The Bills

Toss Your Budget

Why a pillar of personal finance isn’t nearly as essential as we think.

personal budget.

All that work might actually backfire.

Photo by Everett Historical/Shutterstock

Let’s discuss my spending last month.

It began with an annual assessment from my co-op that I had completely forgotten about, even though it had occurred at the same exact time last year. Then the insurance company challenged a medical bill, one the doctor had insisted on being paid for upfront. (Smart woman!) No reimbursement there, at least for now. The children’s camp bills needed to be paid. Food costs piled up, because my editor wanted the manuscript for my upcoming book. Cook? Please.

Then our poodle came down with a virus of such epic scale that we were convinced she had developed a blockage. Nine hundred dollars later—not counting the dry cleaning bill for not one but two white down blankets (I will spare you the marital, uh, disagreement about who exactly had forgotten to put the protective covers on the blankets, and why no one had noticed it over the course of the entire winter until the day the dog, well, you know … )—we were relieved to discover it was merely a very long-lasting stomach flu.

My income? What income? I freelance, and it seemed like every accounts payable department I deal with had somehow sent my invoices to the online equivalent of a circular file. (Are you there, Slate? It’s me, Helaine. Just kidding.)

As for my budget …

Actually, let’s discuss your budget. I’d rather.

Wait, you don’t keep a budget?

You probably don’t. In 2013, Gallup found only a third of us keep formal track of our inflows and outflows. In 2014, Experian Consumer Services said it was 39 percent of us.

But does it matter? Probably not. No one less than Bill Harris, co-founder and CEO of online money advisory service Personal Capital, and former CEO of Intuit, claimed in an interview last year, “budgeting doesn’t work.”

This, of course, is heresy. Just about every personal finance sort out there will tell you living without determining in advance what you will spend on housing, health care, food, transportation, and fun is a future financial disaster waiting to happen. I’ve certainly given that advice. So has Suze Orman, who used to hand out expense-tracking sheets to every guest of her CNBC show. It’s a basic pillar of financial literacy education, too.  “Creating a budget is an essential step in completing both long- and short-term financial goals,” the University of Maryland University College financial aid office advises. Even McDonald’s famously attempted to convince its low-wage workers to make budgets.

But 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. According to a report released last month by JPMorgan Chase’s newly minted think tank the JPMorgan Chase Institute, more than 4 out of 5 of the bank’s customers experience a greater than 5 percent change in both money coming in and their overall spending on a month-to-month basis. For inflows, 1 in 4 of us see a variation greater than 30 percent from one year to the next. Further complicating matters: Spending more or less money doesn’t necessarily correlate with the months when their incomes rise or fall. In fact, 60 percent vary their spending by more than 30 percent at least occasionally. (Guilty.) “Our data suggests very few individuals follow a consistent monthly budget that sets strict parameters on spending,” the report dryly noted. And these aren’t poverty-stricken people unable to manage their financial lives: JPMorgan Chase studied 2.5 million account holders who maintained checking accounts and Chase credit cards between the fall of 2012 and December of 2014. That sample set almost certainly underrepresented low-wage workers, who often go unbanked.

It’s a multipronged problem. First, income doesn’t come into people’s lives as regularly as we think. According to the Freelancers Union, 53 million of us freelance at least some of the time. Not only is income from outfits like Uber and Airbnb, not to mention more traditional corporate contract work, all but impossible to predict, but expenses need to be factored in as well, something companies can be less than forthcoming about when they promote themselves.

We can be surprised on the upside, too. The employed receive pay on the occasional fifth Friday of the month, and then there are year-end bonuses, which might or might not happen. Almost 80 percent of us will receive a tax refund from the Internal Revenue Service. The average amount returned to taxpayers for 2014? About $2,800.

Spending shocks—as my story attests—also have a way of being unpredictable and unavoidable. As a result, keeping a budget can be an exercise in futility. 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. Investigating your options isn’t exactly an option in an emergency. As a result, surprise $500 and $1,000 bills haven’t been eliminated by the Affordable Care Act, so much so that in New Jersey, there’s a bill pending in the state legislature that would put limits on out-of-network medical bills in emergency situations.

But day-to-day expenditures are an issue, too. All too many of us seem to take strict spending guidelines as a floor, not a ceiling. A group of professors at Brigham Young University actually claim that people who set off to buy items ranging from flat-screen televisions to pens will spend more money when they come up with a number in advance.  Why? We quickly rationalize spending more money on an upgrade, not wanting to accept a lesser item.

This doesn’t stop the scolds. Last Christmas, Experian Consumer Services discovered 38 percent of shoppers made a budget for their holiday gift giving. “Making a list ahead of time with a set budget for each gift will help you avoid overspending,” the press release claimed.

Well, no, it won’t.

In fact, there’s nothing natural about budgeting. According to Lendol Calder, the author of Financing the American Dream: A Cultural History of Consumer Credit, budgets were all but unmentioned until the beginning of the 19th century. And then they were as much about getting people to spend as save: Americans needed to budget to pay the bills for newfangled layaway and installment plans offered up by stores like Sears Roebuck. They were, in other words, designed to teach us to live beyond our means, not within them.

Over the course of the first Gilded Age, it became common to teach budgeting to everyone from schoolchildren to immigrant women seeking aid at settlement houses, and they were widely used by people during the Great Depression as a way to try to do more with less. The practice fell out of favor during the postwar boom, only to make a return in the economically challenged 1970s. “For the first time in a generation, budget-keeping is coming back in style—as a result of the oppressively rapid rate of rise in living costs,” Sylvia Porter pointed out in her 1975 mega-best-seller Sylvia Porter’s Money Book.

So what should you do? Well, it helps to think of managing your finances as surfing a wave. When I got in touch with Harris at Personal Capital to ask him about his remark from last year, he suggested people simply monitor their expenses with great frequency, because the more you track spending, the easier it is to recalibrate when needed. In fact, it’s likely you’ll cut back altogether if you watch your outflows regularly. When behavioral economists Yaron Levi and Shlomo Benartzi studied the issue for Personal Capital, they discovered that new users of the firm’s app, which allows people to monitor both their bank and investment accounts, reduced their grocery bills by 20 percent and overall spending by more than 15 percent in the four months after installation.

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.

In the meantime, I’d like to report my dog is doing much better, thank you very much. And my missing checks did show up. June is looking like it will be a better month for me than May.

Then again, it’s only been five days.