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If you want to take control of your spending, you might log your finances in a spreadsheet, track every dollar and create a strict spending plan, but one expert says such budgets can be “toxic.”
Dana Miranda is a certified personal finance educator and author of “You Don’t Need a Budget,” a book designed to liberate readers from popular ways of managing money.
Miranda told CNBC Make It: “Budget culture is the primary way we get money, and it relies on restriction, shame and greed,” which she compared to diet culture.
“Research shows that when it comes to budgeting, and we’ve seen the same thing in broader dieting studies, this kind of restriction doesn’t work,” she said.
“People often fail to follow these rules, so you inevitably feel like a failure. You feel shame because you’re not achieving those arbitrary goals that are being set.”
Not everyone agrees, with many financial planners saying having a budget is the most important the best thing you can do Improve your financial situation.
However, Miranda cited 2018 study by University of Minnesota researchers They found little evidence that budgeting helps achieve long-term financial goals, adding that it can also increase anxiety.
Meanwhile, Sheida Isabel Elmi, research program manager of the Aspen Institute’s Financial Security Program, tells us CNBC Picks Budgeting can be especially challenging for low- and moderate-income households. This is because they are more likely to have unstable incomes and lower salaries, which cannot be easily managed by strict prescriptive budgets.
Try “gut feeling” spending
Miranda believes that the toxicity of budgeting stems from a capitalist culture whose purpose is to make more money and accumulate assets rather than focusing on the quality of one’s life.
Instead of frugality and saving money, Miranda recommends “spending money consciously” as an alternative. “It’s like an intuitive or mindful way to spend and use money.”
“So instead of making a plan for where every dollar is going to go and trying to stick to it, punishing yourself when you don’t do it and rewarding yourself when you do, you can be more intentional about it moment by moment,” she says.
“So how does money serve you in this moment? How does money serve you in a broader way beyond the numbers and spreadsheets that we tend to put it into?”
Miranda admits that adopting this mindset won’t be easy, but says people need to start trusting themselves more.
When asked about the risks of overspending, Miranda said it’s okay to take on credit card debt. Despite the controversy, she said taking on debt isn’t always “morally wrong” or as “destructive” as society would have you believe.
“I think those are part of the resources available to you,” she said. “As long as we understand how our debt products work and the consequences of the different decisions we make around debt.”
However, the cost of not paying off your credit card each month can be high, leading to additional debt, increased payments, and a damaged credit score, CNBC Picks Report.
Have a “money date”
Another way to avoid reckless spending is to take yourself on a “money date” every two weeks, Miranda says.
“It’s a way to automate money management so you’re not constantly stressed about money,” she explains.
On Money Day, you can examine how your spending affects different areas of your life and prioritize what’s important.
“So if I take the vacation my friend planned, what impact will that have on my money to save for retirement next month? Or what impact will it have on my spending in other areas? What impact will it have on my spending in other areas? What’s the impact? Miranda said.
You can also create a “money map” to help organize your goals, the resources available to you and your financial commitments — and this should be flexible, she adds.
For example, if you originally planned to put 10% of your money each month into retirement savings, but then you realized you’d rather spend that money now, you can use a money map to do that.
“You can move it to some extent because it makes sense to you, but it helps you understand your financial situation so that you can understand the consequences of the decisions you make,” she said.
“You can make sure you always know where your finances stand, making it easier to make smart spending decisions in your daily life.”
However, it’s worth noting that budgeting is a standard financial planning method recommended by experts. Tania Brown, a CFP and former coach at SaverLife, a nonprofit dedicated to helping low-income Americans save, previously told CNBC Make It Budget is important Regardless of income.
“A budget tells your money where to go and what to do so you can live the life you want,” Brown says. “The less money you have, the more you need to prioritize where that money goes.”
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