not having or maintaining an emergency fund is the biggest of all dumb budgeting mistakes you can ever make. If you don't have one, you're hit with a double whammy.

First, you bust your budget by spending more than you have available. Second, you are very likely to put those expenses on a credit card. These are the reasons why you need to build an emergency fund and, of course, replenish it every time that you use it. (See also: Figuring the Size of Your Emergency Fund)

Remember to save your emergency fund for true emergencies: forgetting about your monthly credit card bill or your annual tax payment is not an emergency.

What are some other common dumb little budgeting mistakes? Please share in comments!

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Guest's picture

Agreed! Good article. We have found that accounting for as many items as possible in our budget is extremely helpful. A few more sneaky ones we have encountered-- cost of annual tax preparation (unless you do it yourself), meals or extra groceries associated with birthdays/holidays, postage for shipping gifts, money for Halloween costumes, school supplies… those are a few that come to mind

Damian Davila's picture

Excellent points Guest Terri! The key to making your budget balance is accounting for all those "surprises" that are not really surprises.

Guest's picture

Good list. Far too many people let the government hold their money all year so they can get a return, when they could be saving or investing that money all along. And once-a-year expenses are really important to include in your budget as well as long-term big purchases like replacing an old car.

Damian Davila's picture

Exactly! Tax withholding is a poor replacement for a savings account. Uncle Sam doesn't pay interest.