Preparing a budget is a very basic element in a financially ordered life. It enables you to monitor your spending and become more conscious of where your money goes.
But a survey done jointly by Brigham Young University and Emory Business School surprisingly found that consumers with a budgeted amount for goods are likely to purposely spend an amount close to their limit instead of exploring cheaper options that offer a better value.
Related: Some Great Things That I’ve Bought
When I worked as a manager of administration I had an annual budget amount for various expenses. If I didn’t use the entire amount budgeted, it was reduced in the following year, and so it was always spent to avoid that.
I didn’t think that people viewed their own personal budgets in the same way. You can always re-adjust budget categories, carry unused portions forward, or add to your savings – they are a lot more flexible.
Price vs. value
The survey found that budgeting could actually increase a consumer’s preference for higher priced items, which were perceived to have a higher value.
One respondent said: “Once you get to the store and see the options, you usually end up buying the higher priced product because you want to get the best value for your dollar.”
Do you think that the higher the price, the better the value? It’s not necessarily true.
Practice conscious spending
It doesn’t matter whether you have a strict budget with set amounts for each category, or have a more “loose” budget – as I do, spend your money on the things you truly care about, want, and need, and then look for deals and discounts to lower your costs.
Determine the most important characteristics of what you want to buy, and then choose the option with the lowest price point that matches your needs.
For example, if you’re purchasing an appliance, consider the features that you need, do research and check consumer reports, then, when you’ve narrowed it down you can look for the lowest price. With you needs and price point firmly in mind you won’t be tempted by non-essential features – no matter how cool they seem to be when the salesperson gushes over them.
Sometimes the cheapest option is the best choice. Other times you’ll regret it when you have to replace the item too soon, or it’s otherwise not suitable.
If a name brand food item tastes better to your family, there’s no use in buying an off-brand they won’t eat.
Budgets are helpful, but only if they are realistic and tailored to your situation.
Setting a certain budget amount for your purchases is only a guideline, not a free pass to overspend.
Conscious spending plus a realistic budget go together.