Making a budget is a great idea for the majority of us. But many people draw up budgets that have fairly obvious oversights that render their work useless. To create a realistic budget, avoid these common pitfalls.

Not Planning for Yearly Expenses

You plan for typical ongoing bills expenses: groceries, utilities and gasoline. But oops, you forget about yearly expenses, like car insurance and property taxes. For planning purposes, simply divide yearly lump sums by 12 and allocate that amount for annual expenses every month.

Yes, it's easy to forget about bills that don't show up at your door every month, but you're probably better off paying the total bill at once, since most companies levy an extra charge for monthly payments. Remember to also plan for other non-monthly expenses, like school supplies, pet care and gifts. (The tips in Holiday Spending Or Spending Holiday? will have you singing "Joy to the World" well into the New Year.)

Not Expecting the UnexpectedMany people don't set aside money for medical expenses, car repairs and home maintenance. But are these so-called irregular costs really unexpected? Almost all cars and homes eventually need repairs. The amount of repairs depends on age, quality of construction and maintenance.Sure, unexpected breakdowns happen. But you can predict some costs, at least roughly. When shingles on your 25-year-old roof with a 25-year-warranty are curling up, it's time to start setting aside money. Save money by shopping around and getting quotes, instead of hiring the first contractor who returns a call. (Be prepared before you buy - learn the basics in Used Car Shopping: How To Avoid A Lemon.)Not Tracking Past ExpensesA good way to get a handle on irregular expenses is look at past expenses. How often you went to the doctor or mechanic last year can indicate how much you'll go next year. Plus, some costs are seasonal. Gas and oil bills are higher in the winter, and electric bills are frequently higher in the summer when air conditioners run.Disregarding SavingsMany people contribute to savings only what they happen to have left after they've bought everything they want. A better way is to reverse that thinking. Decide what you will contribute to savings and stick to that amount, then buy what you really need.Not Having an Emergency FundPaying attention to savings will help build an emergency fund. Financial planners recommend building up two or three months' worth of emergency savings, in case of job loss or severe illness.Not Including Small but Ongoing ItemsSmall items, like eating out for lunch, add up quickly. A $3 cappuccino every workday comes to $75 a month - would buying a coffee machine be a better option? Look at these types of items, if your budget isn't paying off the way you'd hoped.Putting Too Much Work InSome people write down every amount they spend everyday and track every penny. You should be able to maintain a budget with a reasonable amount of record-keeping.Not Being FlexibleYou don't have to be too restrictive - trade amounts in different categories. For instance, spend less on eating out in one month and buy some new shoes the next.Not Writing it DownNumbers in your head can be amorphous and inaccurate. Writing down the budget can add discipline and authority. Try a spreadsheet or online software.Not Changing ItSome people drop their budget instead of changing it. You should be able to change it as new income and expenses arise, or you find that your previous planning wasn't accurate.Not Being RealisticSome people set down unrealistically low spending limits, and then become discouraged when they run out of money and can't meet their goals. The point of a budget is not to stop you from spending money at all or from treating yourself once in a while. Instead, it is meant establish your priorities and you give you sense of control, and free you from guilt about spending.

Budgeting is meant to empower, not cripple. Work within your means to create a budget that best fits your lifestyle. After all, it's your money, and you should have control over it.

Related Articles
  1. Budgeting

    How to Cost Effectively Spend on Baby Clothes

    Don't let your baby's wardrobe derail your budget. These top tips help you to save money and spend wisely on baby clothes.
  2. Personal Finance

    College Students are Failing Financial Literacy

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial literacy.
  3. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  4. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  5. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  6. Savings

    6 Millionaire Traits That You Can Adopt

    Millionaires have more in common than just their bank accounts. They share certain qualities that help them make it to the top.
  7. Investing

    10 New Apps That Help Budget For Expensive Cities

    From platforms for saving money to those that account for side jobs, mobile apps are changing spending habits and income generation in urban areas.
  8. Budgeting

    How Cooking At Home Can Save You Real Dough

    Cooking at home saves time and money but most importantly, it could even help lower future health costs.
  9. Home & Auto

    Why Housing Costs Shouldn't Exceed 30% of Your Budget

    Financial experts will argue that there’s no problem with allocating 50% of your net income to housing, but that barely leaves enough money for living comfortably. Reducing housing expenses to ...
  10. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  1. Can mutual funds outperform savings accounts?

    A mutual fund can – and should – outperform a savings account. In most cases, it should not even be a close race. Savings ... Read Full Answer >>
  2. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>
  3. How soon should I start saving for retirement?

    The best answer to the question, "How soon should I start saving for retirement?", is probably, "yesterday," and the second ... Read Full Answer >>
  4. Can I use my 401(k) as a collateral for a loan?

    Although federal Internal Revenue Service, or IRS, regulations prohibit using a 401(k) account as collateral for a loan, ... Read Full Answer >>
  5. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  6. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!