No Budget? No Problem

Why strict budgeting isn't always the answer.

  • Ashley Tate

Most people know how to make a budget: Set monthly monetary limits for each category of expense, from big (mortgage, utilities, insurance) to bitty (your daily bagel, extra lives on Candy Crush Saga). Then religiously track your spending in an attempt to stay under those limits.

Rocket science it’s not. And yet just 32 percent of Americans prepare a detailed household budget, according to a 2013 Gallup survey. Why so few? For one thing, budgets are a bummer. Strict spending restrictions cause you to think constantly about what you can’t buy. “Much like when you’re on a diet and avoiding certain foods, sticking to a budget makes you feel like you’re depriving yourself of items and experiences that you want,” says Brad Klontz, Psy.D., a financial psychologist in Kauai, Hawaii, and a coauthor of Mind Over Money ($11, amazon.com). “As a result, you’re likely to rebel against your self-imposed spending limits and subconsciously sabotage them by making impulse purchases.”

Another reason that budgets fail is a mind-set called “present bias.” As Jennifer Lerner, Ph.D., a professor of public policy and management at Harvard University and the founder of the Harvard Decision Science Laboratory, explains, “That’s when our brains have trouble trading off getting something now with getting something more valuable in the future.”

Beyond the psychological barriers to budgeting, there are logistical pitfalls. Klontz says that many Americans set arbitrary spending limits that don’t realistically conform to their lifestyles (say, assuming that they’ll spend only $50 a month on clothes when $100 is more likely). Others are too overworked or overwhelmed at home to keep tabs on their spending.

Additionally, few people allot money for spontaneous indulgences. More budgets might succeed if the possibility of splurges was built in, says Meg Favreau, the senior editor of the financial website WiseBread.com.

So if budgeting doesn't always work, what does? Try one—or all—of these expert-recommended ideas for finding financial balance.