Budgeting helps you curtail costs

Budgeting helps you curtail costs
Highlights

Budgeting helps you curtail costs.Creating a budget will help you prioritise and make you more productive, shows a new study.

Creating a budget will help you prioritise and make you more productive, shows a new study."Budgeting makes it very clear how much you have to spend, making it difficult to deceive yourself into thinking you can accomplish more than you can. This forces you to make tradeoffs sooner, before the situation is too dire," said Philip M. Fernbach, Christina Kan and John G. Lynch Jr. from the University of Colorado.

The authors divided consumers into efficiency planners and priority planners.Efficiency planners try to stretch resources by using coupons, buying in bundles, or doing all their shopping in one trip.Priority planners make direct choice on what they will buy or where they will go, cutting excess items and stops before leaving the house.

In one study, one group of consumers going on vacation created budgets before their trip and monitored their expenses while another group did not.After the trip, both groups were asked to report on how they managed their finances during the trip.Consumers who had budgeted beforehand reported more priority planning and fewer dysfunctional behaviour such as overspending and impulsive shopping.

What you decide to forgo is often just as important as how hard or efficiently you work to achieve a goal.Unfortunately, all too often, prioritisation comes to mind when it is already too late.Consumers should be mindful of this and avoid getting stuck in the efficiency trap.Efficiency may feel right in the moment but is counterproductive if it comes at the expense of more important priorities.

"Our results provide some guidance for people who want to improve at planning their time or money. If you find yourself in a tight spot, fight the tendency to react dysfunctionally. Pick the best of what seem like bad options relative to your original goals and accomplish what you can as efficiently as possible," the authors said.The study appeared in the Journal of Consumer Research.

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