Are Budgets Overrated?

Are Budgets Overrated?

As it turns out, the ability to make and stick to a financial budget defies the realities of most people’s lives. Budgets assume a level of consistency in our finances that doesn’t exist. -Helaine Olen

You’ve probably been told that you need to make a budget.

I know I have. It’s the first thing you hear from almost every single personal finance expert.

And it’s well-intentioned, but is it actually good advice?

I came across this article from Slate’s Helaine Olen (courtesy of Michael Kitces) that argues that not only does budgeting fail for most people, but that it actually “defies the realities of most people’s lives”.

The conclusion? Toss your budget.

I like a lot of what Helaine says in this article and I think she brings up some important points that may be holding people back from making consistent financial progress.

But I think the conclusion she draws is flawed. Because while I agree that traditional budgeting is often a lost cause, I DO think there are good ways to plan ahead and take control of your money.

So today I want to dive in and tackle this question head on: are budgets overrated? And if so, what should you do instead?

Helaine’s take

Helaine’s major point is that while a budget assumes a nice, neat, predictable monthly pattern of income and expenses, our actual lives almost never look anything like that.

To illustrate, she lists some of the things she experienced just over the past month that threw her budget off track:

  • An annual assessment from her co-op.
  • An unexpected medical bill.
  • Her children’s camp bills.
  • A poodle with the stomach flu. (Ugh! I’ve been there.)
  • Freelance income that hadn’t been paid.

She also cites some compelling research from JP Morgan showing that, among other things, most people’s income and expenses fluctuate by at least 5% every month, and that most people experience at least a 30% change in monthly expenses from time to time.

Add in the possibility of a third paycheck every few months, an annual bonus, tax refunds, and the like, and the resulting ups and downs are enough to drive anyone at least a little bit crazy.

Her conclusion?

“As for actual budgets? They offer the illusion, not the reality, of financial control. If you don’t have enough money coming in, they won’t make it better. Things like salary increases, more predictable income, and further health insurance reform—or even legislation putting a cap on balance billing—will help us with our finances more than any budgeting app or formal plan.”

My take

I wholeheartedly agree that traditional budgeting is problematic.

I don’t use a traditional budget and I don’t encourage my clients to do so either. For a few reasons:

  1. They’re really hard to maintain, especially if you’re new to managing your finances.
  2. Because they’re difficult they often lead to guilt and discouragement, which stops many people from making any financial progress at all.
  3. They focus on the wrong thing. Budgets are all about setting limits when the real goal of personal finance is to help you get MORE of the things you want.

So I’m with Helaine on that point. Traditional budgeting often falls short.


Helaine seems to reach the conclusion that because traditional budgeting is flawed, there’s really no way to get ahead other than hoping for external forces to increase our income or make health care more affordable.

I don’t agree with that at all.

While I DON’T believe that living within precise, predictable, monthly spending limits is a realistic (or even desirable) goal, I DO believe that you can take control of your financial situation by preparing yourself for the kinds of irregular expenses that knock many people off track.

Helaine writes that “There is, for example, next to no way to budget for the practice of balance billing—that is, when you’re charged by doctors for the difference between what they bill and what your insurance will pay.”

Actually, yes there is. While you can’t precisely predict the amount and timing of those expenses, you CAN set up dedicated savings accounts for things like medical bills, car maintenance, and travel and automate some monthly savings to each, effectively making these irregular expenses a regular part of your monthly plan.

You can also:

In other words, while a traditional budget may not be able to handle the irregularity of our lives, it is still very possible to set up a SYSTEM that keeps us on track no matter what life throws our way.

So, are budgets overrated?

Near the end of the article, Helaine writes that instead of trying to live by a strict budget, “it helps to think of managing your finances as surfing a wave.”

Now THAT’S a point I completely agree with. Because while I do think it’s useful to set spending and savings goals, I think it’s most helpful to look at them as long-term targets rather than monthly limits.

Your actual spending and saving may fluctuate month-to-month, but over the long term you can still stay close to your high-level plan.

So yes, traditional budgets are overrated. There is no need to set strict limits on your monthly spending and beat yourself up when you go over them. In fact, that’s often a quick way to giving up on personal finance altogether.

But having a financial system in place that prioritizes your biggest personal goals, handles your day-to-day needs, and expects the unexpected is definitely NOT overrated.

It’s really the only way I know to make consistent progress towards the things you care about most.

What do you think? Is it possible to live by a budget? What does your system look like? Let’s talk about it in the comments.

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20 Comments... Read them below or add one of your own
  • Although I’m a big proponent of using budgets (bc of how much it enhances our family’s life), I agree with all your points. Essentially, your financial system is our budget. Why do I continue to use the term “budget”? Probably bc I want to get across one basic point: Budgets are not flawed. How we use budgets is flawed.

    I think that’s especially true with regards to Helaine Olen. The 30% fluctuation in expenses referenced in the compelling research from JP Morgan assumes we’re robots. For example, people spend the most money in December (or January if they use credit in Dec). But then in a month like September, people historically spend very little. Boom, fluctuation.

    Christmas is in December every year. That doesn’t mean you don’t have a Christmas expense in Jan, Feb, etc. Mortgages are yearly payments; a bank just makes you pay it every month.

    Annual assessment? Amount / 12 = Budget.
    Is her pet the only pet to get sick? Sinking fund = budget
    Dependent on freelance income coming? Build more margins
    Camp bills? She didn’t know kids went to camps?

    In my opinion, budgets are the worst form of financial plan except all others. I’m not saying that it’s easy or I couldn’t come up a few excuses, but I haven’t found anything that enhances our financial lives more.

    Just my opinion, of course. Thanks for allowing me to share!

    • Matt Becker June 23, 2015

      I think that living within a budget becomes fairly easy once you’ve been doing it for a while. You clearly seem to have created a strong budget for yourself that works really well.

      But you just listed a lot of things, and the truth is that especially when you’re just starting out it’s really hard to account for all of those things. And that doesn’t even include the difficulty involved with getting to a regular spending amount when it comes to something like groceries. So when we put pressure on people to have all of their monthly expenses figured out ahead of time, we set them up to feel like failures when they inevitably fail to do it.

      In my mind, traditional budgeting is a little like many of the fitness programs you see out there. Both sound great, but I don’t think it’s incredibly realistic (or necessary) to plan ahead for every expense that comes your way, just like it’s not realistic to expect to have the body of a supermodel just because you work out.

      In the end, as Done By Forty says below, to each his own. If a traditional budget works for you, great! That’s the whole point. But I don’t think people should put pressure on themselves to fit within tight, consistent monthly limits.

      • Agree 100%. As soon as I started reading your response I thought “just like the problems in advising physical fitness”. And then your next paragraph said it perfectly!

        We’re definitely on the same page. I was coming from the far right; you were coming from the far left – And we were both trying to get to the middle! Like in anything, the middle is where the magic happens. Thanks!

  • Done by Forty June 23, 2015

    With the caveat that different strategies will work for different personalities, I disagree that traditional budgets are problematic. The fact that unexpected expenses will arise is a wrinkle for any system, not just traditional budgets. I can use Mint or Personal Capital to simply track expenses, and a $500 car bill is going to cause the same amount of stress and impact my future plans the same way: I’ll have $500 less than I thought I would, and now I need to adjust.

    Any budget system allows for this adjustment. While I may plan for things to go a certain way, I don’t think they system prevents me from pulling $500 from various categories mid-month.

    The reason I prefer my old Excel spreadsheet is that I can set micro-goals within my budget. I can aim for $X for this category, if I know that’s an area I want improvement. I get better results when I have a specific spending goal I am trying to achieve.

    For me, the old Zig Ziglar quote still rings true: if I aim at nothing, I’ll hit it every time.

    • Matt Becker June 23, 2015

      Not having a traditional budget doesn’t mean you don’t have goals. I have my long-term spending targets in a spreadsheet just like you, and I 100% that they help a lot.

      But I don’t limit myself by those each month. I don’t gear my entire month around fitting within those pre-defined limits. My system isn’t thrown into disarray when there’s a $500 car bill. And I don’t beat myself up over the fact that I spent more on eating out last month.

      The targets help to set a long-term course. The system and the habits help to keep that long-term course. Month to month there is a lot of variation that’s mostly noise and only needs to be accounted for if you’re trying to stick to a traditional budget.

      Just my opinion.

  • For me, budgets provide direction and consistency in the face of fluctuating financial realities. I’ve never had a steady paycheck, but it’s having a grounded budget in spite of that that’s allowed me to attain financial goals regardless.

    • Matt Becker June 25, 2015

      That’s great! I think that however you do it, having some kind of system that keeps you on track is necessary. I’m glad you’ve found one that works for you.

  • Kurt June 24, 2015

    I think Helaine may misapprehend the purpose of a budget. Making a budget is not an exercise in testing how well we can predict the future. It’s a management tool.

    Why does every credible business in the world prepare a budget? So that when actual income and expenses differ from budgeted income and expenses–and of course they always do–we’re prompted to ask ourselves the question: Why? The answer almost always gives us useful information to help manage our finances going forward.

    • Matt Becker June 25, 2015

      That’s a great point. I couldn’t agree more about the importance of setting goals and tracking yourself against them so that you can ask that “why?” question. It’s a fantastic way to ensure that your spending and saving habits continue to be aligned with your personal goals and values. Thanks for adding this perspective!

  • Catherine June 24, 2015

    It’s easier to make a universal statement like “you should have a budget”-something most everyone will understand regardless of education level or financial knowhow, than explain the complexity of your post.

    I totally agree with you though. I say we have a budget but we don’t really, it’s more of a money monitoring system than a true budget. It works for us!

    • Matt Becker June 25, 2015

      “Money monitoring system”. I like that! I would add in the part about directing your money where to go in addition to monitoring, but I think we’re on the same page.

  • Jason @ Phroogal June 25, 2015

    Yep – making plans and taking control of your money is great. And budgeting doesn’t always work – especially for millennials. Great post.

  • Dee @ Color Me Frugal June 25, 2015

    We used to write out a budget every month, but every single month it would go to hell for one reason or another. It often had to do with the fact that we both had to pay for some work expenses- sometimes up to a couple thousand dollars- and our employers would later reimburse us. But they would take up to two months to reimburse us, so that jacked up our budget every single time. We eventually gave up the idea of writing out a budget, and starting socking a large amount of money into our savings accounts as soon as we got paid- this ensured that we were saving a lot AND that we would have money in place to pay for those work expenses until we got reimbursed. We spend whatever is left over after we save. We call it our “lazy” budgeting method, and it’s been a lifesaver 🙂

    • Matt Becker June 26, 2015

      Nice! It sounds like your system ends up being fairly similar to ours, though for different reasons. I’m glad you guys have been able to find a little sanity!

  • canadianbudgetbinder June 26, 2015

    I’ve learned that everyone has a unique financial and motivational situation so budgets aren’t for everyone. We don’t beat ourselves up about our budget.

    We use a traditional budget which I designed and have never had any issues with paying our bills or anything unexpected.

    Our budget includes yearly home maintenance and expenses we know we will pay at some point in time which means we save for them every month.

    We are under 40 and mortgage and debt free with one child.

    Every successful business surely has a budget so I treat our finances like a business.

    If a financial system works then use it but it doesn’t mean the budget is an overrated system. That’s far from the truth in my opinion.

    I’m not complaining about my stress-free financial life that’s for sure!

    • Matt Becker June 28, 2015

      I actually don’t think we disagree on much here, though I probably haven’t communicated my views clearly enough.

      It’s NOT my position that traditional budgeting CAN’T work. Clearly you’ve done a fantastic job using a traditional budget to take charge of your financial situation and put yourself in a great position, as have many others. Traditional budgeting certainly does the trick for plenty of people.

      My point is simply that you don’t HAVE to use a traditional budget as your financial system, and in that sense yes they are overrated because almost anywhere you look you’ll find “create a budget” as step #1 to getting your financial life in order. But as you say, “everyone has a unique financial and motivational situation so budgets aren’t for everyone.”

      I’ve seen many people who start by trying to create a traditional budget and they get frustrated because it’s so difficult and because of all the irregular events that throw someone who is new to budgeting off track. So my goal here is show people that traditional budgeting is not the only way to do things, that they are not failures if they’ve struggled with it, and to present an alternative way of taking control of their financial situation.

  • Hannah June 30, 2015

    Not to wax too poetic about budgets, but I love them because they are a tool that allows anybody to develop a financial narrative where they are the primary protagonist in it.

    I thinking surfing is a poor analogy for instilling confidence in a person’s ability to control their finances. If you are a very skilled surfer, you can, for a very brief time, harness the power of something much more powerful than you, but there is no doubt that the wave has the power. If you’re unskilled, you simply end up with mouthfuls of salt water time and again.

    On the other hand, almost any other sporting analogy marries up strategy, skills, team, circumstances and attitude. In these analogies, budgets are basically one way to implement strategy. However plans (and budgets) affect your attitude, your perception of your circumstances, and a good plan has the power to accentuate the skills of you and your team.

    • Matt Becker July 1, 2015

      “a good plan has the power to accentuate the skills of you and your team.” Couldn’t agree more. However you do it, I think that having a plan in place is a good idea. You will always need to figure out how to adapt that plan to changing circumstances, but it’s the plan that allows you to be purposeful. Thanks Hannah!

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