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Budgeting Apps Make You Spend More

May 4th, 2021 • Lisa W.

“Knowledge is power”, so said Francis Bacon in the 16th century. But is that always a good thing? That brings us to budget apps for tracking spending…

A recent academic study from the University of Arizona studied whether or not budget apps that track your spending actually help you to stay on budget. As it happened, they found that the opposite can occur; users of budget apps tended to spend more than they would have otherwise! 

Here’s what happened: When users had certainty of how much money they had available to spend in their bank account within their preset budget limit — because they were able to observe this easily — they tended to spend right up to that limit. Users who were less observant were more conservative in their spending because they did not know precisely how close they were to their guardrail. The act of frequently observing account and budget balances changed the behavior of users… and not in a good way.

Luckily, the researchers went on to experiment with different techniques to counteract this effect. If you are a user of an app for tracking your spending, you can employ these hacks:

  • Set budget targets over a short time frame. Where app users in the experiment tended to get into trouble was right at the end of the budget period. They saw the deadline approaching and decided to race towards it. Shortening the “budget window” reduced the ill effect of this tendency. Consider short budget periods of not more than a week, rather than a pay cycle or a month.
  • Don’t define your budget categories too narrowly. What the researchers observed was that when users had a multitude of narrow spending categories, they felt comfortable over-spending in one category based on the optimistic assumption that they would make it up by under-spending in another category. Which they didn’t.

I am a firm believer, like Sir Bacon, that knowledge is power. It is not possible to be the boss of your financial life without understanding how and where you spend money. So if a budget app is the thing that will help you gain that knowledge, I am all for it. Just don’t forget that not one of us is fully rational when it comes to spending; there is no app for that!

You may be thinking isn’t Hey Money a budgeting?? The answer is no. There is a private Hey Money app for subscribers, but it’s not a budgeting app. Hey Money is a people-based service. You are paying for access to a real financial expert, to build a relationship that will help guide your financial decisions for the long haul. This is true change. Start your subscription today!

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