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Why comparing your budget to this of other people is a really dumb thing to do

Recently I came across a post on a public forum that provided a Statement of Affairs (for my readers in the US this is a tool that sets out income, expenditure, assets and liabilities) and asked how does this compare with the budgets of other people. Of course, people jumped on the poster and started offering opinion as to where they can see over-spending. Opinions varied according to how sensible these were; my favourite one has to be a comment saying ‘every month?’ against the modest amount that was set aside for haircuts of a lady and her toddler.

Which brings us to the question in the title of this post. I believe that comparing your budget to this of other people is a really dumb idea for three main reasons.

Your budget is reflection of self

Put like that this appears really straight forward. But it took me a long time to realise that a workable and working budget is not a straight jacket but it is a reflection of self. Proper budgets build on knowledge regarding our spending patterns, preferences that we have a favour and our character that enable particular action (or not as the case may be).

This is why, although it may seem like a reasonable shortcut to take, comparing your spending to other people’s budget or even worse, trying to copy these is the wrong thing to do. There is no getting out of it: your budget is you own and to set it you need to collect the information necessary (keep detailed record of your spending) and analysing it; working out your norms and values (spending priorities) and having the motivation and determination to follow all that with action.

Boring, I know – but priceless as a way of self discovery.

Only you know what you like best

Developing a working budget is to large degree subject to working out our values and preferences; or put in a different way working out our ‘wants’ and learning to master these. These values, preferences and want are uniquely yours and you are the only one who can decide whether and how to finance them.

For instance, your haircut may be rather pricey but a justified expense if it makes you feel better and allows you to fit in your work environment. I, for instance, often talk to high level politicians and research funders who control large sums of money. Cutting my own hair is probably not a very smart thing to do.

Also I like gadgets. Although I have learned to control this ‘want’ my spend on electronics is still substantial. I don’t care much for clothes though.

How you cut the cake, or how you set your budget, is unique to you. If you forget this you are likely to feel miserable.

A good budget is like a warn in shoe

In other words, a good budget is one with which you feel comfortable. It is unlikely that you will feel comfortable trying to force your personality into someone else’s budget. It would be a bit like wearing your younger sister’s clothes; or a straight jacket.

If you don’t feel comfortable with your budget you are probably not going to stick to it.

Do you compare your budget to this of other people and do you think this works?

13 thoughts on “Why comparing your budget to this of other people is a really dumb thing to do”

  1. I think comparison is very helpful for those just starting out in budgeting or if you become suspicious you may be wasting money.  I examined someone’s budget once who had little idea they were spending a ridiculous amount on groceries and eating out (ridiculous compared to the average American, my local opinion, percentage-based budgeting, everything) that was preventing them from meeting their goals.  But in general I do agree that a budget is very personal and you can’t expect anyone else’s to meet the needs of your life.

    • @Emily: Well, there are extremes. But I have friends who are rather frugal (more than me) when it comes to gadgets, clothes and sport stuff. But they spend about three times more than we do on food – they love food and this is the difference. So, the way I see it, it is no so much about meeting your goals – gowls are about cash flow. Where we are different is in how we spend what we spend.

  2. I agree and disagree at the same time!

    I think budgets are very personal, they should be aligned with your very own goals.

    But I also think there are so many things similar between peoples budgets that most things can be compared and in fact should be. How do you know if your getting a good deal on your car insurance? You use comparison sites – same for budgets comparing with others will help you to see what may have been hidden in the fog of not realising.


    • @Dom: Interesting. I agree we use comparison websites. But you cannot compare what is in your budget for car insurance and what is in someone elses – your circumstances are likely to very different.

  3. I’ve never seen a budget that I totally agreed with and it can be tempting to get on one’s high horse and turn the criticism into a moral issue!  You know – “They shouldn’t spend that much on food/clothes/heating, etc.

    But it’s not a moral issue.  There is no sin involved in having a good hair cut and I don’t think I will go to hell for cutting my own hair! 

    So long as s/he is living within her means and is not harming anyone, I’m comfortable with anyone’s choices. 

  4. Back when I was a practicing advisor, this was one of the worst (but oft-asked) questions I’d receive. They’d ask how they stacked up to others. I replied by asking if they really meant how they stacked up to their own goals.

  5. While I agree you shouldn’t compare I think it is wise to get advice from people you know and trust.  They will point you in the right direction for you to make the best decision for you and your family(if you have one).  One the other hand not too many people will give you the whole picture.  Lot of times people make there situation better then it really is and you will never know the issues that they have.  Its amazing how many of my friends have nice cars, iPhones, houses and all the gadgets but mentions savings and 401ks and they change the subject.

    • @Thomas: You know, Thomas, I agree that one should seek and be open to advice from others. The best I got from a friend and colleague was ‘before you set your budget just write down all you spend for couple of months; this way it will be realistic’. He didn’t add – it will be yours.

  6. When I work with client to create their 1st budgets, I do break down a few items in terms of % of income so they can see how high or low they compare. It’s good to have at least a wet finger in the wind of how others budget when you’re first starting out. I mainly use food and housing, since these are generally the largest spending categories. 


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