Resource Allocation--How to Budget like an Accountant

When you are considering the best strategy for resource allocation at home, you can use tools business owners and accountants apply to their finances. Each accountant will have a slightly different way to approach budgeting. Some options will use technology, others will be simpler, some will use cash and others will rely on credit cards. Choose the method that is most in line with your personal financial behaviors.

Envelope System

The envelope system is a bit outdated, but it is a good way to allocate resources if you rely on cash as a primary way to cover expenses. People who pay for most of their expenses with cash often lose track of where the money goes. There is no record at the end of the month other than receipts, which few succeed in filing correctly. To use the envelope system, start with an envelope for each primary expense that you have. For example, you can have envelopes for groceries, bills, gas and other needs. You can have envelopes for luxury expenses as well. Divide your paycheck into these envelopes each month or week. When you make a purchase in one of these categories, use cash from its equivalent envelope and replace the cash with a receipt. At the end of the month, check to see if you allocated incorrectly or overspent in any areas.

Charting System

The charting system has mostly been replaced by computer software, but it is a basic way to track expenses over time. A chart is created with categories of necessary and luxury expenses. To begin, you will fill in items like your weekly pay, weekly rent obligation and other necessary budgeting. You will determine how much can be spent on luxuries once these common items are covered. Each month, you track your expenses on the chart to see if you are sticking to the budget. This can be mostly automated today through computer software.

Online Budgeting

Online budgeting often provides assistance through automation. Instead of your having to input every figure by hand, your online banking system can help you by tracking expenses as you see fit. Not all banks offer this option, but many have sophisticated systems that help you automate your expense tracking. Ask your banker or consultant about possible mechanisms for automating a budget through their system. Many will even have direct deposit options for paying bills and saving toward a larger expense.

Zero Sum Budgeting

Zero summing can mean two different things. It can be a system of starting from scratch each financial period to set a budget for a given item. This can be helpful if your financial abilities or priorities change during a period of time. In another scenario, zero summing can be allocating resources so no money is left over at the end of the month. In this option, remember to account for money toward savings or retirement in the allocation. When you zero sum, then, you will not be spending all your cash. Instead, you will be allocating appropriately to meet your long-term financial goals.

blog comments powered by Disqus