This morning a reader sent me a link to a website he said proves that the $500 a month budget is impossible. It's actually a pretty good blog so you might actually want to check it out and bookmark it.
Anyway, the short story is that in their first few months of cruising they've spent more than they cared to (an average of $2930.33) but they're aware their spending is more than they'd like and are putting the brakes on. Which, considering they have a reasonable sized boat (31-feet), should not be all that problematic as long as they can get out of "vacation-mode".
The thing about budgets is that they work on averaging and in the fullness of time things do average out. Everybody spends money like a drunken sailor their first year of cruising, it's just a normal part of the learning process. It takes time to sort out just what works for you, find that groove where you have all your shit in order, and your need/want radar is fully operational.
I'd say the folks on SV Smitty are way ahead of the curve and, I expect, that a year from now their budget will reflect something they are a lot more comfortable with.