Budgeting, a form of planning that serves to guide and assist later decision making, is a common and important activity in human life. Two major parts compose the budgeting process: budget setting and expense tracking. Budget setting involves deciding on a set of categories and allocating monetary amounts to each. Expense tracking involves labeling goods and specific expenditures as relevant for a certain pool of money. While most of the research conducted on individuals' budgeting process targets expense tracking, less is known about how individuals actually plan their resource allocations to needs. This manuscript will investigate the psychological process of budgeting, focusing on budget setting.

First, budget categories as categories are discussed. In Study 1, participants were instructed to categorize a list of expenditure items and provide labels for the (budget) categories created. Analyses of the intensional and extensional nature of the categories created support the assertion that budget categories tend to be goal-derived. This study is followed in Study 2 and Study 3 by an examination of the idea that budgeting behavior can be affected by goals and other contextual factors, such as psychological distance, temporal span, and uncertainty. In Study 2, participants were asked to make a weekly budget. Three dimensions of psychological distance, temporal, social and spatial, were manipulated. The results demonstrate that the level of specificity of the created budget categories (i.e., the proportion of subordinate categories) decreases as the psychological distance increases. Both uncertainty and construal processes seem to affect the categories that people choose to set up budgets, when psychological distance is varied. Study 3 used an online survey to study the effects of temporal framing and the periodicity or typical frequency of expenses on the creation of budget categories and on budget estimates. The results show that periodicity plays an important role in deciding on which budget categories to use. As for monetary estimates, the pattern observed for budget categories of varying periodicity or typical frequency suggests that the activation of short- and long-term goals may also play a role in meditating the effects of temporal span and temporal distance on budget making.