Analyze Your Budget According to Your Activities

The Activity-Based Budget

A different way to organize your budget exists:  the Activity-Based Budget. Rather than using the traditional budget items or headings, this method consists in evaluating the cost associated with each of your activities.

Evaluate Real Costs

In addition to considering direct costs of an activity, the activity-based budget also takes into account indirect expenses, i.e. the cost of various resources necessary to practice the activity. That way, this method enables us to better evaluate the real costs of an activity.

Example

Let’s consider an entertaining activity: « dining out ». To analyze this activity, we would consider the restaurant addition (direct cost) but also the babysitter’s fee and some travel costs to get to the restaurant (indirect cost).

Let’s suppose dining out 2 times a month, an average cost for each meal of $50, sitter’s fee of $20 per evening and an average of 25 km for each outing (costing 40¢ per kilometre).

The real annual cost of this activity is not $1200 ($50 per meal x 2 times a month x 12 months).

Rather, It’s more like $80 for each evening ($50 + $20 + 25x$0.40) or $1920 a year.

Analyze Better and Make Clearer Choices

This technique enables you to evaluate the impact of your activities on your spending and to truly analyze all your options. In the previous example, you could decide to dine out only once a month or every 3 weeks and quickly evaluate the effect of that decision on your budget.

Another example could be to decide to sell your second car because you use it only a couple times a year and after a real cost analysis, you realize it’s rather expensive. Renting a car a few times could even be more cost-effective.

So, the Activity-Based Budget emphasizes the alternatives and facilitates evaluation of real costs and their impact on you spending and budget.

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