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As the new year approaches, so do the resolutions: diet, exercise, money.
While physical and mental wellness makeovers dominate the market for fresh starts, many consumers also think about their financial wellness. Nearly half of Americans want to increase their savings in 2023, according to an October 2022 Bank of America survey that asked about resolutions for the new year.
Some personal finance experts recommend starting the year with a new or updated budget. Others say budgeting isn’t a one-size-fits-all approach for financial health and you should ditch it altogether.
Let’s dig deeper to find out if you should bid farewell to budgeting or find different ways to mind your dollars and cents in 2023.
Who Needs a Budget in the New Year?
Budgets provide financial stability. They can encourage you to save money and pay off debt, especially in uncertain economic times. Plus, they can help curb constant temptations to splurge.
Annette Harris, founder of Harris Financial Coaching, says making a new budget or updating one may be beneficial in the new year if you are:
- Unable to keep up with expenses
- Falling behind on debt payments
- Borrowing money from others
- Relying on credit cards
- Using payday lenders
Some positive events may also warrant a fresh look at your budget:
- Buying a house
- Planning home improvements
- Sending a child to college
On the other hand, Harris says if you’re debt-free, investing and saving, then a budget or refresh won’t provide you significant value.
“If you don’t have children that you’re putting through college and don’t foresee any significant purchases soon, you can continue spending wisely and building your net worth,” she says.
Sophia Bera Daigle, certified financial planner and founder of the firm Gen Y Planning, suggests updating your budget if you’ve experienced a change in income, paid off debt or if it’s been a few months since your last refresh.
The Budget Commitment Problem
Tracking finances is the easiest it has ever been. There’s no shortage of budgeting apps on the market, yet studies show conflicting data on how successful people are at sticking to the budgets they’ve made.
“Sometimes the ‘B-word’ gets a bad rap,” says Daigle, who recommends talking about your “spending plan” if “budget” doesn’t suit you.
Jesse Mecham, founder of app You Need a Budget (known as YNAB), counts negativity associated with the word “budget” among the reasons people don’t follow through with setting and maintaining one.
“When people use the word ‘budget,’ they think it means restriction, deprivation or diet, anything that means spend less,” he says. “If we’re talking about a budget being a plan for intentional spending, then no matter what year it is, you always want to be intentional.”
Shifting your perspective can help you live your budget instead of making a plan that doesn’t suit your lifestyle. Whether you call it a budget, plan or an intention, Mecham says it can liberate your spending and allow you to be guilt-free.
Some Budgets Can Cause More Harm Than Good
In theory, budgets work regardless of your income, location or lifestyle choices. Most financial advisors recommend them as the “go-to” method for reaching your financial goals, especially in the new year.
However, Dana Miranda, founder of “budget-free” financial education website Healthy Rich, believes that budgets can do more harm than good. She thinks it’s healthier to ditch your budget permanently. (Miranda and the author were previously colleagues.)
“People inevitably feel like they’re failing and aim for a fresh start at the turn of the year,” she says. “But no amount of recommitting to budgeting can make the realities of your life fit into the unrealistic restriction of a budget.”
When people feel stressed about money, they try to budget. Done right, you reach your goals. Done wrong, you’re a failure and are more stressed than before.
That unhealthy reasoning is rooted in what Miranda dubs “budget culture,” a term Miranda coined after she noticed the similarities between budgeting and dieting.
Where thinness is the goal in dieting, richness is the goal in budgeting. Miranda says these beliefs are damaging and reward restriction and deprivation. “If you’ve been struggling with money and are looking into budgeting because you’re getting messages from our culture that you’re doing something wrong, run the other way,” she says.
Miranda believes budgets ignore the nuances of real life and the diversity of our experiences, which can’t all fit into one set of rules about managing money.
Financial hardships often stem from systemic failures, she says, and prescribing budgeting won’t fix those extensive problems. Sometimes it’s not the fault of the individual, but rather the system at large that makes sticking to a budget an unreasonable task.
“Budgeting will just add restriction and stress to your existing challenges, and you don’t need that” she says.
Alternatives to Budgeting in the New Year
Only about a quarter of people who make New Year’s resolutions actually keep all of them, according to a recurring survey in the United Kingdom by YouGov. Based on that success rate, your chances of making and sticking to a budget as we enter the new year are pretty low.
Here are three other ways to get your financial foothold in the new year.
1. Track Your Goals
Rather than tracking every dollar, Harris recommends focusing on how money impacts your goals.
“Instead of looking at budgeting from a resolution perspective of not overspending, avoiding Amazon, or eating out less, find areas in your budget that can help you accomplish your goals,” she says.
For example, if your goal is to buy an investment property, or build an emergency or college fund, then create a goal tracker with a defined timeline, goal amount and achievement date to work toward throughout the year.
2. Create an Annual Budget
If you’re not ready to let go of budgeting entirely but desire a more forgiving approach, Daigle recommends building an annual budget instead of a monthly one. This helps account for yearly and other variable costs that throw people off course.
She advises clients to sit down in November or December and map out monthly recurring costs, travel plans, home renovations and any one-time and variable recurring expenses. While bills you pay each month are easy to predict, expenses that come once a year or on an irregular schedule can throw your spending plan off course, Daigle says.
3. Reflect on Your Relationship With Money
Miranda suggests spending your time reflecting on your relationship with money and getting to the root of its role in your life.
She recommends asking yourself these questions:
- Do I find joy in the ways I earn money?
- Are the commitments I’ve made (for example, setting aside a certain percentage of my paycheck into savings) still working for me?
- Is money helping me achieve what I want it to?
- Am I at peace with how I’m spending money?
She’s an advocate of practicing conscious spending: a way to check in on how you’re using money without relying on restriction or discipline.
“You can add self-awareness to how you spend money…to make it easy to know whether a purchase is right for you,” she says. “Common mindfulness practices like journaling, meditation, yoga and prayer can boost your overall self-awareness and help you spend consciously.”
Mecham agrees with that awareness. “Every single person should be intentional about how they spend their money. Anything less than that would be a wasted opportunity,” he says.