my two cents

The Only Money Strategy You Need for 2018

Email your money conundrums, from the technical to the psychological, to moneymom@nymag.com.

To anyone who clicked this hoping to find a pep talk about budgeting for the new year: sorry. Like most New Year’s resolutions, yours will most likely run aground before February. I’ve interviewed enough behavioral psychologists to know that budgeting, in the traditional sense of shoehorning your money into strict categories and trying your best to stick to it, doesn’t usually inspire long-term changes in financial planning. Instead of starving your spending habits, most experts advocate for a gentler, more proactive, and personalized approach to financial improvement: a “spending plan.”

Spending plans are nothing new. In fact, many personal finance experts have long dismissed old-school budgeting for the simple reason that it lacks wiggle room for the general messiness of being human and the weird stuff we sometimes buy. A spending plan, on the other hand, is a more fluid experiment that accommodates your occasional sample-sale bender, night out, or [insert your vice here] rather than trying to squelch it because it falls outside the approved expenses of your ideal self.

There are many books, articles, and websites with exhaustive instructions on spending plans (and varying schools of thought on what they entail), but here’s the gist in a few steps.

1. What do you like spending money on?

The central tenet of a spending plan is to determine what you genuinely enjoy putting your money toward (i.e. your “values”). What kind of stuff are you currently into? What activities do you hate to miss? Lots of research shows that spending on “experiences” — trips, activities, great food — makes people happier than acquiring things, but you do you. Look at your recent discretionary spending patterns, line by line, and try to be as objective as possible. I used to swear I’d stop buying clothes I don’t need, but then I realized: I just really like new clothes. It’s better to accept it and plan for it rather than judge myself for being superficial and materialistic (which, as history shows, clearly hasn’t stopped me anyway). Meanwhile, I found several expenses that I aspire to care about but actually don’t. One was cooking: I wish I could be a joyful, creative chef, but I’m actually a stressed and grumpy one, and I’m perfectly content with cereal for dinner. I also nixed regular haircuts, because I never wear my hair down. There: hundreds of dollars I can put toward something more rewarding.

2. Make lists, and keep checking them.

Step one will also help you define what you’re saving for, in a grander sense. “What keeps me motivated is that I have lists of short-term goals and long-term goals,” says Beverly Harzog, who dug herself out of $20,000 in credit-card debt and now helps others do the same. “If I want to buy something, I’ll put it on my short-term goal list, and reward myself with it once I’ve saved up. I don’t believe in saying things like “I’ll never have a latte again” if lattes are your thing. You have to let yourself off the hook every once in a while, but make it part of your plan.”

Your long-term goals list probably seems more theoretical, so try to make them as concrete as possible, adds Brad Klontz, professor of psychology and founder of the Financial Psychology Institute. “With a spending plan, you ask, “What am I most excited about spending on? What’s most important to me? And then create a vision for that. Do you want a vacation home? What color is it? Where will it be?” Maybe you just want to be debt-free — whatever it is, imagine what your life will look like when you achieve it, even if it’s years away. “Get excited about it, and come up with benchmarks so that it’s more tangible,” Klontz explains. “Then, it’ll be easier to reduce spending in areas that don’t matter as much.”

3. Do the math.

Obviously, none of the above means you should quit paying your rent, shrug off your student loans, or ignore your savings just because they’re a snooze; those are fixed costs, to be paid on time and in full. As a general rule of thumb, discretionary funds usually shouldn’t be more than 30 percent of your take-home pay (with at least 20 percent going to long-term savings like retirement, and 50 percent going to “needs” like housing and other bills — with the one exception of credit card debt, in which case, do everything you can to get rid of it as soon as possible).

Once you’ve subtracted the boring stuff from your paycheck — or, better yet, automated that whole process — look at your calendar. If you have even a fraction of my forgetfulness, you’ll need reminding about that dinner out or weekend trip coming up; personally, I sit down and list out approximate amounts for how much each plan will cost so that I won’t spend that money on something else. (I’ll sometimes even move that money into a separate savings account, just to remind myself that it’s spoken for.) If I’ve overspent, I’ll see where I can cut back (meet a friend for coffee instead of dinner, lie low for a weekend). If there’s a lot left over, great; maybe I’ll put it toward something I’ve been wanting for a while, or squirrel it away for the next time things get tight.

4. Be conscious of your patterns.

Assuming you enjoy quizzes as much as everyone else on the internet, this step can be fun; it can also be uncomfortable, because it requires questioning the basic assumptions you have about personal finance and where they originated. “Most people think they have financial problems because they’re crazy, lazy, or stupid, but they’re wrong — they’re usually acting on the unconscious beliefs about money that they learned in childhood,” says Klontz. “A lot of people feel ashamed that they can’t control their spending more, but when they can link it back to family patterns, it changes everything. You’re either doing exactly what your parents did, or exactly what your grandparents did, or the exact opposite, which is just as bad.”

Dissecting the more complex and deeply rooted psychological elements of your behavior will help you understand it, communicate about it, and ultimately feel less ashamed of it — the key to learning how to keep it in check, per Klontz. (Research has linked self-blame to lower rates of success with New Year’s resolutions — shaming yourself into frugality only goes so far.) To kick off this process, try one of the many assessments of your “money type,” “money script,” or “money behavior”; all of the ones I just linked to are free.

5. Iterate, iterate, iterate.

The beauty of a spending plan is that you get to change it whenever you want. Unlike a rigid budget, spending plans are meant to be flexible, so it’s easier to navigate the inevitable slip-up. One big reason that most New Year’s resolutions fizzle is that you think they won’t — and when your willpower falters, you give up for good. In actuality, your ability to react to failure, and pivot if necessary, is an essential part of your progress. One study of New Year’s resolution–makers over a two-year period showed that success went hand in hand with the ability to cope with lapses; 53 percent of the successful group experienced at least one slip, and the mean number of slips over the two-year interval was 14. The sooner you can forgive yourself for overspending, the more quickly you can plan to improve.

The Only Money Strategy You Need for 2018