Budgeting isn't as straightforward as it seems

[slapper]

Milton Friedman said that we base our consumption on our expectations of future income, rather than what’s currently in our checking account. If work has gone well for years, we start assuming it’s the norm. Then our consumption rises to that level. Duesenberry’s ratchet effect says that consumption is easy to increase but hard to decrease. Your story kind of breaks that rule, though. You cut your consumption by 20% in only a month! So maybe discipline was never the issue, after all.

You tracked all of your spending for years. Taxis, cat food, you name it. That gives you an accurate picture of where every last cent went. But it can’t tell you which part was optional. Your average spending over the past few months is simply a record of your past habits. Those habits are tied to your income. They grow as your income grows. So any forecast made on an app that doesn’t take this into account will be off as soon as your income changes.

You should create a budget based off of your lean month. Take this new, lower spending number and treat it as your real baseline. Anything you make above it should go towards debt, savings, or another boring but important thing. Only after you’ve covered those should you put money towards frivolous purchases. This keeps you from spending all of your raise.

[Fortify]

Milton Friedman said that we base our consumption on our expectations of future income, rather than what’s currently in our checking account. If work has gone well for years, we start assuming it’s the norm. Then our consumption rises to that level. Duesenberry’s ratchet effect says that consumption is easy to increase but hard to decrease. Your story kind of breaks that rule, though. You cut your consumption by 20% in only a month! So maybe discipline was never the issue, after all.

You tracked all of your spending for years. Taxis, cat food, you name it. That gives you an accurate picture of where every last cent went. But it can’t tell you which part was optional. Your average spending over the past few months is simply a record of your past habits. Those habits are tied to your income. They grow as your income grows. So any forecast made on an app that doesn’t take this into account will be off as soon as your income changes.

You should create a budget based off of your lean month. Take this new, lower spending number and treat it as your real baseline. Anything you make above it should go towards debt, savings, or another boring but important thing. Only after you’ve covered those should you put money towards frivolous purchases. This keeps you from spending all of your raise.

There are actually many apps these days (depending on where you live) where you can enter your income and outgoings in order to monitor spending, some will even plug straight into your bank account to minimize the manual element. The reality is that beyond a basic budget most people don't really want to know or trace where every cent is spent, because it can actually sap a bit of joy out of life. It's definitely worthwhile reviewing your spending every few months however, because it's so easy to go overboard or start to let wasteful habits creep in. Your first paragraph is interesting and true, a bit like gambling we can start to lie to ourselves to justify what would previously have been considered luxuries becoming regular consumption if our income rises, which can make it hard to trim them out later. Necessity will usually break all habits though and force a dire look at spending that we might not otherwise take.

[Mpamaegbu]

It turns out that our income dictates our expenses.

Isn't that obvious? No one builds on nothing, and that's what happens with income and expenses. There's a reason "income" comes first in that expression. You've to earn to be able to spend.

[Gaza13]

Good that you've learnt your lesson. Budgeting is a good financial practice if you are paying attention to things. It goes beyond downloading a budgeting app. If you do not differentiate your wants from your needs, you will keep overspending even after budgeting. The best practice will be to discipline yourself no matter your income, so that even when your income increases you do not automatically increase how much you spend on things.

Discipline still remains the key in this case, since we often go against our budget. It is always easier said than done, and that's exactly why we need to apply discipline, because many people have ones taken this decision before, but due to the fact that they are not disciplined enough, they couldn't stick to their budget.

Budgeting makes things easier for us to always be on the safer side, so it's very essential for us to always maintain the process and do the needful without going against it.

I agree with what you’ve said. Indeed, there is no other way to manage one’s budget than through the discipline you described. Discipline is not merely a foundation; it is a commitment to controlling one’s expenditures. Many of us find it extremely difficult to stick to a budget, and it is often the desire to make excessive purchases that causes a budget deficit. I believe we should avoid such habits and shift toward a healthier approach selecting or purchasing only what truly aligns with our actual needs, while steering clear of anything else. By applying this kind of discipline, we can certainly avoid situations beyond our control, such as falling into debt. Through such discipline, our money remains well-protected, allowing us to allocate it elsewhere for instance, by purchasing gold or making investments. Make the most of your youth by engaging in meaningful pursuits, and avoid wasting your energy on things that serve no purpose.

[ASloveapg]

Milton Friedman said that we base our consumption on our expectations of future income, rather than what’s currently in our checking account. If work has gone well for years, we start assuming it’s the norm. Then our consumption rises to that level. Duesenberry’s ratchet effect says that consumption is easy to increase but hard to decrease. Your story kind of breaks that rule, though. You cut your consumption by 20% in only a month! So maybe discipline was never the issue, after all.

You tracked all of your spending for years. Taxis, cat food, you name it. That gives you an accurate picture of where every last cent went. But it can’t tell you which part was optional. Your average spending over the past few months is simply a record of your past habits. Those habits are tied to your income. They grow as your income grows. So any forecast made on an app that doesn’t take this into account will be off as soon as your income changes.

You should create a budget based off of your lean month. Take this new, lower spending number and treat it as your real baseline. Anything you make above it should go towards debt, savings, or another boring but important thing. Only after you’ve covered those should you put money towards frivolous purchases. This keeps you from spending all of your raise.

There are actually many apps these days (depending on where you live) where you can enter your income and outgoings in order to monitor spending, some will even plug straight into your bank account to minimize the manual element. The reality is that beyond a basic budget most people don't really want to know or trace where every cent is spent, because it can actually sap a bit of joy out of life. It's definitely worthwhile reviewing your spending every few months however, because it's so easy to go overboard or start to let wasteful habits creep in. Your first paragraph is interesting and true, a bit like gambling we can start to lie to ourselves to justify what would previously have been considered luxuries becoming regular consumption if our income rises, which can make it hard to trim them out later. Necessity will usually break all habits though and force a dire look at spending that we might not otherwise take.

When income increases, many people also increase their expenses. Things that were previously considered luxuries become part of their daily lives after their income increases. Even if their income decreases, their previous habits remain. As a result, financial stress is created. It is important to know how much income they are getting per month, how much is being spent on necessary expenses, and how much money is being spent on unnecessary things. Even if you review your expenses every few months, you can understand where unnecessary expenses are being incurred and which habits need to be changed.

There is no rule that you have to increase your living expenses just because your income increases. If you can save a part of that extra money for savings and investments when your income increases, it will be easier to create financial security in the future. If you increase your expenses every time your income increases, it can be difficult to move forward financially even if you earn more.
You should not wait for a financial crisis to control your expenses. When faced with danger, people are forced to cut back on a lot of expenses. But then there is less freedom to make decisions. If you can review your expenses and reduce unnecessary expenses under normal circumstances, you can avoid a lot of future stress.

[Wahidcroposs]

I think every people should have a plan on budgeting. It also based on earning . It also difficult to maintain but it help to your expense of a month . I think in budget for daily expense, medical, emergency issue should be included and create some saving  for future. Budgeting is no easy but it help us to utilize proper expense from circle of income. 

[Charcol]

~This is the case for sure, as I like to put it "we always live to the max of our salary".
I can vouch for this because without budgeting in the past I have always lived up to
my salary and when I got a pay rise I never actually had any extra money because
 . . . I lived up to that too.

Its very difficult because every mibute of the day we are bombarded with messages
and advertising on how we need lots of more stuff which we dont actually need.

The trick as per the OP is to create an plan, the difficult part is to stick to it!

At least we can try. After living for some time "to the max of our salary", we can see that living on 90% of it is not that difficult. Or, in other words, spending more doesn't make us any happier. For happiness, we need three things: somewhere to sleep, something to eat, and a good-paying job we enjoy, which will cover the first two. And if we have something extra, we can start budgeting for a change. Who knows, maybe life will seem brighter then?

I agree with you, I am not in favor of spending the entire salary unnecessarily. Especially those who keep increasing their unnecessary expenses as their income increases, they find that they have nothing at the end of the month. You are right that living on 90% of their income is not difficult, but that is your case. For others, it may be quite difficult. Imagine that you and I have a monthly income of $2000. You may spend $1500 on everything you need per month. But I may spend $1950 on rent, family medical expenses, and loan installments. While saving 10% may be relatively easy for you, it may be difficult for me to achieve the same goal.

[Cookdata]

I agree with you, I am not in favor of spending the entire salary unnecessarily. Especially those who keep increasing their unnecessary expenses as their income increases, they find that they have nothing at the end of the month. You are right that living on 90% of their income is not difficult, but that is your case. For others, it may be quite difficult. Imagine that you and I have a monthly income of $2000. You may spend $1500 on everything you need per month. But I may spend $1950 on rent, family medical expenses, and loan installments. While saving 10% may be relatively easy for you, it may be difficult for me to achieve the same goal.

If you are talking about people that earned well, I will agree with you. However, not everyone earn enough to even budget. There are people that are employed as sill labour but they got way less than that can cover their their monthly transportation cost, they can't even afford to eat and yet they don't quit because they see that as opportunity to put something on the table. Such people can't anything about budget, they don't have anything to budget than how to survive.

You can only budget when you earn enough money, there is nothing you can when your earning budget is below what you can spend with the time your pay check are issued. I want you to also know that life is unpredictable. You can make all the plans you want and another thing can distort your plans and you will be out of your budget.

[BTC FutureKing]

I agree with what you’ve said. Indeed, there is no other way to manage one’s budget than through the discipline you described. Discipline is not merely a foundation; it is a commitment to controlling one’s expenditures. Many of us find it extremely difficult to stick to a budget, and it is often the desire to make excessive purchases that causes a budget deficit. I believe we should avoid such habits and shift toward a healthier approach selecting or purchasing only what truly aligns with our actual needs, while steering clear of anything else. By applying this kind of discipline, we can certainly avoid situations beyond our control, such as falling into debt. Through such discipline, our money remains well-protected, allowing us to allocate it elsewhere for instance, by purchasing gold or making investments. Make the most of your youth by engaging in meaningful pursuits, and avoid wasting your energy on things that serve no purpose.

To achieve success in life it is very important to use money properly.We should control our power and buy only the things we want.Ordinary people spend on unnecessary things to fulfill their full knowledge due to which they have to face financial difficulties and debt.If we avoid wasteful spending and enjoy something for ourselves every month we can improve our future.The money saved can be used for future support education or investment.In addition we should value our youth and learn new skills and achieve our goals only well.Remember that with discipline hard work and prudence we can not only improve our financial condition but also live a better and peaceful life.

[Stalker22]

Managing one's life based on one's income and budget requires a systematic approach. Budgeting is a complex skill that often requires training. The more adept one becomes at managing a budget, the more one can save and live a life free from debt.
~

Not always that simple, though. You can budget until your eyes bleed, but if your income is just too low, no amount of financial wizardry is going to make the math work.  I used to stress myself sick trying to follow those rigid percentage rules and complex spreadsheets.  It just leads to burnout.  Sometimes life is expensive and unpredictable, and debt happens even when you are doing everything "right."

Even if you did every single thing perfectly right, you are still bound to find yourself at the end of the month putting groceries on credit.  Its simply the way things are.

[Berry2d]

Managing one's life based on one's income and budget requires a systematic approach. Budgeting is a complex skill that often requires training. The more adept one becomes at managing a budget, the more one can save and live a life free from debt.
~

Not always that simple, though. You can budget until your eyes bleed, but if your income is just too low, no amount of financial wizardry is going to make the math work.  I used to stress myself sick trying to follow those rigid percentage rules and complex spreadsheets.  It just leads to burnout.  Sometimes life is expensive and unpredictable, and debt happens even when you are doing everything "right."

Even if you did every single thing perfectly right, you are still bound to find yourself at the end of the month putting groceries on credit.  Its simply the way things are.

Yes poor income stands as one of the reasons budgeting never ends as proposed from onset, many know how to work with a good scale of preference but because the capital is very low it looks as if all his planning efforts never works.
The only way budgeting can create a room for effective spending now is when it is high and enough to pay bills if not all budgets may end in zero.
Although to an extent i will say spending do depends on once marital status but not in full. A single man if not involved in luxurious lifestyle may spend less compared to a married man with children.

[Jaweria parveen]

If you have some extra money then it can be easy if your expenses are making a dent in your pocket then it is quite difficult. Although this task is indeed difficult and for those who have to run the entire month's expenses. So it is quite difficult for them to try this but still if you want to make a little effort then this task can be done. To make a budget we have to eliminate all unnecessary expenses and collect our home and outside expenses if all of them are covered by your salary or money then the budget can be met. Sometimes it also depends on you because if you make a mistake in a calculation then your thinking and budget for 1 or 2 months can be spoiled so it is quite difficult to do it properly.

[Betwrong]

It turns out that our income dictates our expenses.

Isn't that obvious? No one builds on nothing, and that's what happens with income and expenses. There's a reason "income" comes first in that expression. You've to earn to be able to spend.

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but, if you earn much more than you need for physical survival, you can always save something for the future. I wouldn't recommend skimping on quality food or entertainment, but if all that is covered, put something aside, save something for the future. Don't spend everything on harmful and unnecessary things like drugs and alcohol. Ah, and luxury cars are also in the same ballpark.

[Mpamaegbu]

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but...

We seriously have to factor in the reality that there are those who earn monthly salary that can barely last them two weeks. To such people, setting 90% aside is highly impossible because they will need to borrow to last them the rest of the month. There are several of such people in my country.

Don't spend everything on harmful and unnecessary things like drugs and alcohol.

The implication of that sentence is "spend on harmful stuff but don't spend everything on it." I believe as adults, we've our lives figured out or is supposed to have such figured out. However, don't you think that once something is identified as "harmful" that it should be avoided at all cost?

[Rabata]

It turns out that our income dictates our expenses.

Isn't that obvious? No one builds on nothing, and that's what happens with income and expenses. There's a reason "income" comes first in that expression. You've to earn to be able to spend.

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but, if you earn much more than you need for physical survival, you can always save something for the future. I wouldn't recommend skimping on quality food or entertainment, but if all that is covered, put something aside, save something for the future. Don't spend everything on harmful and unnecessary things like drugs and alcohol. Ah, and luxury cars are also in the same ballpark.

If someone increases their expenses as their income increases, this habit can become a big obstacle to future savings. A person who used to earn $400 used to spend $300, but if he starts spending $600 after his income increases to $700, his savings will remain the same. However, he should have kept a part of the extra income aside for the future. There is no need to wait for a lot of income to develop the habit of saving. Even if you earn a little, if you can save some according to your ability, you can gradually build a good financial foundation.

You should keep some money in a position where it can be easily used in case of sudden emergency medical needs or family work or when your income decreases. It is not just how much money you are earning, but how you are using that money and how much you are saving for the future plays a very important role.

[Youngrebel]

Me myself most times I forget and focus so much on tracking my expenses and be like I spent enough today and forget to pay attention to my income and at times when money is coming in regularly, it’s very very easy to increase our spending without even thinking twice most especially when it’s a free money you start seeing some kind of to expensive and unnecessary expenses as nothing because you can afford them at that particular moment and when income drops, quickly I begin to manage lifestyle, and thats how life is when it’s theres money you spend when e no Dey you manage. So to me budgeting should not only be about controlling spending but also learning how to live below our income and save something for rainy day very important.

[Johncarter14us]

As income increases expenditure also increases due to several reasons which include the need for better living conditions. There's not way you'll earn a good amount of money without making some expenditures that would better your living which is normal.

Sometimes this upgrade does more than we see especially when you're living without a monthly budget so curtail your expenses. You might even notice that even when you started earning more, it's still not enough for your month to month expenses.

Inflation also affects our expenditure in most cases because the basics of life are becoming more expensive by the day and you won't find the need to downgrade your living condition just because cost increased.

[Betwrong]

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but...

We seriously have to factor in the reality that there are those who earn monthly salary that can barely last them two weeks. To such people, setting 90% aside is highly impossible because they will need to borrow to last them the rest of the month. There are several of such people in my country.

Look, I didn't say, "Set aside 90%." I said, sometimes to live a happy life, 90% of salary is enough. I you earn per month what barely covers your food and rent, you shouldn't set aside anything. You should be spending all money you earn, every dollar, and look for a better job.

Don't spend everything on harmful and unnecessary things like drugs and alcohol.

The implication of that sentence is "spend on harmful stuff but don't spend everything on it." I believe as adults, we've our lives figured out or is supposed to have such figured out. However, don't you think that once something is identified as "harmful" that it should be avoided at all cost?

No. Gambling is harmful if there's too much of it in your life. Overall, everything is harmful if overused. You can have too much sun or too much oxygen, but in small amounts, those things are unavoidable.

~ I wouldn't recommend skimping on quality food or entertainment, but if all that is covered, put something aside, save something for the future. Don't spend everything on harmful and unnecessary things like drugs and alcohol. Ah, and luxury cars are also in the same ballpark.

If someone increases their expenses as their income increases, this habit can become a big obstacle to future savings. A person who used to earn $400 used to spend $300, but if he starts spending $600 after his income increases to $700, his savings will remain the same. However, he should have kept a part of the extra income aside for the future. ~

From my point of view, the person who does that, starts spending $600 after their income increases to $700, is doing the right thing. They can still save $100 per month, and that's great. The only thing I'd recommend is increasing their savings accordingly. If it was $100 when they earned $400, it should be $175 when they earn $700. Then they can spend the rest. They'd have $525 for that. And you're right, spending $600 is too much in that case.

[pusaka]

Yes, but you don't necessarily need to spend all your income to live a happy life.  Sometimes, 80% is enough, and other times it's 90%, but, if you earn much more than you need for physical survival, you can always save something for the future. I wouldn't recommend skimping on quality food or entertainment, but if all that is covered, put something aside, save something for the future. Don't spend everything on harmful and unnecessary things like drugs and alcohol. Ah, and luxury cars are also in the same ballpark.

My question is why is it that when we have a low income we can be more efficient, and when our income is greater we will spend more as well? shouldn't we be doing the same thing, even if our income increases?

well this is a lifestyle, a lifestyle different from the needs or cost of living. Sometimes what makes our expenses swell is lifestyle, in other words not for the needs of our lives. And when we face difficulties in the future, we cannot overcome them easily, whereas with our previous income we should be able to avoid such difficult situations, for example.

[ndutndut]

Me myself most times I forget and focus so much on tracking my expenses and be like I spent enough today and forget to pay attention to my income and at times when money is coming in regularly, it’s very very easy to increase our spending without even thinking twice most especially when it’s a free money you start seeing some kind of to expensive and unnecessary expenses as nothing because you can afford them at that particular moment and when income drops, quickly I begin to manage lifestyle, and thats how life is when it’s theres money you spend when e no Dey you manage. So to me budgeting should not only be about controlling spending but also learning how to live below our income and save something for rainy day very important.

Basically, income is what forms the main foundation of a budget not the other way around. When we are only busy tracking expenses without paying attention to the money coming in it's easy to get caught up in a lifestyle that quietly expands. Once money starts coming in regularly the expenses that previously felt expensive suddenly seem just normal. Yet, the ability to live below your income and set aside an emergency fund for the future is the core of healthy financial management.

The point is a budget isn’t a tool to scare yourself into being afraid to spend money. Instead, having a budget actually helps us distinguish between what is truly a need and what is just a want. That way, we can still enjoy the money we earn without feeling guilty and we remain safe if our income happens to drop at some point.