By Angela Colley
NEW YORK (MoneyTalksNews)Budgeting is a great tool to help you reach financial independence. But what if your budget is actually hurting you?
It can happen when you budget for a purchase. In fact, consumers who start shopping with a price in mind spend up to 50 percent more than those who don't, according to researchers from Brigham Young and Emory universities. And if you're buying expensive items this way, think of all the money involved.
Coming up in the video, Money Talks News founder Stacy Johnson explains the psychology behind the research finding and how you can avoid it. Check it out and then read on for more details.
What goes wrong
You decide you want to make a purchase a household appliance, a new laptop or a new TV and you select the maximum price you'll pay. Because you have a budget in mind, your thinking goes, you won't spend more than you planned on the item.
But, the researchers found, it doesn't work out that way.
Experiments tested consumers' thinking about buying televisions, pens, laptops, earbuds, garage doors, mattresses, Blu-ray players and luggage. Various approaches got shoppers thinking about price they could select a target price from a set of choices, identify their own target price, select a maximum price they were willing to pay, or determine a budget for a specific purchase.
"The results were always the same a preference for higher-quality, higher-priced items," said study co-author Jeffrey S. Larson. "The most surprising aspect of this study was that people's decision-making process can change so easily. Doing something as simple as asking, 'Hey, how much would you budget for this product?' completely changes their thinking."
Once the shoppers had a set amount in mind, they stopped thinking about price and focused on quality. As a result, they overlooked less expensive items that met their needs in favor of ones with more bells and whistles.