Avoid Budget Busters Part 4: Budgeting Pitfalls

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Scarecrow Pointing to Starbucks MoneyThrift is having a sure hand that controls your spending so your spending doesn’t control you. The goal isn’t to be rich but rather thoughtful, industrious, content and thrifty.

We all know that impulse spending and unexpected emergencies can wreak havoc on your budget. But sometimes we make the mistake of deliberately budgeting the impossible. Unrealistic plans are like piano music requiring you to stretch your hand farther than humanly possible. If you purposefully set the required spending in one category too high, you won’t be able to trim other categories to bring your overall spending into harmony. Here’s where to look in your budget where you may be inadvertently planning for failure.

Too much house

You can’t afford more house than your budget will allow. If you spend 50% of your lifestyle expenses on housing, you will not be able to live proportionally on the rest of your budget. Too much house is one of the most common mistakes a young family can make.

Try to keep your rent under 20% of your take-home pay after you graduate from college. Aim for all associated expenses (mortgage, insurance, taxes, etc.) to be less than 30% if you own property and some of the payments go toward the principal. And by no means let your housing costs exceed 38%, or your budget will be doomed before it even begins.

Despite smaller families, the size of American homes has been increasing exponentially. In 1940, the average home was only 750 square feet. The square footage rose to 983 by 1950, 1,100 in 1960, 1,500 in 1970, and 2,080 in 1990. Today the average house measures about 2,400 square feet.

In previous generations, several children typically shared a room. In today’s family, kids get not only their own room but their own bathroom and home entertainment system as well. In addition to direct costs, owners of larger houses have greater associated costs such as landscaping, energy use, maintenance and repairs.

Most of us never saw our parents and grandparents in their younger days when they were struggling financially and lived in tight accommodations. It is as though we can’t feel successful without immediately enjoying the lifestyle of our parents at the height of their careers. To decide how much house is enough, calculate how much house you can buy for 30% of your standard of living.


Transportation costs should be under 15% of your lifestyle spending and include insurance and maintenance as well as saving for your next purchase. Only buy a car you can pay for with cash. Your first car may be a clunker. Immediately start saving for your next car and the inevitable costly repairs. This strategy will limit the number and quality of cars you can afford. Remember, there are families earning more than you who take public transportation or share rides to work.

Most people view gasoline costs as inevitable, but they are not. Living close to where you shop and work, even if you have to own a smaller house, has economic advantages. Alternatively, consolidate trips to reduce expenses.

Eating out and prepared foods

Starbucks has become the poster child for budget busters. Buying a $4.50 cappuccino when you are young costs you $450 in your retirement account. And spending $4.50 a day costs you $450,000 in your retirement!

It doesn’t have to be a latte. You can generate amazing savings from any expense. But a pricey latte illustrates the huge markup on a dollar coffee.

Aim for food to be under 15% of your lifestyle spending. You would like your food to be inexpensive, healthy and convenient, but it can’t be all three. You can only pick two.

Healthy food tends to be more expensive per calorie. So do convenience foods. One person eating out can often fund the entire family eating at home. And even when you purchase food in the grocery store, prepared foods can cost more than twice what you would pay for the individual ingredients.

By learning to cook with common staples such as rice, beans, flour, oats, potatoes, and chicken, you can drastically reduce the percentage of your budget spent on food. Save even more by making your own gourmet coffee.

If you aren’t rich enough to afford eating every meal out, this is the best way to scale back your lifestyle. Your food can be both reasonable and nutritious, but some assembly is required.


Clothing expenses can break the budget. Designer clothes can be 10 times as expensive as more modest attire. And keeping up with the latest fashions requires renewing your wardrobe regularly.

For many people, shopping for clothing is a social outing and hobby unto itself. The goal is to buy something truly wonderful that will make a specific event memorable. Such designer moments may be the norm on the red carpet of the Academy Awards, but they will destroy an ordinary family’s budget.

Most people aim for clothes that are respectable but not ostentatious. If that isn’t enough, reexamine your values. If you must keep up with what everyone else is wearing, you need to earn more than everyone else. If you express yourself wholly through your clothes, your financial security is going to suffer.

Average-size people can find some great buys at secondhand stores. Or you can learn to sew. Children’s clothes do not require much fabric, and the savings can be tremendous.

Other regular expenses

Review monthly, quarterly or annual recurring charges. Research the cheapest basic service for your phone, cable, Internet, and insurance. Compare that to what you are paying now, and ask yourself if those seductive extra features are really worth the cost. A gym membership used regularly might be a wise choice, but if you haven’t shown up there for weeks, it isn’t. For each expense ask yourself, “Is this really a necessity?” Any way you can reduce your regular bills saves money every year.

Increased insurance expenses

Most families who get insurance are self-selecting. If you wait until you are a high risk, your premiums will be higher. People who have insurance and then become a high risk often cannot switch providers. As a result, the pool of people covered by insurance tends to get riskier over time. As it does, those who can’t switch end up with significant policy increases.

But if you have not had much in the way of claims, shopping for new coverage can help you avoid costly insurance increases. Reviewing your policies and getting a couple of quotes can be a quick way to rein in expenses.

To make this work in practice, you need to collect the quotes quickly and painlessly. Rather than the anonymity of the Internet, I recommend a few phone calls. First decide if you want to change the terms of your policy. Then get a quote for the exact same coverage from each company.

After you have eliminated a company, tell them directly. Giving someone your phone number won’t waste their time, but e-mail spam can seem eternal and Internet sites are often not reputable. Review your policies once a year. After you are satisfied with your current provider, once every two or three years is sufficient.

In summary, every category of your total budget must stay within a limited percentage. Careful planning and a courageous look at your lifestyle can help you identify those budget busters. Adjusting a few spending excesses could solve all of your spending problems.

Photo by Megan Marotta

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President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.