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.
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.