6 Biggest Budgeting Mistakes by People Making Under $75K
When money is tight, it's easy to assume the biggest financial challenge is low income. But many of the budgeting problems affecting households earning under $75,000 have more to do with money management.
Financial experts share the biggest budgeting mistakes to curb if you’re making under $75,000.
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1. Budgeting Without a Plan
Many people operate with a loose sense of their spending rather than a concrete budget, or, according to Ashley Akin, a certified public accountant (CPA) with Prop Firm App, “People don't budget at all.”
Instead, people spend money and hope that something will be left over at the end of the month, Akin said.
"The other big mistake is that they do not make a difference between what they need and what they want. Without that distinction, money disappears fast and for no good reason," she said.
Akin recommended having an accurate spending plan, either on paper or through an app.
2. Ignoring Small Expenses and Annual Costs
Many households focus on major monthly bills while streaming services, apps and memberships often fly under the radar, Akin said.
She also pointed to small daily spending, such as on coffee, food delivery or impulse purchases. "Nobody thinks of those as a budget problem, but when you add them up at the end of the month, the number is almost always a shock."
Then there are annual expenses that are frequently forgotten until the bill arrives, such as “car registration, repairs, school costs, Christmas and birthdays,” Akin said. With proper planning, you can avoid using a credit card and falling into debt, she assured.
She recommended the practical approach of planning ahead by adding up the annual expenses, dividing by 12, and setting that amount aside every single month.
3. Focusing Only On Income Instead of Cash Flow
A common budgeting mistake is assuming that if you earn enough to cover expenses, this means your finances are in good shape.
Andrew Gosselin, a CPA and personal finance expert with Save My Cent, said people earning less than $75,000 often have an issue of “timing.”
"People may earn a sufficient amount to meet their monthly bills and still experience overdraft fees, late payment charges or short-term loan debt due to their earnings arriving at different intervals than their expenses," he explained.
4. Using Budgeting Systems That Are Too Rigid
While popular budgeting formulas can provide a starting point, Akin warned against rigidity.
Akin recommended frameworks such as the 50/30/20 rule or a modified 70/20/10 approach, but “the key is to find a system that works for you and that will serve you best."
She also warned against making budgets overly restrictive. “It’s important to leave yourself some room for enjoyment because otherwise you will be very disappointed, as you will not be able to maintain such strict rules."
5. Relying On Debt Instead of Building Financial Buffers
When cash is tight, short-term solutions can seem attractive. But Akin called debt one of the "biggest barriers to financial progress, especially for lower-income households."
This especially relates to credit card debt, which carries high interest rates, usually well over 20% per year.
"As long as you have the obligation of paying those interest charges and debts, you will not be able to invest,” she said.
Gosselin noted other forms of borrowing that can worsen cash-flow problems, such as “overdraft protection, payday lending, and buy now pay later products.” All of these products “[provide] an illusion of temporary relief from a short-term cash shortfall while essentially delaying the inevitable problem,” he said.
6. Failing To Automate Savings and Track Spending
Successful budgeting often comes down to consistency rather than perfection. Akin strongly recommended automation as then “the money leaves before you even have a chance to influence it."
If left to your own choices for savings, she said, “you may often find yourself skipping a month here and there."
Routine monitoring, such as tracking how much you spend weekly, can also help create better habits, both experts agreed.
Gosselin advocated for a weekly review, tracking cash flow, and “separating your expenses into categories, bills versus discretionary spending and only committing funds to each category once you receive them."
The biggest budgeting mistakes aren't always dramatic. By creating a realistic spending plan, tracking cash flow, preparing for irregular expenses, and automating savings, households earning under $75,000 can put themselves in a much stronger financial position over time.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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