You might think of a budget as financial handcuffs - meaning you are restricting yourself from spending money on the things you want. This isn't so. Instead, think of it as a means to achieve financial success. Whether you make thousands of dollars a year or even hundreds of thousands of dollars a year, a budget is the first and most important step you can take towards putting your money to work for you. With the advent of powerful and low-cost database systems, activity based budgeting is allowing businesses to reduce costs, better utilize resources, and achieve strategic objectives. The Australian National Audit Office has identified the advantages of activity based budgeting: The Advantages - Output costs are supported by a schedule of costed activities - Opportunities to examine work processes - Identifies non value-adding activities that can be eliminated - Basis of a performance measurement system and direct link between strategic goals and operational realities - Enables cost profiles to be managed - Accurate costing data for operational management - Costs are transparent, understandable and actionable Disadvantages - Activity definition may become too detailed and the model may become too complex and difficult to maintain - Underestimation of the task of collecting activity driver data - Implementation may be considered a financial management fad and there is insufficient commitment from operational managers Activity Based Budgeting Disadvantages - Usually requires buying Activity Based Budgeting software - Requires training of all managers including budgeting department - Requires people to really understand what drives their budget - Eliminates excuse that activity volume changed because it makes visible volume changes - Requires everyone to collect or estimate activity volume By understanding how resources are transformed into products or services, and byfocusing on the cost of activities, activity based budgeting helps an organisation to obtain a greaterunderstanding of how costs behave in their organization and which activities create significant amounts of cost. your groups can be work-related, shopping, utility bills, insurance, car maintenance, meals, or any groupings that actually make sense to you. After you have listed your expenses in a month, and having been able to group them, get the total of it all. Hopefully, it is less than your income in that particular month. To ensure your goals can be achieved, write all the numbers down so you can do a trial and error as many times as necessary. Mistakes are far less costly when made on a piece of paper than with actual money. The process and mechanics of business budgeting vary by organization. Generally, budgeting consists of the following three phases. For car owners: It can help in budgeting money, if you plan your trips around town. Before you leave the house think about the route you will be taking so you can use short cuts, avoid traffic jams and do important things along the way (like pay the bills, etc.). It saves gas and time. Check your user's manual for the car's necessary maintenance. Budgeting Process Challenging Yet Critical For managers in today s business world and ordinary people leading their respective households, it is essential to have a working knowledge of finance. You play a role in your organization s finances, whether you realize it or not. For those who don t have training or a background in finances, you may be at a disadvantage as you sit around the management table without any knowledge in budgeting process.