Dana Miranda is a financial educator, journalist, and creator of the Healthy Rich newsletter, where she writes about money for misfits. She has contributed to Forbes, Business Insider, The New York Times, CNBC, and The Motley Fool, among many other outlets.
What’s the big idea?
The personal finance industry has been teaching ineffective wealth habits for decades. The dominant advice is that budgeting is of absolute importance, but emerging research is dismantling this approach to money management. A life of prosperity does not emerge from restrictive rules and a scarcity mindset—it starts with intuition and generosity.
Below, Dana shares five key insights from her new book, You Don’t Need a Budget: Stop Worrying about Debt, Spend without Shame, and Manage Money with Ease. Listen to the audio version—read by Dana herself—in the Next Big Idea App.
1. Budgeting doesn’t work.
Basically, every piece of financial advice—whether you’re trying to pay off debt, save for a big purchase, or start investing—starts with “make a budget.” This sounds a lot like what we see in healthcare, where every piece of health and wellness advice goes back to losing weight. In both cases, we’re defaulting to restriction.
Decades of research in the medical field shows that weight loss doesn’t always yield the health outcomes people want. Dieting doesn’t work well for weight loss or health improvement. So, I wondered what the research would say about budgeting. The most surprising thing I found was how little research exists about the effectiveness of budgeting. Almost no one is asking whether the practice effectively improves a financial situation. However, I did find a few researchers trying to determine the effectiveness of budgeting. The truth about budgeting contradicts everything the personal finance industry has been teaching.
A 2018 study at the University of Minnesota found that budgets are unsustainable and don’t reduce spending. Through one experiment, they found participants got less enjoyment out of spending when they tracked their budgets closely, and this effect was stronger for people with less money. That lower enjoyment meant people were less likely to continue budgeting in the future. Researchers wrote, “Tracking a budget may reduce the enjoyment associated with spending by increasing pain of paying through a tightened link between costs and benefits.”
In another experiment, the same researchers found budgeting encourages a splurge-and-restrict cycle exactly like the binge-and-restrict cycles we see with diets. “People may use perceived progress as an excuse to take a break and may splurge a little,” the authors wrote, giving budgeters “little net benefit.”
Another report from the Financial Consumer Agency of Canada in 2019 shows how ineffective admonitions to make a budget can be, and that budgeting doesn’t improve well-being. The agency led a pilot to encourage people to make a budget, and they followed up 18 months later. Despite the program’s sole purpose being to get people to start budgeting, only about one-third of participants who left with the program with the intention of making a budget followed through and developed a budgeting habit. Then, the study asked budgeters whether the habit helped reduce their financial stress. Just 8 percent of budgeters said budgeting reduced financial stress.
2. Budget culture is like diet culture for your money.
Our cultural relationship with money is based on a set of rules meant to help us get rich, like paying off debt, investing, starting a side hustle, and making a budget. Financial advice and education tend to boil down to three tactics:
- Restrict how you use money, whether by spending less, saving more, or buying different things.
- Shame yourself for financial moves, including spending, accumulating debt, and lack of investment or savings.
- Greedily hoard wealth by avoiding taxes, accumulating property, and opposing social safety nets.
I call this approach budget culture: a set of values that, like diet culture, is based on restriction, shame, and greed. The practice of budgeting is the centerpiece of budget culture. But budget culture is much more than making a budget. You don’t have to engage in budgeting to be engulfed in the beliefs around it. These beliefs pervade most conversations about money. In the same way diet culture has us constantly critiquing our bodies and seeking the perfect regimen, our culture of money has us convinced we can find the perfect way to manage money if we work hard enough.
Despite several systemic barriers, if your finances don’t look like you want them to, budget culture convinces you it’s because you’re not doing something right. The personal finance industry has contrived a fantasy world where it’s possible for regular people to overcome tremendous financial obstacles with just a few simple steps and make real progress toward being rich. Budget culture upholds that fantasy as an achievable ideal and the basis for understanding money. Even as individuals continue to fail to realize the fantasy, our approach to money feeds off the never-ending pursuit of that ideal.
3. Debt isn’t a moral failing.
If you’re not keeping a budget, how do you avoid spending money you don’t have? This is the top question I get when I tell people they don’t need a budget. A belief that you can’t trust yourself not to overspend drives many people to start budgeting. The only way to spend money you don’t have is to use credit or loans and take on debt. I argue that’s not something you have to avoid.
Debt is one of many available resources, like earned income, community resources, or assets. Using debt is a way to expand your resources to live your life when you can’t or don’t want to expand your income or other resources. Choosing when and how to use debt and how to deal with it are financial decisions, not moral or ethical ones. We use shame in budget culture to keep people from accessing debt, which only serves to perpetuate unequal access to the lifestyle those resources could buy. Carrying debt doesn’t make you a bad or irresponsible person.
“Choosing when and how to use debt and how to deal with it are financial decisions, not moral or ethical ones.”
Carrying debt also won’t destroy your life the way budget culture makes you believe. You can understand how debt products like credit cards and loans work and know the consequences tied to various ways you might deal with them. Having that knowledge lets you decide how to deal with debt in a way that supports your goals.
4. Money is meant to be spent.
Budget culture trains you to believe spending is bad and that you’re a failure for giving in to it. But spending money is often the right choice because it’s necessary for nourishment, connection, and fostering joy. Letting go of shame from spending is vital to overcoming budget culture—but so is letting go of self-satisfaction from restricting. “Succeeding” at restriction might make you feel like budgeting works for you, but it’s just the flip side of shaming yourself for spending.
Letting go of the perceived control a budget gives you might feel scary because budget culture has taught you not to trust yourself around money. Once you’ve rejected the premise of budgeting, you must learn to trust yourself to spend money without destroying your life. Trusting yourself to use money without fear is what I call conscious spending.
Setting restrictive limits on how to use money for things you love and value is impractical. My goal with money management isn’t to create new restrictions or give you another difficult chore to manage. A budget-free approach is about being able to say yes more often when you’re wondering whether to spend money.
Budget culture’s lionizing of restriction has probably messed with your ability to know how you truly want to use money. Trying to reject budgeting without a way to trust yourself could throw you right back into a cycle of splurging and restricting. To avoid that cycle, it is important to learn conscious spending practices that rely on trusting your gut.
Practicing conscious spending is about yielding to your innate wisdom to guide your money moves, instead of looking at an outside set of rules to determine what you should do. Just about any mindfulness practice that speaks to you will hone your self-awareness toward conscious spending. Some strategies you can try include:
- Create checkpoints that encourage you to reflect on spending decisions before making them, like a reminder note in your wallet.
- Use a spending diary to temporarily note how you’re spending money and what it adds to your life.
- Imagine your ideal day and how you can use money to support it.
- Notice your hormone cycles and how they impact your decision-making.
- Do somatic exercises to learn to listen to your body.
- Practice meditation or prayer to become more mindful.
5. What you own isn’t truly yours.
Advice about money tends to focus on how to get more and give away less. Budget culture treats money as the end goal, so advice is focused on having money in the end. That misses the point of using money to live a life. It also ignores the fact that if you’re tapping into your intuition and understanding your place in a community of humans, generosity with money is a must.
Unfortunately, in our culture, thinking about giving money away can raise feelings of fear and scarcity. Budget culture messaging amplifies and reinforces those feelings through budgeting habits and an individualistic mindset. Budget culture makes generosity feel foolish.
A scarcity mindset makes you see lack and competition instead of abundance. Our cultural approach to money trains us to believe we never have what we need and there’s not enough to go around. Our culture’s focus on individual responsibility makes it hard to be generous and easy to ignore someone else’s needs.
You can begin to break down that belief by first understanding that nothing is truly yours to begin with. The difference between seeing scarcity in the world and seeing abundance is understanding that whatever you own isn’t truly yours; it’s just in your care for now.
Money is a tool to shape the world around you. When you hold it in your hands, you are responsible for contributing to that world in a life-giving way. Don’t fear scarcity when you give money away or use it to benefit someone else. Their gain isn’t your loss because there was never a difference between your money and their money in the first place. Look for opportunities to give money away, including through direct gifts, charities, and taxes. We can embrace joy, abundance, and generosity in our relationship with money by letting go of the scarcity mindset budget culture has instilled in us.
To listen to the audio version read by author Dana Miranda, download the Next Big Idea App today:
