What is Activity-Based Budgeting
Activity-Based budgeting is a method used to induce the efficiency of the activities in an organization or firm. This will include determining the cost drivers and preparing the budget. By listing all the costs, you can draw a specified target in every activity of your business. In a contemporary budgeting method, you will have to compare the previous year’s budget and come up with the changes or adjustments when deemed necessary. Hence, activity-based budgeting is not function-oriented but activity oriented
Moreover, Activity-Based budgeting is the latest approach in dealing with business finances that might also serve well in managing your household
Pros and Cons of Activity-Based Budgeting
The following are the pros and cons of activity-based budgeting.
- If you are managing a small business, you normally deal with activity-based budgeting by nature.
- This is beneficial if you are self-employed as it allows you to determine the value of your time.
- If you are someone who preferably makes purchases through your credit card rather than cash, activity-based budgeting enables you to determine your activities through a thorough review of your statements.
- It takes time to create an activity-based budget plan. With it has applied in the household budget, the entire family has to get involved. In some cases, there might be other members of the family who might not be driven as you.
- Since activity-based budgeting takes time to set and maintain, you might consider a traditional way of budgeting instead and check if it works more for your household.
Who Best Suits for Activity-Based Budgeting
If you’re asking who can utilize activity-based budgeting best, the answer would be those who are self-employed. Self-employed individuals can utilize it best, considering that they are more aware of how much is the value of their time. However, those who are not self-employed can come up with activity-based budgeting through the hourly rate of their full-time employment.
When Should You Use Activity-Based Budgeting
If you have tried traditional or contemporary budgeting, yet it doesn’t work, your awareness towards activity-based budgeting in managing your small business can be incorporated in your household budget instead. In general, it will work best when you are self-employed, and you’re aware of the value of your time.
How Frequently Should You Re-evaluate Your Finances?
When considering activity-based budgeting, you will have to evaluate your finances every time you acquire changes in your daily routine and activities. For instance, you omit your gym training and shift to swimming classes. In this case, you may need to alter your activity-based budget appropriately. This is done when the two activities accumulate varied costs and expenses, regardless if both aim to attain physical fitness.
Re-evaluating your activity-based budget is also a must when there are significant changes in your life. This changes can be giving birth or other activities that will entail additional cost. Activities such as pediatrician visits and childcare are just a few of the activities that associate certain costs. At some point, you need to re-evaluate your activity-based budgeting in a year to further monitor the shift in your finances.
How You Create an Activity-Based Budget
In creating an activity-based budget, there are certain steps that you need to put in place. These steps are as follows:
1. Make a List
You can start your activity-based budget by making a list of your routine. This involved activities that you do daily, weekly, and monthly. To get an accurate list you can take a look at your schedule and your calendar of activities to see which activities accumulate costs. You need to make sure that you get accurate detail of your activities. Significantly, you have to avoid altering such. You can write your entire routine or activities of your household. Besides, it can help if you get all the members of the household involved to get a complete list. Your list might include the below samples:
- After work visits to a coffee shop
- Gym training
- Cable TV for your movie marathon
- Commuting to Work
2. Identify the Cost of Each Activities
This is the part where it can take most of your time. However, as soon as you come up with the cost of each activity, it can be worth the time you spent on it. If you can’t get the exact cost of each activity, you can refer to your bank statements or receipts. Also, you can make an estimate based on your experience. With the list set as a sample on step one, your step two should be something like:
- After work visits to a coffee shop: $2 per coffee X 25 days of visit in a month = $50/ month
- Gym training: $10 for three sessions in a week X 4 weeks in a month = $40/ month
- Cable TV for your movie marathon: $100 /month
- Commuting to work: $12 of gas going and coming back + $10 parking fees + $500 vehicle maintenance annually
Getting the total cost of each activity and the sum of the entire activities together can help get the most of activity-based budget.
3. Add the Rate of Your Time
Also, to get a step ahead in activity-based budgeting, you can sum up the cost of each activity and compare it to your hourly rate. This is advantageous to those who are self-employed, who’s hours are paid for service. For those who are employed full time, you can simplify it by using the amount that you’re paid hourly.
Activity-Based Budgeting In General
Activity-based budgeting is suitable for a household where the providers may own a small business or perhaps working as freelancers. Through it, you can determine the cost of your time vs. the cost of each activity and the time you spent on it. Activity-based budgeting is a newer approach other than traditional budgeting. It allows self-employed individuals to manage their time efficiently. It bears a more concrete idea of the overall expenses of the household. However, whatever budgeting approach is taken, the sole purpose is to save more money by efficiently managing your time and resources.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.