Incremental Budgeting Method for Modifying your Budget |
By Wendy Clay on November 15, 2011
/debt-problems-(1).jpg.aspx) Incremental budgeting is a traditional method for modifying one’s budget to accommodate for slight changes. The process involves taking the current working budget and adding or subtracting a set percentage to or from each category within the budget. This can be a great way to update one’s budget because of its simplicity and stability, as it does not require a complete rewrite of the budget and thus there are no sudden, drastic changes.
Along with the advantages of simplicity and stability that incremental budgeting offers, there are some drawbacks. First, since it utilizes an existing budget as the framework for the new budget, it does not easily allow for drastic changes such as the addition of new expense categories or massive decreases/increases in income. Incremental budgeting can also stimulate overspending in some areas and underfunding in others if the previous budget is not analyzed for efficiency before being modified or if the importance of certain categories has shifted (i.e. if you have just purchased a car you will need to allocate more money to the transportation/debt category to pay for it and cut funding in one or more other areas). Finally, this lack of analysis also fails to promote modifications to enhance savings.
So with this in mind, will incremental budgeting work to modify your budget? It depends. If you have not encountered massive cutbacks in your monthly income, have not accumulated unexpected debt from things such as medical bills, or do not foresee the addition of payments for things such as education or new vehicles, then incremental budgeting can work for you. If you need to work major expenses into your budget, or simply want to tweak it to attempt to save more money, you should explore other methods of budget modification, such as zero based budgeting, that call for a more extensive analysis of your previous budget to ensure the maximum efficiency of your new budget.
Sources:
Budgeting: Incremental Budget. College Accounting Coach, 13 Nov. 2006. Web. 15 Oct. 2011
<http://basiccollegeaccounting.com/budgeting-incremental-budget/>.
What Is Incremental Budgeting? AccountingTools, 11 Dec. 2010. Web. 12 Oct. 2011
<http://www.accountingtools.com/questions-and-answers/what-is-incremental-budgeting.html>. |
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