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March 14, 2022

Why budgeting doesn't usually work

Budgeting doesn’t work, maintains advisor Stephanie Holmes-Winton, author of the books Defusing the Debt Bomb and Spent -- at least not on day-to-day expenses, not in the traditional sense anyway.

It's not that it's impossible to set a money-management plan and stick to it, it's just that most people don't, Holmes-Winton says, offering the following example.

Say you're renovating your bathroom. You decide how much you're willing to spend, figure out where you’ll get the money from, make a list, price it out, etc. You may go to multiple stores to source the best products at the best prices and get materials from different places to meet your budget.


Now let’s say you get 10% of the way into the reno and discover that there's some rotting wood under your floor and a leaky pipe and it will cost about $700 more than anticipated.

You could at that point choose to adjust other components, such as get a lesser grade of tile, consciously decide where to take additional funds from or stretch the completion date so you can carve those funds from another few pay cheques.

And that's where a budget would really work since you could make decisions as you uncovered  information. But that's not what most people do.

When, for instance, was the last time you thought of things this way, Holmes-Winton asks.

Just recently, like every other year, says Bob Lowry, who blogs regularly about retirement and the financial challenges it represents.

"We set our budget on January 1st for the coming year. It is based on last year's expenses, what we think we will need to spend, and what our income will be for the next 365 days. Also, we have a certain amount of money set aside for emergency expenses.

"From then on, it's my responsibility to keep things in balance," Lowry explains, acknowledging that he regularly adjusts things to stay on track.

Could you say the same? Do you work with a budget? Are you pleased with the result?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...