Best Budgeting Apps

As a college accounting professor and a professional bookkeeper, I recognize the immense value that budgeting apps bring to personal financial management.

1. Should more people start using a budgeting app?

I wholeheartedly agree with the finding that nearly 3 in 4 Americans believe more people should embrace budgeting apps. In my experience, many individuals lack control over their financial situation, leading to stress and insecurity. Budgeting apps serve as effective tools to instill discipline, encouraging users to assess their spending patterns, set financial goals, and track their progress. With technology becoming an integral part of our daily lives, using these apps can lead to better financial literacy and improved decision-making.

2. Advice for finding a good budgeting app:

When selecting a budgeting app, I advise clients and students to consider the following:

• User Experience: A good app should have an intuitive and straightforward interface. If it’s too complex, it may discourage regular use.

• Functionality: Determine what features are essential for your needs. For example, consider whether you need expense categorization, bill reminders, or the ability to track goals.

• Compatibility: Ensure the app seamlessly integrates with your bank accounts and financial institutions for automatic updates. This saves time and minimizes errors in tracking.

• Security: Look for apps that prioritize data protection and security features. Personal financial data is sensitive, and it's vital to choose an app that safeguards your information.

As a professional bookkeeper, I often share these insights with my clients. Choosing the right app can empower individuals to take charge of their budget and make informed financial decisions.

3. Biggest mistakes people make with budgeting apps:

Many users fall into common pitfalls when using budgeting apps. Here are a few of the most prevalent mistakes:

• Inconsistent Tracking: One of the biggest errors is not consistently logging expenses. An app is only effective if you regularly input data. Set aside time each week to review and input your transactions.

• Neglecting Goals: Without a clear financial goal, users may lack motivation. Budgeting should be tied to personal financial objectives, whether it's saving for a vacation, paying off debt, or building an emergency fund.

• Automation Over Reliance: While it’s beneficial to have data sync automatically, relying solely on automation can lead to overlooking expenses and not engaging in the budgeting process fully.

4. What is the best budget app?

While there isn't a one-size-fits-all answer, I often recommend apps like YNAB (You Need A Budget) or EveryDollar for their comprehensive functionalities and user-friendly interface. YNAB encourages proactive budgeting, teaching users to assign every dollar a job, while Mint provides an excellent overview of financial health. It's essential to choose an app that aligns with your personal financial habits and preferences.

5. Common traits of the best budgeting apps:

The most effective budgeting apps share several common characteristics:

• Intuitive Design: They should be easy to navigate, helping users effortlessly track their financial activities.

• Customization Options: Users should be able to tailor their categories and budgets to reflect their unique spending habits.

• Real-time Updates: The best apps provide real-time tracking of expenses and income, enabling users to make timely financial decisions.

• Educational Resources: Good budgeting apps not only provide tracking tools but also offer educational content to promote financial literacy.

6. Best way to use a budget app:

To maximize the benefits of a budgeting app, establish a routine. Here are some best practices:

• Set Clear Goals: Define what you want to achieve with your budgeting efforts. Whether it's saving for a big purchase or managing day-to-day expenses, having clear objectives is crucial.

• Regular Reviews: Dedicate time weekly to review your budget and spending patterns. This will help you stay on track and adjust your budget as needed.

• Engagement: Engage actively with your app. Don't just input data; use the insights it provides to make informed financial decisions.

• Seek Professional Help: If you encounter challenges in managing your finances, consider consulting a professional bookkeeper, like those at TheAccountingDr.com. A professional can provide personalized guidance and help you make the most of your available tools.

In conclusion, budgeting apps are invaluable resources for anyone looking to enhance their financial management. By choosing the right app, avoiding common mistakes, and actively engaging with the features, individuals can take significant strides toward achieving their financial goals.

Zero-Based Budgeting

Who should try zero-based budgeting?

Zero-Based Budgeting (ZBB) is most suitable for organizations that are looking for a fundamental re-evaluation of their spending and operations. It's not just a tweak; it's a deep dive. Here are some scenarios where ZBB can be particularly beneficial:

• Organizations Seeking Significant Cost Efficiencies: If a company is struggling with rising costs, declining profitability, or needs to find ways to free up capital for strategic investments, ZBB forces a critical examination of every expenditure. Instead of simply adjusting the previous year's budget, ZBB requires every manager to justify every dollar requested for their department. This can uncover inefficiencies and redundancies that incremental budgeting might overlook (Allen & Clifton, 2023; Coyte et al., 2022).
• Companies Undergoing Major Strategic Shifts or Restructuring: When an organization is changing its strategic direction, entering new markets, or undergoing a significant restructuring, ZBB provides a framework to align the budget with the new strategic priorities. It ensures that resources are allocated to the activities that directly support the new vision, rather than continuing to fund legacy activities that may no longer be relevant (Timmermans et al., 2019).
• Environments Requiring High Accountability and Transparency: ZBB fosters a culture of accountability because each budget item must be justified based on its contribution to organizational goals. This transparency can be invaluable in public sector organizations or non-profits where demonstrating responsible use of funds is paramount (Beredugo et al., 2019; Moore, 1980).
• Businesses Aiming for Enhanced Resource Optimization: For companies that want to ensure their resources are being used in the most effective way possible, ZBB helps prioritize spending based on value and strategic alignment. It's about asking "Do we need this, and how much value does it bring?" rather than "How much did we spend last year?" (Pyhrr, 1970).
• Situations with Limited or Declining Revenue: When revenue streams are uncertain or shrinking, ZBB is crucial for making tough decisions about resource allocation and ensuring that essential functions are prioritized. It moves beyond simply cutting a percentage from each department and instead requires a thorough review of what is truly necessary.

Essentially, any organization that is ready to commit to a rigorous, data-driven, and potentially time-consuming budgeting process can benefit from ZBB. It's particularly powerful when there's a clear need to justify the existence and cost of every activity.

Who is most likely to struggle with zero-based budgeting?

While ZBB offers significant advantages, it's not a one-size-fits-all solution, and certain organizational characteristics or cultures can lead to considerable struggles:

• Organizations with a Strong Culture of Resistance to Change: ZBB represents a significant departure from traditional budgeting methods. If an organization has a culture where employees and managers are resistant to new processes, fear accountability, or prefer the status quo, ZBB implementation can face strong headwinds (Broughel, 2023; ResearchGate PDF). This resistance can manifest as passive non-compliance or active opposition.
• Companies Lacking Robust Data Management and Analytical Capabilities: ZBB relies heavily on detailed data to justify every expense. Organizations that have poor data integrity, lack sophisticated financial analysis tools, or whose finance teams don't have the analytical skills to dissect spending drivers will struggle immensely. For example, translating traditional accounting expense categories (like airfare, hotel) into business-driven justifications (like "travel for client acquisition meetings") requires specific analytical prowess (FP&A Trends article). Without this, the process becomes a "paperwork nightmare" (Financial Models Lab).
• Businesses with a Highly Centralized and Opaque Decision-Making Process: ZBB requires transparency and buy-in from across the organization. If decision-making is highly centralized, with limited input from departmental managers, or if spending decisions are often made behind closed doors based on political influence rather than strategic merit, ZBB will likely fail. It demands that every budget owner be prepared to publicly defend their spending (Financial Models Lab).
• Organizations with Limited Resources (Time, Personnel, Budget for Implementation): ZBB is notoriously time-intensive. It requires significant effort from budget managers and finance teams to develop, review, and justify each budget request. Organizations that are already stretched thin or underestimate the resources required for implementation (often by as much as 45%, according to some analyses) will find the process overwhelming (Financial Models Lab).
• Companies Where Leadership Commitment is Superficial: ZBB requires unwavering support from top leadership. If leaders treat ZBB as a one-off exercise or fail to champion its principles consistently, it will lose momentum. Leaders need to actively participate, enforce accountability, and integrate ZBB metrics into performance evaluations (Financial Models Lab).

In essence, organizations that are not prepared for a significant cultural and operational shift, lack the necessary analytical infrastructure, or whose leadership isn't fully committed are likely to find ZBB a challenging and frustrating endeavor.

Do you have any tips for getting the best results from zero-based budgeting?

To harness the power of ZBB and mitigate its challenges, careful planning and execution are key. Here are some tips for success:

1. Secure and Demonstrate Strong Leadership Commitment: This is non-negotiable. Leaders must not only endorse ZBB but actively champion it, communicate its importance, and hold individuals accountable for its outcomes. This includes tying executive compensation to ZBB metrics and conducting regular reviews (Financial Models Lab).
2. Invest in Clear Communication and Comprehensive Training: Ensure everyone involved understands why ZBB is being implemented, how it works, and what their role is. Many employees may initially see it as a cost-cutting measure. Training should focus on developing the necessary analytical skills for justifying expenses and understanding the business drivers behind them (Ringy.com).
3. Prioritize Data Integrity and Analytical Tools: Before embarking on ZBB, ensure your financial data is accurate and accessible. Invest in systems and training that allow for detailed analysis of spending drivers. The finance team needs to be adept at translating accounting data into business justifications (FP&A Trends article).
4. Start Small or Pilot the Program: For larger organizations, consider piloting ZBB in a specific department or for a particular cost category. This allows the organization to learn, adapt, and refine the process before a full-scale rollout, minimizing disruption and building confidence (Callaghan et al., 2014).
5. Focus on "Decision Packages" and Justification: ZBB is built around "decision packages," which are detailed proposals for specific activities or functions. Each package should clearly define its purpose, cost, benefits, and alternative options. Rigorous review and ranking of these packages are crucial for effective resource allocation (Austin & Cheek, 1979; Versel, 1978).
6. Integrate ZBB with Strategic Planning: Ensure that the budgeting process is tightly linked to the organization's overall strategic objectives. Budget requests should directly demonstrate how they contribute to achieving these goals. This elevates ZBB from a financial exercise to a strategic planning tool (ResearchGate PDF).
7. Establish Clear Accountability and Performance Metrics: ZBB works best when there's a clear line of sight between spending, performance, and outcomes. Department managers should be held accountable for the results they projected when justifying their budgets. Regularly review variances and use this feedback to inform future budgeting cycles (Financial Models Lab).
8. Be Patient and Persistent: ZBB is a process, not an event. It takes time to embed within an organization's culture and processes. There will be challenges and setbacks, but persistence, continuous improvement, and a willingness to adapt are key to long-term success (Allen & Clifton, 2023).

By following these tips, organizations can move beyond the potential pitfalls of ZBB and leverage it as a powerful mechanism for achieving financial discipline, strategic alignment, and optimized resource allocation.

References:

Allen, R., & Clifton, R. (2023). From zero-base budgeting to spending review–achievements and challenges. Development Southern Africa, 41(5), 1-17.

Agnihotri, A., & Bhattacharya, S. (2021). Growth Strategic Options of Kraft Heinz. SAGE Publications: SAGE Business Cases Originals.

Austin, L. A., & Cheek, L. M. (1979). Zero-base budgeting: A decision package manual. AMACOM.

Beredugo, S. B., Igbo, I. E., & Okon, E. E. (2019). Comparative analysis of zero-based budgeting and incremental budgeting techniques of government performance in Nigeria. International Journal of Research and Innovation in Social Science, 3(6), 238-243.

Broughel, J. (2023). Extending Zero-Based Budgeting To Zero-Based Regulation. New Perspectives On State Government Fiscal Challenges, 193.

Callaghan, S., Hawke, K., & Mignerey, C. (2014). Five myths (and realities) about zero-based budgeting. McKinsey & Company, 2, 1-5. 

Coyte, R., Messner, M., & Zhou, S. (2022). The revival of zero‐based budgeting: drivers and consequences of firm‐level adoptions. Accounting & Finance, 62(3), 3147-3188.

Financial Models Lab. (n.d.). The 5 Biggest Challenges of Implementing Zero-Based Budgeting. 

FP&A Trends. (n.d.). How to Implement a Successful Zero-Based Budgeting Process. 

Moore, P. (1980). Zero-base budgeting in American cities. Public Administration Review, 40(3), 253-258.

Pyhrr, P. A. (1970). Zero-base budgeting. Harvard Business Review, 48(6), 111–121.

ResearchGate. (n.d.). (PDF) Implementation of zero-based budgeting in corporate financial planning to improve operational cost efficiency.

Ringy.com. (n.d.). Zero-Based Budgeting Explained: Benefits, Drawbacks & Examples.

Timmermans, K., Roark, C., & Abdalla, R. (2019). The Big Zero: The Transformation Of Zbb Into A Force For Growth, Innovation And Competitive Advantage. Penguin UK.

Versel, M. J. (1978). Zero-base budgeting: Setting priorities through the ranking process. Public Administration Review, 38(6), 524-527.

Budgeting

Responsibility Accounting: Master Budget

This is part one in our responsibility accounting series and we will be discussing types of budgets. So we are going to talk about the master budget here. Master budget is the set of budget financial statements and the supporting schedules for organization and includes three types of budgets. The first one is called the operating budget, the second is the capital expenditures budget and the third is financial budgets. We are going to look at each one of these and what makes up each of these types.

The first one being the operating budget-- the first part of the operating budget, which is also the cornerstone of the master budget, is the sales budget. The sales budget will determine what our sales are going to be; this will forecast what we anticipate our sales to be. It’s where an older company would probably forecast this by looking at past sale levels and in projecting hopefully our sales to increase in coming periods and budget accordingly. However, a new company we may have to do industry research to see where other companies in our industry are so that we have an idea for sales budget needs to be now. Once we determine what we are planning to sell, we need to create our inventory budget and determine how much inventory we plan to have left in our ending inventory. With these numbers, we are able to determine, “Well, if we’re going to sell this much and we want to have a certain amount at the end of the period—how much then do we have to purchase?” So if we have our sales budget and our ending inventory (our sales would be directly related to how much we plan to sell—CGS) then we can determine how much inventory we need to purchase. Then we want to project our operating expenses budget; just like it sounds, we want to determine or project what our operating expenses for our business is going to be. Then we can create our budgeted income statement. Part of this master budget is of course a budget for our budget financial statements, this is the first one: budgeted income statement. So that makes up the first set of budgets, called the operating budget.

The second part of the master budget is the capital expenditures budget, which is really just one part on its own. The capital expenditures budget is what we plan to invest in; capital expenditures are depreciable assets like buildings or equipment. So if you plan to invest in the future and if so — in what way and how much and that will all be part of our capital expenditures budget.

The last set that makes up the master budget is the financial budget. The first part of the financial budget is the cash budget. Cash going in, cash going out—that would be part of this budget. Then with the budgeted income statement and the cash budget, we are able to create our budgeted balance sheet. The last part would be the budgeted statement of cash flows. Note here we have our budgeted income statement, our budgeted balance sheet, and our budgeted statement of cash flows that all make up our master budget. All of these parts work together to make that master budget.

Responsibility Accounting: Sales Budget

This is part two in our responsibility accounting series where we are going to be discussing sales budget. So recall in our prior discussion on the master budget, we discussed that sales budget was the first budget you complete in the master budget process. Because sales budget is the cornerstone of that master budget, it affects so many levels of the master budget-- one being expenses and many other levels. Here is an example of a sales budget, what I want to point out is remember this here is a budget—it is something we anticipate or project will happen. In this case, it’s April through July, so here we have our April, May, June, July, four months. We have our sales types, and notice we have two ways we can make a sale; we have cash and we have credit. You want to keep them separate because think about when they are collected. Cash sales are collected when the sale is made, credit sales can be collected one-two-three or more months after the sale. When we get into our future budgets, for example our cash budget, we would need to know what percent of our sales from credit we anticipate collecting those sales. We typically collect 10% of credit sales the following month and 30% the second month etc. We would need to make those projections when we make our cash budget.

Let’s look at an example:

Grippers expects to sell 4,000 pairs of shoes for $185 each in January, and 3,500 pairs of shoes for $220 each in February. All sales are cash only. Prepare the Sales Budget for January and February.

The first thing I would do is set up my little grid and then set up my months, January and February, and set up my total column. The first thing I need to do is place my sales price per pair. My sales price per pair in January was $185, and in February it was $220. Next thing I need to do is multiply those numbers times the number of pairs I anticipate selling each month. In January I anticipate selling 4000 pairs, and in February I anticipate selling 3500 pairs. For total sales in January $740,000 and in February $770,000. For the entire period, total sales would be $1,510,000. That’s a very simple sales budget, in this particular case all sales were for cash so we didn’t really have to separate out cash and credit sales in this particular instance. If you did need to do that, you can simply take the sales and say 60% is cash and 40% is credit, you would separate those out for each month.

Let’s give you a chance to look at one:

Mountaineer sells its rock-climbing shoes worldwide. Mountaineers expects to sell 4,000 pairs of shoes for $165 each in January, and 2,000 pairs of shoes for $220 each in February. All sales are cash only. Prepare the Sales Budget for January and February.

Set up your grid and you set up your months, January and February, and your total column. Sales price per pair is $165 in January and $220 in February. The next line is the number of pairs you anticipate selling, 4000 in $440,000. Total sales for the period of $1,100,000. 

Responsibility Accounting: Inventory, Purchases, Cost of Goods Sold budget

This is the third part in our responsibility accounting series. We’re going to be looking at inventory, purchases, and cost-of-goods-sold budget. So in our discussion we’re going to combine these budgets into one so instead of having a separate inventories, purchases, and CGS budgets, we’re going to have one “inventories, purchases, and CGS budgets”. So in demonstrating this, I’m going to use our good old-fashioned T accounts. So because most of us are familiar with that and we know where things go, and we can see this nice pretty picture as opposed to memorizing this form down here at the bottom. So we’re just going to kind of throw in some things on this T account that we already know. For example, we know the beginning inventory and assets carries a debit balance. Beginning inventory we would know because that would come from the prior period’s ending inventory. We would also be able to figure out our cost of goods sold for the next period because that would be a direct result of our sales budget we created in the prior lecture.  And of course we would decide what we want our ending inventory to be, so how much inventory so would we want to have leftover at the end of the period? So once we have these three numbers: Beginning is a given number, and of course cost of goods sold at the end would be estimated, we can then calculate what purchases would be. So remember, beginning plus purchases has to cover the cost of goods sold plus the ending because CGS plus ending is that total inventory that’s required that must be covered again by beginning plus purchases. So hopefully that was a good visual for you of what we’re going to be looking at in this section.  So look at the form of the bottom, you can see it’s basically what we just discussed. We start with our CGS, we’re going to add our desired ending inventory, so that’s going to give us our total inventory required. If you subtract out your beginning inventory, which comes from last period’s ending, that’s going to give you the amount that you need to purchase to make that happen.  So one thing to point out before we move on is to remember that ending from the prior period is going to be the next period beginning inventory…so that’s where that comes from.