Why One-Budget-Fits-All Doesn’t Work - And Why It’s Difficult to Compare Spending Between People and Families

10/8/09

Whenever I leaf through a personal finance “workbook,” I usually wind up getting frustrated. Such workbooks provide “example budgets” and “recommended percentages” that completely miss the boat on the financial realities of most families. Why? Because almost every family has a different allocation of money within their personal budget.

Take food, for example. Recently, I openly discussed my food budget for a month, which was about $770. This was pretty close to being in line with the cost of a moderate meal plan as defined by the USDA.

In order to reach that dollar amount, I spent more in some areas on average - such as on free range chickens, organic milk, cheeses (such as gruyere), wine, saffron, and so forth - and less in others, such as often buying only flour and making my own bread and breadsticks and rarely eating out.

This has interesting

ramifications all over our budget. Because we eat a healthy diet, we’ve had very low health care costs over the last year. I’ve had one severe cold in the last two years, and my wife hasn’t had any. This has meant our expenses on things like cold medicines, doctor’s visits, and prescriptions has been really low. It has also reduced our entertainment expenses - we have more fun in the kitchen as a family, putting toppings on a homemade pizza or making a frittata, than we do going out to a movie or to Chuck E. Cheese or the like.

Our food choices also tie into our personal beliefs - we are pretty strong believers in eating well-rounded, highly nutritious, and diverse food, and getting our children to eat the same. This goes way beyond feeding them what’s easiest, what’s cheapest, or what’s strictly the healthiest - it’s about feeding them a diverse diet that teaches them to like unusual things and get a wide variety of micronutrients without lots of additives.

In short, every person and every family is different. We have different lives with different values and different beliefs.

Let me give you three more examples to clarify what I’m saying.

I’m friends with several members of the Church of Jesus Christ of Latter-day Saints. Members of this church are expected to tithe ten percent of their income directly to the church, no questions asked. This drastically alters their budget, especially in comparison to secular folks or members of other churches who do not enforce such a strict level of tithing. Right off the bat, comparing the budget of an LDS family bringing in $50,000 a year to the budget of a secular family bringing in $50,000 a year is an unequal comparison.

Demographically, we’re almost identical to our neighbors to the north. We’re a married couple living in rural Iowa with two young children, and our income level from employment activities appears to be pretty close to the same, so you’d expect us to have fairly similar budgets. Not so. They own three vehicles, all of which are newer than either of our vehicles, and two of them are 2006 or later. They place significantly more value in the quality level of their automobiles than we do. They also travel by car more, with almost-routine long driving trips across several states. End result? The “automotive” part of their budget is obviously much higher than ours. What percentage is lower? I don’t know, but that extra spending has to be balanced out in some other aspect of their life.

Alternately, you can look at a completely different situation. I know two people living in a small home on a retirement pension that, along with Social Security, provides more than enough for them to make it. However, one of them has a two-pack-a-day smoking habit and between them and their guests, roughly a twelve pack of beer gets consumed a day at their home. Their “vice” budget in this case is tremendously high, causing the other elements of their budget to face the squeeze.

Not only do families with different demographics and different choices have different budgets, but budget proportions change for everyone when things like energy outpace inflation. Compared to five years ago, almost all of us are spending a significantly larger slice of our pie on gasoline, so using a ready-made budget from 2003 won’t really work, either.

The real solution is to start with what YOU spend. Keep track of your real, honest spending for a month or two, then use that as a basis to figure out where you can trim some spending by making different choices. The routes you take to frugality might be different than someone else - you might trim your food expenses by eating very basic meals at home, while others might choose to save money by setting up a carpool with their friends.

Don’t use someone else’s spending as a model for your own. Just because someone else spends more than you do in an area doesn’t mean it’s somehow okay for you to let all restraint go and bust out the plastic. It merely means they’re making different choices than you and those different choices come from different beliefs, different circumstances, and different goals - three things a budget comparison really can’t show you.