Personal Budget vs Reality

Budget Finance Cash Fund Saving Accounting Concept

All of us heard about financial responsibility starts with a budget. We need to look at our take home pay and plan ahead for any expenses. While it is a good idea because it allows us to plan how much we can save. However, in reality how may of us can actually stick to the budget?

Having working full time for almost 30 years, I can tell you that I could never stick to my budget because it never works. There are always the unexpected expenses that threw the budget out the window. Expenses such as the car needs repair, the washing machine needs replacement or buying presents for birthday parties tend to appear unexpectedly. Having a budget is definitely a plus but it should be treated it as a guide more than a bible.

I was a financial analyst helping with the budgeting for a large accounting firm (heard of Arthur Andersen?) 15 years ago. Having spent 2 years in planning and budgeting for the Assurance practice in New York, I came to the conclusion that budgeting is a waste of time. Not only the team I worked for constantly reforecast the financials every month because we missed the budget, the actuals that were recorded in the financial statements never came close to the approved budget. Personal finance is very similar. The actuals at the end of every month is usually off from what what we intend to spend. There are several reasons why budgeting never works.

Time Consuming

To prepare a proper budget we need to gather all the expenses from prior years and plan what we want to spend based on prior history. Once you have the budget, we need to start tracking actuals spending to minute details in order to have an accurate picture of true expenses. The question is how many of us actually have the time to log everything in? There are apps or online tools that could help with the budgeting. Unfortunately, all of them require a considerable amount of time to maintain.

Always Wrong

As noted earlier, the unexpected expenses tend to appear and invalidate the budget. Because of this we need to spend more time to reforecast our budget so we do not miss our monthly goals. As we progress throughout the year, we soon realize that the numbers are off again and we need to re-budget again. It becomes a never ending cycle.

Not Bound to Anything

The biggest problem with budgeting is that it is not bound to anything or no one is measuring the budget but ourselves. Having a budget is great but what happens when we exceed our budget every month? Who is going to penalize us for going over the budget? No one. At the end of every month no one will be held accountable. Hence, the value in budgeting diminishes quickly.

So that begs the next question. How do we become financially responsible and plan for our future? The best answers I can give are use your best guess and plan only several months ahead. Additionally, always consider saving for the future a priority and everything else secondary.

Investing and Saving

This is a priority and something that we must to do first. We need to put as much as possible (or to the best of our ability) in investment vehicle such as 401(k) and IRAs. If you participate in your employer’s 401(k) plan, the money is automatically withdrawn from your paycheck and you never see it. If you have extra disposable income, consider invest it in Roth IRA or traditional IRA. Finally, putting those money in stocks that pay dividends will also allow you to generate passive income.

Fixed Expenses

Every month we are required to pay for fixed expenses. Some of these expenses include mortgage or rent, utilities and education expenses. You should be able to figure out these expenses relatively easy. Personally, I only put my mortgage expense as the only expense in this category because the amount is always the same every month. Utilities such as gas, water and telephone tend to vary by month – so I place them under other expenses.

Food Expenses

The second type of expense that takes a large chunk of my monthly expense is food. Prior to the pandemic I had to have a separate category called “eating out”. Nowadays, I just have grocery. The amount I pay every month is different so instead of using a set amount, I use an estimated total. Notice that I do not set a number because this category is “fungible” and it does go up or down because it depends on what type of food my family wants to eat at any given day.

Gifts and Unexpected Expenses

Holidays such as Christmas and birthdays also have a big impact on my annual expenses. I usually try to limit how much I am willing to spend on gifts. Other unexpected expenses that can’t be planned ahead are things (such as cars or appliances) that need to be fixed or increase in utility bills due to the weather.


Finally, I put taxes as the last item because they should not be in our mind as they are paid automatically from our paycheck. If you file your W4 with your employer correctly, you should not have to worry about paying taxes when you file your annual income tax. However, do prepare for any eventualities particularly if you have capital gain from sale of your stocks. Other taxes that could appear unexpectedly are increase in property taxes or if you are required to pay certain taxes when you withdrew money from your 401(k).

I believe budgeting is a great tool if you have time to do it correctly. However, you should use it as a guide and allow some breathing room when it comes to actual expenses. The most important thing that you should always remember to do is grow your money by saving as much as possible in certain investments vehicles. Don’t aim to buy that shiny new cars which is usually a large expense; aim to expand your portfolio as it will pay you in the long run.


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