Updated on 02.05.07

Why Traditional Budgets Don’t Work: Wiser Actions You Can Take Instead Of Filling Out A Budget Form

Trent Hamm

Before I faced my financial armageddon, I tried several times to squeeze my life into a traditional budget. I’d fill out some spreadsheet that someone gave me, or fill out a page torn out of a personal finance workbook, and I’d start off with high hopes of organizing my finances. Everything would go well for a week or two, then something would come up and I’d find myself breaking that budget. Then, usually a few days later, I’d buy a thing or two outside the budget because I wanted it, viewing it as a reward. Before long, the budget was long forgotten and nothing whatsoever had changed.

Traditional budgets don’t work over the long term for the same reason traditional diets don’t work over the long term: you’re subscribing to someone else’s definition of what your behavior should be, not your own. Everyone’s life has a number of patterns in it, and those patterns are comfortable to us and keep us going on a day to day basis. We get into a groove, so to speak, and the only way you can get out of a groove and into another groove is not by deciding to do something different, but by creating a new groove and hopping into it. In other words, you have to blow the real, tangible obstacles out of the way first.

To explain this, I’ll use an analogy with another topic that I love, cooking. Most people, especially younger people, get by with using lots of prepackaged foods simply because of the convenience of it, so they get into a routine of using these prepackaged foods on a regular basis. Others get hooked on eating out and takeout for similar reasons: it’s easy, convenient, and fits with their lifestyle.

The only way to break out of such a groove (and prepackaged foods and takeout are expensive) is to create the possibility of a new groove. How? By making it simultaneously more convenient to eat right and less convenient to eat out and eat prepackaged foods. For example, you can make it more convenient to eat right by preparing meals in advance that are quite simple to eat at your convenience, while making it harder to eat prepackaged foods by tossing all of them out and not buying more.

A similar logic applies to any aspect of personal finance: it’s difficult to change the basic routines of your life. So how do you make some of these expensive routines less convenient and make others more convenient? Here are some ideas:

Make expensive routines less convenient by leaving your credit cards at home. This makes the effort to pay for frivolous items much greater, thus reducing the chances that you’ll waste money on such items.

Make inexpensive routines more convenient by finding the biggest money waste in your monthly finances and eliminating it. Are you leasing a really expensive car? Next time you go to the dealership, select something much more economical. That way, your budget has more room to breathe.

Make expensive routines less convenient by doing your shopping at lower-end stores. Switching to a new store means you’ll have to spend time coming up with a new “routine” of going through the store, enabling you to reconsider the things you’re buying. Once you’ve shopped there a time or two, you’ll have a new groove – one that can save you some real money.

Make inexpensive routines more convenient by spending time with different people. If you spend most of your time with friends who make more than you, you’ll spend more and have more expensive routines. Instead, spend time with friends who make less than you and let them lead a bit in your activities. You’ll have a lot of fun – and spend less in the process.

Look for ways in your own life to find a new groove – and get your finances in better shape.

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  1. Jennifer says:

    Good advice. I have a problem with buying stuff on eBay, so I try to stay away from it completely. I just don’t go there, that way I don’t see all the cool things I need to buy. Ignorance is bliss.

  2. Ray Dotson says:

    Great post! I hope you don’t mind that I’ve linked to this post and added my own comments on my blog. I agree that people should look to much simpler ways to begin things like budgeting instead of trying to jump right into a really restrictive lifestyle. Of course, this should be done before things get way out of control…

  3. Tim says:

    The thing my wife and I constantly remind ourselves is the difference between want and need. This doesn’t mean we constantly think about it or go crazy by it, but it is useful to remind yourselves the difference.

  4. Rob in Madrid says:

    My wife and I are just doing that, took us a bit of planning but this will be the first (and hopefully the beginning) month of no credit cards. I am also changing my shopping routines to do the basics at discounts and then pick up anything else i need after. A friend commented about how she only shops once per month and by the end of the month she has to get creative on what she cooks. We are going to start doing that not only will it save money but time not having to run to the store 3 or 4 times a week. Of course when the pantry runs low it will be a challenge not to shop early

  5. w says:

    Any thoughts about how to budget when your income goes up and down each month? Some months we get zero income (it is a long story) and other months we actually do get paid. thanks.

  6. A in NC says:

    Great ideas. I tried the shopping once a month and it is true that you will get very creative with your cooking AND clean out your pantry and freezer (which we should all be doing). But now I do shopping once a week. We have our family of 3 down to $50-60 per week. we are really proud of it but it took practice. I’d suggest not cutting your budget as low as ours to start. But still I wind up with more food left than I thought at the end of the week!
    Bonus-we have all lost weight!

  7. Steve in W MA says:

    Not sure what you mean by “traditional budgeting” Maybe they didn’t work for you becuase you weren’t actually doing a traditional budget. Traditional budgeting has always worked for me.

    Traditional budgeting means: 1) tracking your expenses 2) categorizing them 3) comparing them to your income and setting spending guidelines for each category for the month) and 4) –the part you are talking about in your post–coming up with strategies to reduce expenses in areas where you decide it is necessary. 5) comparing your end monthly figures with your orignal plan and 6) adjusting the budget, or your spending habits, to more closely match what you want to happen when you make out the next month’s budget.

    Rinse and repeat once a month, and update your budget totals weekly.

    That’s traditional budgeting, and it works.

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