Cutting the budget? Avoid These 13 Fatal Mistakes!

It’s no secret that things are only getting more expensive.

The pinch is being felt around the country and despite recent excitement about wage increases (yes, I agree that you deserved more) this was countered by everyone’s favourite financial factor; Inflation. 

Inflation is just one of the many reasons forcing you to consider another crowd favourite, cutting the budget.

We’ll let you groan before you continue reading… 

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Why Cutting The budget Is Important

With rising costs, falling wages and mounting inflation, you have two options:

  1. Save more money! 
  2. Make more money!

So, let’s talk budgets.

We all know that they can be boring, we all know that they can be tough, but we also all know that they can be an incredibly helpful tool to help you get out of financial difficulty.

But, creating a budget is a lot like cooking chicken (stay with me here) – if you don’t do it properly, you’re in big trouble. The difference is, bad chicken can put you through a few rough nights. A bad budget, however, can set you up for a number of rough years!

So to help you better “cook” your budget, I’ve compiled the most common budgeting mistakes and what you can do to avoid them!

After reading, I strongly recommend completing a total money makeover!

13 Common Budget Cutting Mistakes

We all make mistakes.

We can only hope that the ones we make aren’t too expensive!

By following these tips, you can hopefully sleep a little easier and get closer to your financial goals. 

1. Not Having One

This may seem like a given, but if you don’t have a budget, you’re already a step behind.

If you’re struggling with debt, living from paycheck to paycheck, or simply losing track of where your money is going, you need a budget!

A budget, in short, is a plan to manage your spending and expenses against a goal. If you haven’t made one yet, keep reading, and on scouts honor, sit down and make one when you’re done here. 

2. Going Off Guesswork

Making a budget from guesses and vague figures is like trying to rob a bank with a spoon; it’s just not going to go well!

This is one of the most common mistakes that people make when budgeting (not the spoon, the fictitious numbers, just so we’re clear). 

For your budget to be successful, you need an accurate picture of your expenses and spending. So how can you avoid this?

By sitting down and going through your monthly expenses. 

The best place to start is your fixed expenses.
These are things like:

  • Rent
  • Food
  • Utilities
  • Car finance

Basically, the things you have to pay for.

Then look at other expenses such as interest fees, credit card bills, gym memberships – anything that you pay for.

If you take out cash regularly, don’t forget to factor this in too. 

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    3. Not Accounting For Tax (pun intended)

    Ah, tax. Yet another necessary evil of the financial world.

    It’s also something that needs to be factored in when setting your budget.

    Making calculations based on your gross pay is going to leave you short-changed, as your paycheck will look very different when it arrives after tax. 

    If you’re uncertain what your monthly salary is (perhaps you get paid in smaller intervals), gather your payslips to calculate your net monthly income and use that as the basis of your budget. 

    Should you have multiple incomes, make sure you incorporate these as well. 

    4. Targeting The Wrong Debt

    Clearing debt is one of the biggest motivators and one of the best reasons cutting the budget. 

    If you’re lucky, you won’t owe money to too many people or organisations.

    Most people aren’t so lucky (I’ve even been in that position myself).

    cutting the budget

    Student loans, home loans, credit cards, overdue bills – all of these and more have an amazing talent of accumulating interest. 

    When looking at your debt, it’s important to prioritise based on the interest. Your goal should be to pay off the debts with the highest interest first and make your way down the list accordingly. 

    Pro Tip: Think carefully before saving excess money. If a savings account pays 0.5-1% interest whilst your credit card costs 1%-27%, it's pretty clear where your money is most effective.

    Make sure you have an emergency fund and then destroy the right debt first.

    Of course, some loans will need to be paid regardless of the interest rate – your mortgage for example. Nonetheless, your focus should be those that are eating up the most of your hard-earned cash. 

    5. Choosing a big house, not the right house

    On the topic of mortgages, this is a major issue people have when cutting the budget. 

    We all have a dream home; striving to own it can be admirable.
    Unfortunately, it’s not always practical. 

    A trap that often catches home buyers is that they get the most expensive house that they can afford. The same thing happens with renters.

    Moving into a situation like this can often create a foundation for long term financial anxiety. 

    If your housing is stretching you too thin, it may be time to consider something friendlier to your back pocket. This is less of a no to your dream home and more of a “not right now”.

    One leaves the door ajar for a better future, so choose wisely. 

    6. Being Unrealistic

    Habits are hard to break, whether they’re good or bad.

    Spending and lifestyle habits are especially tough nuts to crack.

    If you love to splash your cash, it can be very tough to simply wake up the following day and keep it all in your pocket.

    So start slow.

    If you try to cut back too much too soon, you could be setting yourself up for an early failure.

    Being realistic with your goals makes them more achievable. Each success will motivate you to keep going and continue to make better financial choices. 

    7. Not Maintaining An Emergency Fund

    If the last few years have taught us anything, it’s that the worst really can happen.

    Not just to us, but to the rest of the world too.

    Pandemics, global warming and the threat of economic collapse are all the more reason to have a solid emergency fund.

    Yes paying off any debts, and setting money aside to buy that house or car is important.  But what happens if a sudden emergency expense appears? 

    All that scrimping and saving will be for nothing. So, when creating your budget, you need to determine an amount that you’ll be able to save each month.  

    Take a portion of this amount and use it to create an emergency fund.

    The general rule of thumb is that you should be able to cover 2-3 months of expenses. You won’t be living large, but you’ll be keeping your head above water.

    8. budgeting To Spend

    When making a budget, you’ll hopefully find some extra cash that to put towards your goals.

    Unfortunately, this prompts many people to immediately spend that extra dollar. 

    The point of a budget is to limit your spending and save more money.
    Not to find a way to spend more. 

    If you find yourself falling into this trap, one tactic you can use is to put your extra savings into an account that makes your money harder to access.

    This will help you to stay disciplined, and keep your savings where they should be. 

    9. It's Too Tight

    Following on the path of spending, there are some who spend too much.
    There are others who don’t spend at all.

    The latter can be a dangerous path, unless you have the discipline of a Jedi. 

    Constricting yourself to the point that you can’t have any fun will leave you miserable.

    This can be very debilitating, greatly detracting from the positive impact cutting the budget is meant to have.

    A budget doesn’t have to be boring!

    I can’t stress this enough; you should be cutting down on spending not fun.

    Budgeting can be limiting, yes, but if done correctly, there’s plenty of room for fun.

    If you’re trying to cut down on going out – invite your friends over instead. Drinks at home are always cheaper than those at bars. 

    If you’ve decided that you can’t go out to your favourite steak place, get a nice cut from a butcher or the supermarket and cook it yourself.

    Sure, this will a bit more effort on your part, but it means you can still enjoy something that you usually do – just in a different way. 

    10. Confusing Wants With Needs

    This is a tough one and something that we all struggle with.

    When it comes to life, there are things that we need and things that we want. The problem is, it’s very easy to blur those lines. 

    For example, we need food. However, do we need every snack that the supermarket has to offer?

    Do we need to buy the slightly more expensive brand name products – or will some cheaper, store brand goods do the job? 

    Another thing to consider is your regular direct debits.

    You may want a fancy gym membership, but is there a cheaper option available? Could you work out at home? Could you find a cheaper phone contract with fewer add ons? 

    These are just examples of small changes, but small changes add up fast!

    11. Not Being Flexible

    I did say earlier that the first step to creating a good budget is to calculate your exact expenses. However, it’s also important to be flexible. Your expenses can’t be the same month to month. 

    For example, some expenses arrive at irregular intervals, such as annual subscriptions or quarterly bills. If you can plan for these in advance, you can ease the sting and still stay on track with your goals. 

    Another benefit of being flexible is that it allows you to do things that you may not have been able to otherwise. If you stick to your budget for four months, for example, you may be able to afford the holiday you’d been planning. 

    If you do jet off, set a holiday budget too. Don’t get carried away! 

    12. Having The Wrong Accounts

    You’d be hard-pressed to find someone who loves a bank and isn’t on their payroll.

    Whilst banks can be helpful in certain areas, they can also hinder your progress.

    Take the time to do a quick audit of the accounts that you currently hold. If you’re paying fees on any accounts, get out of there! A $10 a month fee is $120 a year that you’re losing out on. 

    Next, review the number of accounts that you have, and ask yourself if you really need that many. It can be harder to keep a track of your funds when they’re spread into multiple pots. 

    Keeping your money in one or two places can make it easier to keep an eye on things. 

    13. Having Too Many Cards

    Credit cards are somewhat of a double-edged sword.

    If used correctly, they have a number of benefits, such as allowing you to build your credit and alleviating the pressure of larger purchases. 

    They can, however, create the perception of having ‘fake’ money. This is dangerous because you can spend and spend without actually seeing anything leave your bank account. That is, until your bill arrives. Dun dun duuuun.

    Credit cards often carry the highest rates of any “loan”. This is why getting into credit card debt can be so harmful to your finances and budget.

    So, as you’ve done with your bank accounts, examine your cards too.

    Ask yourself if you need each of the cards that you have. If you’re uncertain which ones you should cut up, start with those that have the highest interest rate. This helps you to manage your spending and stay under budget.


    As you can see, there are plenty of traps to avoid when cutting the budget.

    Whilst I’m confident that you won’t have to manage every single issue on this list, it’s likely you’ll have to grapple with at least one or two. 

    The most important thing is to not entirely give up should you make a mistake. Instead, understand why it happened, and take steps to prevent it from happening again.

    If you’re ready to dive deeper down the money-saving rabbit hole, I highly recommend doing a full Money Makeover. Alternatively, learn to invest the money you just saved!

    Good luck and happy saving!

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