Q:

What are the uses of a static budget?

A:

Quick Answer

A static budget is used to help control finances by calculating all fixed expenses and providing a spending limit on variable expenses based on this calculation. It can be used to prioritize spending and live within one's means.

Continue Reading

Full Answer

Using a static budget can help identify which expenses are necessary costs and which are simply desired. Calculating and paying fixed expenses first ensures that all bills get paid before money runs out. The money that is left over can be used for variable expenses. This type of budget can especially be useful for those dealing with debt or those who typically tend to spend more than they make.

Spending limits are set using a static budget. While it is easy to calculate the fixed costs such as mortgage, loan, cell phone and cable expenses, it can be more difficult to estimate the cost of items such as groceries and gas. A monthly limit is set each month or week, depending on how the budget is set up, and the goal is to not exceed that limit.

Static budgeting does not account for unpredictable expenses such as appliance replacements, car repairs or unexpected medical expenses. These types of expenses can cause spending beyond the set goal.

Learn more about Accounting

Related Questions

Explore