We’re always looking for new ways to save money. Watching the pennies and turning them into pounds isn’t always easy. Life is busy and finding a budget that works for your lifestyle can be tricky. This post is all about activity based budgeting which is mainly used in companies however you could bring the ideas into your personal finance budgeting too.
What Is Activity Based Budgeting?
Activity based budgeting (or ABB as it is often referred to as) is a way of recording, researching and analysing things that cost a business money. The activities within a company that cost money are written down and thoroughly looked into for ways to potentially save money and become more efficient. Off the back of these results, budgets can then be created for different arms and departments within the business. ABB is perhaps a step up from traditional budgeting which usually simply adjust previous budgets to include inflation and incorporate business development.
Watching The Spending
Running a business means keep an eye on the spending. Watching the business expenses is important, otherwise your cashflow grinds to a halt and it’s game over. Obviously you need to be able to spend money, but you need to spend it effectively and efficiently. Getting the most from every pound and putting each penny to work.
An example of activity based budgeting: Company A2Z thinks it will sell 5000 units of a specific product in the year, with each one costing £2 to produce and ship. With ABB the company will estimate the cost of the goods sold to be £10000.
When you work with activity based budgeting you can reduce the activity levels required to generate money for the company. You can remove activities which are not making money and invest in those that are. If sending one person on a £100 course is creating £500 in profit for the company, imagine what could happen if you send five staff on the course. Maybe you can save even further by getting a deal on sending more people, or finding ways to cut the costs with transport and accommodation.
Once you have determined the costs associated with every service you offer or product you create, you can create a budget based on those things. You can then figure out where you can save money and work more efficiently.
How We Can Use Activity Based Budgeting Techniques In Personal Finance
Activity based budgeting in your personal finance means you list everything you do in a set amount of time. It could be daily, weekly, monthly or annually. This, of course, will take time. Your list for the week might include going to the bank, going out for lunch with a friend, doing the weekly shopping, playing football one evening.
Figure out the cost of each of these activities. This should include the round trip of petrol if you are driving, parking, the food you buy and eat and the hire of the football pitch. Then combine the amounts to get the budget for that time period.
Once you know how much you are spending on each activity, you can find ways to cut the cost.
Maybe you can go shopping before heading to football practice so you use less fuel in the car, or go to the bank on the same day you meet a friend for lunch, cutting the cost of parking. You’ve figure out the budget, but now you can see where savings can be made.
Activity based budgeting can be drawn out and seem complicated but when you know exactly how much you’re spending doing everything you do, you can find ways to save money.
