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.”

Related: Why Some Decisions Don’t Make Financial Sense

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.

Related: Save Money Shopping Online With Great Canadian Rebates

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.

Conclusion

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.

Related: 30 Signs You Grew Up In A Frugal Family

Conscious spending plus a realistic budget go together.

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10 Comments

  1. CanadianDaniel on October 30, 2013 at 6:50 am

    Great advice, thanks. Because I’m a freelancer, sometimes I wonder whether I should budget at all because my income is so unpredictable. This article reinforces the notion that my circumstances necessitate a realistic budget even more. I have automatically deducted emergency savings that build even when times are tough. It’s never easy, but this small step helps budget against the ups and downs.

    • Boomer on October 31, 2013 at 2:07 pm

      @CanadianDaniel: It does seem difficult to budget when your income is unpredictable, but it can be done. It can be tempting to blow it all when you are flush then regret it later. It’s a good strategy for some one in your position to have a variation of an emergency fund to smooth out your monthly income needs.

  2. MoneyAhoy on October 30, 2013 at 12:11 pm

    I think budgets are important for beginners with personal finance. After a while, I think disciplined folks can get along even better with no budget at all if they’re willing to make frugal choices in all that they do.

    • Boomer on October 31, 2013 at 2:09 pm

      @MoneyAhoy: I think some type of budget is beneficial to everyone – it just doesn’t need to be mapped out to the penny.

      That and making good choices can keep your spending in check.

  3. Bryan Jaskolka on October 30, 2013 at 1:58 pm

    How do you get along “even better” without a budget? I may be more inclined to agree with you if you had said “just as well” (but I wouldn’t agree whole-heartedly) Budgets are set into place to help us know where we’ve gone and where we’re going – and who can’t benefit from that? It’d be nice to think that rich folks who have been managing their money for awhile don’t need a budget (just another way they’re better than those who don’t, I guess is what you’re saying,) but budgets ALWAYS help – they never hinder. And who still thinks that the most expensive item always equals the best value?

    • Boomer on October 31, 2013 at 2:12 pm

      @Bryan Jaskolka: Well said!

      Apparently, according to the budget survey, there are a lot of consumers who think the higher the price the better the quality. I know from personal experience that it definitely is not so!

  4. dojo on October 31, 2013 at 4:59 am

    We keep a budget since it helps us plan better for our money. We don’t live on a very tight ‘leash’, since we’re doing well financially, but this way we don’t overspend and still can enjoy life.

    • Boomer on October 31, 2013 at 2:15 pm

      @dojo: Good for you! Having a budget doesn’t mean being restricted or deprived. I think they make it easier to plan your spending.

  5. Daniel on October 31, 2013 at 5:37 am

    In our case, budgeting doesn’t necessarily mean we overspend but whenever we’re on track to go over on say groceries, we tend to “transfer” unused amounts from another line item. That being said, we always try to get the most value for the money spent; it makes the money budgeted last longer!

    @Bryan- I ask myself that question every time I see someone with the gold iPhone 5s!

    • Boomer on October 31, 2013 at 2:19 pm

      @Daniel: As you point out, you still need a bit of flexibility – what if you come upon a really great deal that won’t be available next month?

      That said though, I wouldn’t spend $500 on a pair of boots just because that’s my monthly clothing budget amount without doing some shopping around first for a better deal.

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