Friday, January 17, 2014

Different ways to redo/readjust budgets

It's only been 3 weeks since I took my SPHR exam, but I haven't received the official results or the certificate. The website hasn't updated yet either. Yes, I am quite impatient and I know it may be another 2-3 weeks before I get anything, but still. Why the torture?

Some of the material we had to learn was about budgets. Just a tiny piece. I was curious how this would apply to my own way of budgeting, and what seems to be more popular for personal budgets. Here are 3 kinds of budgeting that I remember the most: (Note: I am not a finance major, so I leave room for errors or misinterpretations!)

- Incremental budgeting:
You have your budget, and it worked pretty well last year, so you will just carry the same budget towards next year. You only have to explain or account for any requested increases, and you don't have to justify already-established categories and expenses. I think this one is most popular.

- Zero budgeting:
This is where you start the budget from zero every time. You have to justify every single projected expenditure, regardless whether it was ok last year. Would probably be best, as it forces you to reconsider all categories and explain why you must have $50/mo for coffee or lunches, but it is time consuming.

- Performance/formula-based:
Similar to zero budgeting, you come up with a formula and base the whole budget on the performance of said items. For example, if you have a gym membership but actually gained several pounds last year, you may want to consider cancelling that as it really not helping your bottom line. There may be some other items that you had not considered before that really showed a return. For example, if a date-in with your significant 3 times a month greatly reduced stress and improved communication, investing on movies (or Netflix) or even a better TV may be worthwhile.

They all have good things and bad things about them, and there's not a one-size-fits all. I personally use the incremental budget, or more likely, just a static one, as my budget hasn't really changed that much in 3 years, besides snowball shifting and commute adjustments. I think I will switch to zero-based once the summer rolls around and my situation changes yet again.

3 comments:

  1. I've always done zero based budgeting. I end each month with zilch and start anew for the next month. I know how much each bill is within a few dollars, sock away my savings and live on what's left. Occasionally of course there is the unexpected or a larger grocery or gas bill than usual and adjustments need to be made. Depending on the amount it either comes out of my EF or out of my misc. fund. This way just makes the most sense for me.

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  2. As always, I admire you and your discipline. My budget is as follows: get paid, pay bills, throw some in savings, I hope, spend the rest!

    Peace <3
    Jay

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