When Budgets Fail

Money is fungible. A dollar is a dollar.

Since money is identical, there is no limit on what it can be spent on.

If an unforeseen expense arises a budget remains intact. The money is still spent on, say, eating out.

If a budget allows $20 a week to be spent on regular gasoline and then, say, the price drops to $18 a week because of an oil surplus, people will top off their tank or upgrade to premium. They’ll find a way to spend the extra $2. The opportunity to save money is lost.

What happens when there is an oil shortage? Do people stop driving or do they raise the limit of their budget?

The problem with a budget is that it encourages spending. It places the focus on spending vs. saving or making.

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