diff --git a/litellm/proxy/auth/auth_checks.py b/litellm/proxy/auth/auth_checks.py
index ff47bd0418..eca700c908 100644
--- a/litellm/proxy/auth/auth_checks.py
+++ b/litellm/proxy/auth/auth_checks.py
@@ -9,6 +9,7 @@ Run checks for:
 3. If end_user ('user' passed to /chat/completions, /embeddings endpoint) is in budget 
 """
 
+import asyncio
 import time
 import traceback
 from typing import TYPE_CHECKING, Any, Dict, List, Literal, Optional
@@ -21,6 +22,7 @@ from litellm.caching.caching import DualCache
 from litellm.caching.dual_cache import LimitedSizeOrderedDict
 from litellm.proxy._types import (
     DB_CONNECTION_ERROR_TYPES,
+    CallInfo,
     LiteLLM_EndUserTable,
     LiteLLM_JWTAuth,
     LiteLLM_OrganizationTable,
@@ -931,3 +933,51 @@ async def is_valid_fallback_model(
     )
 
     return True
+
+
+async def _virtual_key_max_budget_check(
+    valid_token: UserAPIKeyAuth,
+    proxy_logging_obj: ProxyLogging,
+    user_obj: Optional[LiteLLM_UserTable] = None,
+):
+    """
+    Raises:
+        BudgetExceededError if the token is over it's max budget.
+        Triggers a budget alert if the token is over it's max budget.
+
+    """
+    if valid_token.spend is not None and valid_token.max_budget is not None:
+        ####################################
+        # collect information for alerting #
+        ####################################
+
+        user_email = None
+        # Check if the token has any user id information
+        if user_obj is not None:
+            user_email = user_obj.user_email
+
+        call_info = CallInfo(
+            token=valid_token.token,
+            spend=valid_token.spend,
+            max_budget=valid_token.max_budget,
+            user_id=valid_token.user_id,
+            team_id=valid_token.team_id,
+            user_email=user_email,
+            key_alias=valid_token.key_alias,
+        )
+        asyncio.create_task(
+            proxy_logging_obj.budget_alerts(
+                type="token_budget",
+                user_info=call_info,
+            )
+        )
+
+        ####################################
+        # collect information for alerting #
+        ####################################
+
+        if valid_token.spend >= valid_token.max_budget:
+            raise litellm.BudgetExceededError(
+                current_cost=valid_token.spend,
+                max_budget=valid_token.max_budget,
+            )
diff --git a/litellm/proxy/auth/user_api_key_auth.py b/litellm/proxy/auth/user_api_key_auth.py
index 292e9d2bea..1a4b70e6eb 100644
--- a/litellm/proxy/auth/user_api_key_auth.py
+++ b/litellm/proxy/auth/user_api_key_auth.py
@@ -24,6 +24,7 @@ from litellm.proxy._types import *
 from litellm.proxy.auth.auth_checks import (
     _cache_key_object,
     _handle_failed_db_connection_for_get_key_object,
+    _virtual_key_max_budget_check,
     allowed_routes_check,
     can_key_call_model,
     common_checks,
@@ -1092,42 +1093,11 @@ async def _user_api_key_auth_builder(  # noqa: PLR0915
                     )
 
             # Check 4. Token Spend is under budget
-            if valid_token.spend is not None and valid_token.max_budget is not None:
-
-                ####################################
-                # collect information for alerting #
-                ####################################
-
-                user_email = None
-                # Check if the token has any user id information
-                if user_obj is not None:
-                    user_email = user_obj.user_email
-
-                call_info = CallInfo(
-                    token=valid_token.token,
-                    spend=valid_token.spend,
-                    max_budget=valid_token.max_budget,
-                    user_id=valid_token.user_id,
-                    team_id=valid_token.team_id,
-                    user_email=user_email,
-                    key_alias=valid_token.key_alias,
-                )
-                asyncio.create_task(
-                    proxy_logging_obj.budget_alerts(
-                        type="token_budget",
-                        user_info=call_info,
-                    )
-                )
-
-                ####################################
-                # collect information for alerting #
-                ####################################
-
-                if valid_token.spend >= valid_token.max_budget:
-                    raise litellm.BudgetExceededError(
-                        current_cost=valid_token.spend,
-                        max_budget=valid_token.max_budget,
-                    )
+            await _virtual_key_max_budget_check(
+                valid_token=valid_token,
+                proxy_logging_obj=proxy_logging_obj,
+                user_obj=user_obj,
+            )
 
             if valid_token.soft_budget and valid_token.spend >= valid_token.soft_budget:
                 verbose_proxy_logger.debug(
diff --git a/litellm/proxy/proxy_config.yaml b/litellm/proxy/proxy_config.yaml
index 49e8dd6934..09df4ec481 100644
--- a/litellm/proxy/proxy_config.yaml
+++ b/litellm/proxy/proxy_config.yaml
@@ -3,14 +3,10 @@ model_list:
     litellm_params:
       model:  openai/*
       api_key: os.environ/OPENAI_API_KEY
-    model_info:
-      health_check_model: openai/gpt-4o-mini
-  - model_name: anthropic/*
+  - model_name: text-embedding-ada-002
     litellm_params:
-      model: anthropic/*
-      api_key: os.environ/ANTHROPIC_API_KEY
-    model_info:
-      health_check_model: anthropic/claude-3-5-sonnet-20240620
+      model: openai/text-embedding-ada-002
+      api_key: os.environ/OPENAI_API_KEY
   - model_name: fake-openai-endpoint
     litellm_params:
       model: openai/fake
diff --git a/tests/otel_tests/test_e2e_budgeting.py b/tests/otel_tests/test_e2e_budgeting.py
new file mode 100644
index 0000000000..2d852a4e1c
--- /dev/null
+++ b/tests/otel_tests/test_e2e_budgeting.py
@@ -0,0 +1,208 @@
+import pytest
+import asyncio
+import aiohttp
+import json
+
+
+async def make_calls_until_budget_exceeded(session, key: str, call_function, **kwargs):
+    """Helper function to make API calls until budget is exceeded. Verify that the budget is exceeded error is returned."""
+    MAX_CALLS = 50
+    call_count = 0
+    try:
+        while call_count < MAX_CALLS:
+            await call_function(session=session, key=key, **kwargs)
+            call_count += 1
+        pytest.fail(f"Budget was not exceeded after {MAX_CALLS} calls")
+    except Exception as e:
+        print("vars: ", vars(e))
+        print("e.body: ", e.body)
+
+        error_dict = e.body
+        print("error_dict: ", error_dict)
+
+        # Check error structure and values that should be consistent
+        assert (
+            error_dict["code"] == "400"
+        ), f"Expected error code 400, got: {error_dict['code']}"
+        assert (
+            error_dict["type"] == "budget_exceeded"
+        ), f"Expected error type budget_exceeded, got: {error_dict['type']}"
+
+        # Check message contains required parts without checking specific values
+        message = error_dict["message"]
+        assert (
+            "Budget has been exceeded!" in message
+        ), f"Expected message to start with 'Budget has been exceeded!', got: {message}"
+        assert (
+            "Current cost:" in message
+        ), f"Expected message to contain 'Current cost:', got: {message}"
+        assert (
+            "Max budget:" in message
+        ), f"Expected message to contain 'Max budget:', got: {message}"
+
+        return call_count
+
+
+async def generate_key(
+    session,
+    max_budget=None,
+):
+    url = "http://0.0.0.0:4000/key/generate"
+    headers = {"Authorization": "Bearer sk-1234", "Content-Type": "application/json"}
+    data = {
+        "max_budget": max_budget,
+    }
+    async with session.post(url, headers=headers, json=data) as response:
+        return await response.json()
+
+
+async def chat_completion(session, key: str, model: str):
+    """Make a chat completion request using OpenAI SDK"""
+    from openai import AsyncOpenAI
+    import uuid
+
+    client = AsyncOpenAI(
+        api_key=key, base_url="http://0.0.0.0:4000/v1"  # Point to our local proxy
+    )
+
+    response = await client.chat.completions.create(
+        model=model,
+        messages=[{"role": "user", "content": f"Say hello! {uuid.uuid4()}" * 100}],
+    )
+    return response
+
+
+async def update_key_budget(session, key: str, max_budget: float):
+    """Helper function to update a key's max budget"""
+    url = "http://0.0.0.0:4000/key/update"
+    headers = {"Authorization": "Bearer sk-1234", "Content-Type": "application/json"}
+    data = {
+        "key": key,
+        "max_budget": max_budget,
+    }
+    async with session.post(url, headers=headers, json=data) as response:
+        return await response.json()
+
+
+@pytest.mark.asyncio
+async def test_chat_completion_low_budget():
+    """
+    Test budget enforcement for chat completions:
+    1. Create key with $0.01 budget
+    2. Make chat completion calls until budget exceeded
+    3. Verify budget exceeded error
+    """
+    async with aiohttp.ClientSession() as session:
+        # Create key with $0.01 budget
+        key_gen = await generate_key(session=session, max_budget=0.0000000005)
+        print("response from key generation: ", key_gen)
+        key = key_gen["key"]
+
+        # Make calls until budget exceeded
+        calls_made = await make_calls_until_budget_exceeded(
+            session=session,
+            key=key,
+            call_function=chat_completion,
+            model="fake-openai-endpoint",
+        )
+
+        assert (
+            calls_made > 0
+        ), "Should make at least one successful call before budget exceeded"
+
+
+@pytest.mark.asyncio
+async def test_chat_completion_zero_budget():
+    """
+    Test budget enforcement for chat completions:
+    1. Create key with $0.01 budget
+    2. Make chat completion calls until budget exceeded
+    3. Verify budget exceeded error
+    """
+    async with aiohttp.ClientSession() as session:
+        # Create key with $0.01 budget
+        key_gen = await generate_key(session=session, max_budget=0.000000000)
+        print("response from key generation: ", key_gen)
+        key = key_gen["key"]
+
+        # Make calls until budget exceeded
+        calls_made = await make_calls_until_budget_exceeded(
+            session=session,
+            key=key,
+            call_function=chat_completion,
+            model="fake-openai-endpoint",
+        )
+
+        assert calls_made == 0, "Should make no calls before budget exceeded"
+
+
+@pytest.mark.asyncio
+async def test_chat_completion_high_budget():
+    """
+    Test budget enforcement for chat completions:
+    1. Create key with $0.01 budget
+    2. Make chat completion calls until budget exceeded
+    3. Verify budget exceeded error
+    """
+    async with aiohttp.ClientSession() as session:
+        # Create key with $0.01 budget
+        key_gen = await generate_key(session=session, max_budget=0.001)
+        print("response from key generation: ", key_gen)
+        key = key_gen["key"]
+
+        # Make calls until budget exceeded
+        calls_made = await make_calls_until_budget_exceeded(
+            session=session,
+            key=key,
+            call_function=chat_completion,
+            model="fake-openai-endpoint",
+        )
+
+        assert (
+            calls_made > 0
+        ), "Should make at least one successful call before budget exceeded"
+
+
+@pytest.mark.asyncio
+async def test_chat_completion_budget_update():
+    """
+    Test that requests continue working after updating a key's budget:
+    1. Create key with low budget
+    2. Make calls until budget exceeded
+    3. Update key with higher budget
+    4. Verify calls work again
+    """
+    async with aiohttp.ClientSession() as session:
+        # Create key with very low budget
+        key_gen = await generate_key(session=session, max_budget=0.0000000005)
+        key = key_gen["key"]
+
+        # Make calls until budget exceeded
+        calls_made = await make_calls_until_budget_exceeded(
+            session=session,
+            key=key,
+            call_function=chat_completion,
+            model="fake-openai-endpoint",
+        )
+
+        assert (
+            calls_made > 0
+        ), "Should make at least one successful call before budget exceeded"
+
+        # Update key with higher budget
+        await update_key_budget(session, key, max_budget=0.001)
+
+        # Verify calls work again
+        for _ in range(3):
+            try:
+                response = await chat_completion(
+                    session=session, key=key, model="fake-openai-endpoint"
+                )
+                print("response: ", response)
+                assert (
+                    response is not None
+                ), "Should get valid response after budget update"
+            except Exception as e:
+                pytest.fail(
+                    f"Request should succeed after budget update but got error: {e}"
+                )