Most furnishing budgets go wrong the same way — spent in the order things are noticed (a nice lamp here, a rug there) rather than in the order that actually matters for how the room feels.
Spend most on what you touch most
As a rough split for a living room: half the budget on the sofa, a quarter on a table and storage, and the remaining quarter on lighting, textiles and accessories. The pieces you sit on and use daily should absorb the majority of the spend — everything else is in service of them.
Buy once for the anchor pieces
It is safe to buy cheaply for things you'll happily replace in a year — a cushion, a small side table. It is expensive, in the long run, to buy cheaply for the sofa or bed frame you use every single day. Spend where the wear is heaviest, save where it isn't.
If the full room isn't affordable at once, start with the anchor piece and build outward — a room with one well-chosen sofa and empty space still feels intentional. A room full of budget pieces rarely does.