You might think that people are most motivated to make a household budget when they are facing a personal cash crunch. But in fact, budgeting is popular even when people aren’t feeling pinched.

That’s one insight from research into how people budget by University of Wisconsin’s C. Yiwei Zhang, Chicago Booth’s Abigail Sussman, University of New South Wales PhD student Nathan Wang-Ly, and University of Colorado PhD student Jennifer K. Lyu.

“A lot of the work in mental accounting presupposes budgets without a strong descriptive understanding of how people actually budget,” Sussman says.

The researchers surveyed 3,800 US consumers, asking people whether or not they budgeted, whether they believed they should be budgeting (if they were not already doing so), and how pleasant or unpleasant they considered the process to be.

They then asked those who budgeted about the tools they preferred, the formality of their process, the frequency of their updates, the financial accounts they used, and their budgeting categories. Zhang, Sussman, Wang-Ly, and Lyu also assessed the financial well-being of each respondent by considering income, debt level, and overall assets.

The research produced five main insights:

#1: Most people budget

Budgeting is popular regardless of people’s income, and even among people who are in good financial shape, the research suggests. Survey respondents provided their annual income levels beginning at “below $20,000” to “$70,000-plus.” About two-thirds of respondents said they were budgeting at the time, either formally (actually writing it down or using online tools) or informally (keeping the information in their head).

Of those who said they didn’t budget, 42 percent reported having done so at some time in the past. Low-income respondents were slightly less likely than their high-income counterparts to say they were budgeting, with about a 5 percentage point difference from the lowest to highest income range in the survey. These overall findings refute the idea that people are only motivated to budget when they are facing a personal financial crisis.

#2: Check-ins correlate with financial well-being

While budgeting appeared popular across the income spectrum, if slightly more so among higher-income respondents, the frequency with which people checked their budgets to see how they were doing was highly correlated with their financial situations: the less financially stable they were, the more frequently they checked.

Among respondents with the lowest confidence in their ability to come up with $500 in an emergency, 43 percent checked their budgets several times per week, compared with only 35 percent of people who expressed the most confidence in their financial situation. Respondents with more than $100,000 in assets were half as likely to check their budget several times per week than those with less than $250.

It’s a popular activity for rich and poor alike 

Budgeting is prevalent across households, including those with more financial resources, research suggests. Households at the higher end of the income and asset distribution tend to favor formal budgeting tools.

#3: People track spending within categories . . .

Of those respondents who said they were budgeting, 90 percent also reported tracking their spending within distinct budgetary categories.

#4: . . . but those categories differ

Yet the level of granularity differed among respondents. For example, while some simply separated bills from discretionary spending, others maintained several separate categories related to bills, such as internet, water, car payments, and electric.

#5: Overspending leads to adjustments

Eighty-five percent of respondents said they would adjust their spending if they overspent within a budget category, but less than 30 percent would make changes if they underspent their limit. This, the researchers note, is consistent with the idea that people budget not only to track their finances over time but also to limit their spending.

The researchers supplemented the survey information with 2019 administrative data from approximately 200,000 customers of the Commonwealth Bank of Australia, the country’s largest bank. They tracked people’s income, age, and financial well-being score, as well as their account balances, product holdings, transactions, spending allocation among bank cards, and activity on the bank’s mobile app and website. As in the survey, the bank customers also largely tended to segregate spending by category, and the frequency with which they checked their budgets was correlated with their financial health.

“Understanding systematic patterns in how individuals and households budget may serve a critical role in informing economic models of consumption-savings behavior,” Zhang, Sussman, Wang-Ly, and Lyu write.

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