dont make the fatal flaw in budgeting

January 11th, 2008

Don’t Make the Fatal Flaw in Budgeting

When you think of the word budget, what comes to mind?

For many, the idea of a budget is an arbitrary spending plan. The amounts are decided and then set in stone, and set in stone in either direction. If I have a $100 food budget, the thinking is that I can’t spend more than $100, but that I also am totally free to spend up to $100. That is a way to budget, but it is the way that gives budgeting a bad name, and is what I call the fatal flaw in budgeting mentality.

A budget does not have to be an arbitrary spending plan. In fact, I would argue that the more flexible a budget is, the better it will work. Life happens, and we have to adjust. I didn’t have $3700 budgeted for car repairs this month, but they need to be done, and I need to adjust for them. Part of that is my emergency fund, and part of that is budgeted car repair money, but that isn’t enough. The biggest budgeting mistake I could make is now say “I’ve spent my entire $1200 car repair budget for the year now, so I will not save any more money for the future. In fact, I’ve spent 3 years of car repair budgets so I’ll start saving again 4 years from now.”

That may sound silly, but that is what an arbitrary, inflexible budget does. And I don’t think budgets were ever meant to be that way. Somewhere along the line, we equated “budgets” with “rules” and we set them in stone. And then 3/4ths of the world rebelled, as well they should – and budgeting got a completely bad rap. A good budget isn’t a rule, it is a guideline based firmly in the reality of each individual situation.

Effective budgeting can’t be done in an instant. It takes time, and tracking, and understanding how you spend, where you spend, and why you spend. Once you understand where your money is going, then you can split it up into categories for spending purposes. In fact, I’d argue as long as you are keeping track of all your income and expenses in detail, and you are consistently meeting your spending and saving goals, that’s close enough to a budget if it consistently works for you month after month. A budget is a very effective tool, but not if it is used in an arbitrary manner, and an awareness of your spending patterns may be the budget you need.

And that bring us to the “I’ve budgeted $100 for this, so I have to spend $100.” No, you don’t. In fact, much of my debt reduction thus far has come from creating snowflakes out of budget surpluses. I strive to come under budget in every category I can. And when I do, I create a little more money to use for debt reduction.

A budget is also a great savings tool. Budgeting saving a certain amount each month for annual or irregular expenses makes those expenses much easier to deal with once they occur. Budgeting helps, not hurts. My budget serves to keep my days, months, and even entire years on track to meet my goals. And for me, that’s the beauty of budgeting.

Kacie at Sense to save is running a Better Budgeting Challenge, and reading her experiences in the past with budgets is what inspired this post. Thanks, Kacie! :)

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17 Responses to “Don’t Make the Fatal Flaw in Budgeting”

  1. I’ve spent the past year tracking my spending and every month I’ve had to review my “budget” because it was either completely unrealistic or I had an unexpected expense. My clothing spending surprised me. I didn’t think I spent much money on clothes because I don’t buy them often, but when I do I buy quality so it’s usually a big chunk of change.

    I started a new blog today! Please, come visit: http://www.frugal-parents.blogspot.com

  2. Actually i believe that you should do a budget every single time you get paid. Stuff comes up that you just can’t plan for. You can do your best to plan for them, which you should, but it is so much more pleasant to be able to adjust your budget each time you get paid, so that the rise in gas prices doesn’t throw you over budget and lead to a ton of stress. it doesn’t take much time either.

  3. Budget surpluses are about the most exciting things ever. :)

    It’s also important to see the money as potentially flexible. Maybe I budgeted more than we needed for gas, but we want to go out with friends and our date budget is a little too small. Magical shift.

  4. This has been my first month budgeting. It has been an eye opener :)

    For the first week, I found myself “fine tuning” the budget. I figure that if I go over in one category, I can either deduct the amount that we overspent to next month’s allowance or apply the unspent amount from another category to cover the difference. *confused*

    Even though I am super impulsive, I have come to understand and accept that it takes 3-4 months to work out the kinks in a budget plan.

    I hope to have a lot of unspent money at the end of the month *fingers crossed*

    :)

  5. inthehole – you can do that (deduct from another category or from future months) and it does work, but you have to give yourself time to know what realistic is. If you are constantly robbing from next month’s allocation to pay this month’s, it isn’t realistic, so you have to spend less or budget more.

    Most of us have a finite amount to work with – the trick is figuring out where we choose to spend and save that finite amount :)

  6. Right on, right on, right on! I completely agree with you. I guess that’s all that’s left for me to say :)

  7. You’re completely right on being flexible. That has been MY fatal flaw in the budgeting process. It seems like once I go over budget and break that “mental contract” with myself, the floodgates open and discipline goes down the river.

    I have to develop a realistic budget with my wife and stick to it, but it needs to have some flexibility. Things change, surprises pop up. I have a fully funded emergency fund, but what really hurts us is “running by Wal-Mart” to pick up a few things. Next thing you know, the basket is full of un-planned and un-budgeted purchases. I will have to personally decide to only buy from a list, only buy what I need, and only buy if it is within the budget.

    What is a realistic budget? One that includes entertainment as well as debt repayment, clothing as well as the mortgage, eating out as well as groceries, and gifts as well as savings. In other words, it has to reflect what is important to me, but still keep me on track to reach my financial goals.

    Thanks for the reminder!

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