Budget Categories Are Not Licenses to Spend

fun money

On one of the financial forums I frequent, a woman who was deep in debt posted looking for help. The main problem was that she couldn’t understand how their debt had ballooned because, “We have a budget.” When other posters started asking for more details, it emerged that she had gotten a budget sheet out of some book that had all kinds of categories and percentages listed. What she failed to take into account was that this budget sheet was just an example, not the gospel truth about what every budget in the world should or would look like. As a result, she had lots of categories that she couldn’t even afford and several where the percentage of money related to her income was way out of balance.

The biggest bone of contention seemed to be the “fun money” category. This woman and her family had ten percent of their income allocated for “fun money,” or about $6,000 per year. This was split evenly between her husband and herself and was money that neither spouse had to consult with the other before spending. Many budgets have such a category and the purpose is to cut down on fights when one spouse wants to indulge in something that the other doesn’t approve of. “Fun money” didn’t count the money they had allocated for travel. (That was another story.)

The problem was that the category was unsustainable for this couple, at this time. They had a lot of other debts and payments that were already outstripping their income. In such a case, all money but that required for essential expenses needs to go towards getting things back on track. When several posters pointed out that she should have $6,000 per year to apply to her debt payments if she would eliminate the fun category, she clung to it relentlessly. At first she claimed that since it was in the book, she was entitled to it. Then she claimed that there was no way she was going to deprive her husband of his “fun,” even if it meant not getting their other problems under control. He deserved his fun since he worked so hard.

While it’s easy to laugh at this woman, her situation isn’t that uncommon, especially with people who have never really been educated about money. This woman tried to do the right thing by educating herself, but she was wrong to assume that just because something is in a book, it’s correct or even desirable. She assumed that all budgets must include the categories listed and failed to think that her situation might not be that of the books’ example. The lesson here is that if it’s in a book or on a website, you still need to do some independent thinking to make sure it’s right for you. Even if it is a good fit, you’ll still likely need to customize it so that it becomes a perfect fit. Nobody’s situation is exactly like someone else’s, much less identical to the idealized example found in a book.

Then there is the problem of clinging to unsustainable practices. Many people make a budget, either going by what’s in a book or by the seat of their pants, and then cling to those numbers like a life preserver. But they don’t stop to think what happens if income changes, unexpected expenses crop up, or if you made a math mistake in the first place. Once a budget is done, it’s not a static document. It has to change as you change. Do you really want to be using the budget you made at thirty when you’re fifty? You have to reevaluate your budget periodically and be willing to change things around. Just because something like fun money was in the budget once doesn’t mean it can or will stay there forever. You might need that money to get out of debt, or to save for a better goal like a new house.

It’s great to make a budget, but it has to be your budget. It can’t be someone else’s budget, or identical to one found in a book or on a website. You also have to realize that, just as everything else in life changes, so must your budget change. Categories may get added or deleted, and the percentage of your income allocated to each will also change over time. If you cling to one budget forever (particularly if it was wrong when it was created), you will end up like this woman, in debt, with no understanding how it happened.

(Photo courtesy of D Sharon Pruitt)

This entry was posted in Budgeting, Debt, Personal Finance and tagged , , , , , . Bookmark the permalink.

4 Responses to Budget Categories Are Not Licenses to Spend

  1. So very true. And this example can be adapted to everything in life really. When anyone is given any type of information whether it’s financial, medical, education, etc. You have to decide if the information applies to your situation and works with what your goals are for your life. It doesn’t matter where or who the information comes from.

    Suze Orman and Dave Ramsey give great advice and have wonderful financial techniques but I don’t agree with all of them. I use what fits my financial goals and leave the rest. I read a book about 20 years ago that said if I invested $10k in growth mutual funds that in 20 years time using the past history of the stock market I would have one million dollars. Had charts and everything to prove it. lol

    FYI: No I did not invest directly with them, no money was exchanged, I invested independently, did my own research and choose a top mutual fund that still exists and is doing fine.

    But that fund didn’t bring in the one million as promised and I did not give up on investing in the many other financial vehichles available. Just as Jennifer has posted above, just because it’s in a book, or on a tv show, some financial advisor says it doesn’t make it gospel or fit the goals of your life or income.

    Get as much information as you can, from many different sources, use what fits your financial life and leave what doesn’t or won’t work for you.

  2. Aleta says:

    When I was a young married woman, I had convinced myself that I lived on a budget because I had a month long plan divided into 4 or 5 weeks. What I did was allocate the money to what had to be paid. I didn’t have a true budget until I signed up for a program and tapes that taught me what budgeting was all about. I did the percentages and that was a great guideline for me. The fun money was only $10. a month when we were coming out of debt. That budget was then and later life changed for us and it changed again.

    Today, we have gone through some emergency situations that have put us in another budget. Right now, we have to pay the essentials.

    The economy changes and so does one’s life. You could become divorced, widowed, a spouse or yourself with an early illness. You have to constantly adjust and tweek your budget.

    I think that what Elizabeth tried to convey in her book “All Your Worth” is that you should be able to live on 50% of your income if the need would arise.

    Good article Jennifer because maybe people use a budget to justify an expense that they can do without or lower.

  3. Minny says:

    I read a forum here in the U.K. called ‘Martin’s Money Tips’, people in debt post their spending and so often resist advice to stop spending on non essentials. Their reasons are always the same – the husband/wife/children must have their ‘fun’ money. That they are in debt seems to whizz over their heads.

    Encouraged by the ‘must have a budget’ idea we made an itemised one. After filling in all the categories we just didn’t have enough to go round, yet we were never in debt and always had money in the bank. What we did was live frugally and then spend on holidays, Christmas, going out etc according to how much we had to spare.

    As people are saying, it works for us yet people we have told about it say one MUST have a budget!

  4. Gail says:

    I have always found it fascinating how much these budgets allocate for clothing on a monthly basis. Even at $50 a month (which is low for many of these made up budgets) that is a bunch of money that can be used towards debt or savings instead. I don’t think I have bought for myself or hubby a single piece of clothing this year. The last thing that I remember buying to wear was a new pair of shoes for my son’s wedding last year. We can’t afford to shop for clothes at the present, but I guarantee you that we aren’t walking around naked! Then the allocations for vacations. Well our son’s wedding last year that we took 3 days off for, has been the one and only vacation since we got married over 10 years ago! We can’t afford vacations so we don’t try to save for them. It is more important for us to keep our heads above water financially than having ‘fun’. We are frugal by necessity and by choice as we have been hit with health problems over the years that takes big inroads into our finances.

    I don’t think I have ever managed to live ‘on a budget’ in my life, but things like Dave Ramsey’s guidelines like first save $1000 for an emergency fund is what I strive for. Life happens and so trying to stick to a budget when income comes in whenever (the joys of self employment) is almost impossible. But dealing with bills on a weekly basis, helps accomplish the big and little goals.

Leave a Reply

Your email address will not be published. Required fields are marked *