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)