The role of mental budgeting in healthy financial behavior: A survey among self-employed entrepreneurs

I.M. de Groot, W.F. van Raaij

Research output: Contribution to journalArticleProfessional


Self-employed entrepreneurs (without personnel) manage their business and household finances at the same time. Both domains tend to interact with each other. In this study, it is studied whether and how self-employed entrepreneurs manage their finances. More specifically, the role of mental budgeting and time orientation in healthy financial behavior is studied.
Mental budgeting is a way to manage expenses. It entails setting budgets, making reservations on budgets, compensating after too much
spending on a budget, and non-fungibility (treating money as earmarked and categorized). It can be expected that self-employed entrepreneurs using mental budgeting strategies behave in a more healthy financial manner.
Survey data were collected among self-employed people without personnel in The Netherlands. The survey contained, among others, questions about the company, time orientation, financial management, tax attitude, reported tax compliance, and concern or worry about the future.
Questions were factor analyzed using principal component analyses. The resulting scales were used for further analyses. Regression analyses
were performed to predict concern or worry about finances, financially restricting to and exceeding budgets, and reporting tax compliance.
In this paper, two components of time orientation are distinguished: awareness of consequences and carelessness about the future. From these
components, four orientation types of self-employed people were obtained. The orientation type focusing on long-term consequences shows
more healthy financial behavior, whereas the orientation type focusing on the present and less on consequences shows less healthy financial
behavior. Responsible and healthy financial behavior of self-employed entrepreneurs is related to focusing on long-term consequences, using
mental budgeting, and keeping one’s budgets.
Aspects of mental budgeting are predicting worry about business finances. Differential effects of mental budgeting were found on restricting
one’s budgets, and exceeding budgets, respectively. Of two measures of future circumstances (work disability, pension), only pension measures were predicting worrying about finances. Mental budgeting was not related to tax compliance, except for fungibility. Past tax behavior is predictive of other (past) tax behaviors. Fiscal history measures prove to be correlated with present measures.
Original languageEnglish
Pages (from-to)15-25
JournalApplied Studies in Agribusiness and Commerce (APSTRACT)
Issue number2-3
Publication statusPublished - 2016


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