1. Guessing Monthly Costs. When you develop your budget, you will need to estimate some expenses if you are uncertain about actual costs; however, over the next few months, you should refine your estimates so that you know what you are spending instead of guessing about these costs. A budget is not about guessing or estimating—a budget is about knowing.
2. Allocating Expenses by Paycheck. If you allocate expenses by paycheck, it is likely that you will have too much money during one part of the month and not enough money during the other part. If you plan to allocate your expenses on a monthly basis, you will smooth out your cash flow. For example, if your mortgage payment is your largest monthly expense, you could allocate part of each paycheck toward that expense.
3. Not Tracking Your Spending. Why develop a budget if you are not going to track your spending? You must track your expenses (i.e., your bills and your daily spending). You will be surprised to see how much money slips through your fingers as a result of your daily spending habits.
4. Leaving Out or Ignoring Purchased Items. Everything you spend must be counted and recorded for budgeting purposes. From lunches and haircuts to parking and snacks, everything must be included. No cheating!
5. Not Working as a Team. Spouses often have different views about how to manage and prioritize money. The key to working as a team is communication. Attitudes about money may be formed at an early age, so it may take some work to transition this thought process. Partners must openly discuss their money priorities and biases and remain sensitive to those of their partner.
6. Not Having an Emergency Fund. Many expenses are unexpected; however, we know that we need to have a plan in place should life present us with such unanticipated costs. You can prepare yourself for such expenses by building an emergency or reserve fund. Maintaining a reserve fund will allow you to pay for unplanned expenses instead of having to use your credit card.
7. Not Making Room for Fun. Living an austere lifestyle can be managed for a while, but sooner or later it gets old. If you want to live like a monk, move to a monastery. Otherwise, carve some room for fun in your budget. Strike a balance between saving, controlling your spending, and living your life.
8. Mistaking Wants as Needs. This is a classic mistake and one that can trip up many married couples. Some expenses can easily be classified as needs, whereas others are clearly wants (e.g., choosing a hamburger or the filet mignon), but there are some expenses that fall into a gray area over which spouses may strongly disagree (e.g., buying steak). This is the area in which there may be greatest conflict but also the greatest potential benefit if you are able to work through these issues together.
9. Assuming That You Cannot Change Your Monthly Bills. You can always shop around for a less expensive auto insurance company, cell phone provider, and lower interest-rate credit card. Do not assume that you cannot improve your budget by shopping around for better deals.
10. Not Having a Budget. The biggest mistake of all is not having a budget. I have never met a person who is financially healthy who did not use a budget. The fundamental reason we need a budget is that our financial resources are finite and our wants are infinite. The only way to reconcile these two financial extremes is to have and use a budget.