The Colors of Budgeting: The Red, The Green, The Gray

As I've said many times before, personal financial management begins with budgeting. It would be nice if we lived in a simple as black and white universe, where every month we would spend exactly what we had planned and never a penny more. But in the universe of expense planning, simple black and white do not exist. While tracking the reds and greens of our personal ledgers, we will rarely be "right on the money" with our monthly financial predictions and allowances in many categories. So as we follow our reds and greens, it is important to manage the gray.

So what does managing the gray mean? It means understanding that a budget is an inherently flawed two-dimensional plan tracking the lifestyle of a multi-dimensional household. It means understanding that life will change and spending will fluctuate for a number of different reasons. Debits and credits will hardly ever equal each other exactly; if you keep a running total of how well you're adhering to your monthly budget, you're either ahead or behind.

Budgets are a guideline to help you ensure you're making healthy choices about your finances. They'll tell you where your problem areas are and help you determine your capacity for savings. But don't let your budget control your every move. I would rather see you follow the spirit of your budget and use it for long term planning -- not short-term dictation of your daily purchases. Our daily activities aren't black and white -- they're full of shades of gray which are often out of our control.

Be sure to plan for the unpredictable by ensuring that the sum of your monthly budget is less than your monthly income. Save regularly and automatically (like into a 401(k)). By leaving yourself some wiggle room at the end of the month and stashing your cash behind the scenes, you'll ensure that your gray areas of spending don't break the bank.