University of St Andrews: Don’t abandon your budget – it works, says University of St Andrews research
If at first your budget doesn’t succeed, try, try again – that’s the recommendation from a new paper by researchers at the University of St Andrews and the University of Texas A&M.
Led by Dr Marcel Lukas, Lecturer in Banking and Finance in the School of Management at the University of St Andrews, the studies showed that budgeting does reduce spending, and people who are most ambitious in their budgets reduce their spending the most. Moreover, the benefits also last – findings showed that people who budgeted are still spending less six months later.
Using a UK-based personal finance app called Money Dashboard, researchers set up several studies to understand how budgets affect spending and found that compliance and the impact of budgeting differs between spending categories such as groceries, fuel, and dining and drinking.
And, while impulsive spenders were shown to exhibit worse budget compliance, it is not because they spend more, rather that they set lower budgets than those individuals who rate lower in terms of their impulsiveness measures.
Dr Lukas said: “Most research on consumer budgeting has predominately investigated psychological factors that influence how consumers set budgets or how they track expenses. Much less is known about the extent to which budgets influence real-world spending once they are set. Our research focuses on the influence of budget setting on real-world spending.
“Budgeting apps have made expense tracking relatively easy, but setting a realistic budget remains a challenge for many consumers, even when they know how much money they have spent in the recent past. That said, we found that a consumer who typically spends £250 per month on going out and sets a budget for £150 the next month, then ends up spending £200. The consumer’s budget has influenced their spending, even though they have not strictly complied with their budget.”
With fuel and food prices rising across the UK, the findings are timely, and the paper may provide a couple of practical actions for those looking to manage their discretionary spending.
The paper recommends that consumers who want to reduce their spending should set an optimistic budget and regularly track their expenses against it, and that those who fail at first with their budget shouldn’t abandon it. Even those who didn’t have perfect compliance were still decreasing their spending six months after setting a budget.
Dr Lukas said: “The recommendation we would give is – budgeting works, and continues to work. With the cost of living soaring, people are struggling to meet their own budgets. While we recognise a budget will not solve the cost of living problem, particularly for those struggling with extreme poverty, our studies show that setting up a budget does help to reduce spending, especially for discretionary items.”