Matrix budgeting is a model developed to evaluate where your additional money goes or should go, and it helps to manage personal finances. Also called as a budget matrix, it's a plan or a blueprint in chart or table form designed to allocate financial resources in the ranking order of your goals and priorities. After you allocate money for essential items such as monthly bills, using the budget matrix can help reduce overall spending and misspending on non-essential items and ultimately save money.
The complexity of the matrix budgeting model's table of information depends on the expense list's diversity. Children managing their monthly allowances may create the table on a piece of a paper, and businesses typically use advanced software for their matrices. Spreadsheet software is useful to design a family or household matrix budgeting model. A spreadsheet chart looks neat and makes calculating and upgrading simple. The idea is to design a visual and simple-to-refer picture of where money goes or should go.
The design for the model's table or chart begins with row and column headings. Categories for family or individual expenses -- all items deemed as necessary but non-essential expenses -- are arranged in rows in the ranking order of priority, and item descriptions and expense costs are arranged as column headings. One method is to list family members as headings, and expenses that may not fall into an individual category may occupy other miscellaneous headings. For instance, "new shoes" or "field trip" may be listed under the row heading "John," and items such as "blender" and "rice cooker" can go under the heading "kitchen." The goal is to compile a standard template of rows and column headings that accommodate for all typical non-essential family expenses.
The household matrix budgeting table often is prepared from month to month. While the template remains more or less the same, the details and subcategories of expenses may change from one month to another month; the category "John" may include "news shoes" one month and "tennis racket" the next month. Matrix budgeting involves a decision-making process that sets limits on monthly expenses you are willing to incur and manipulates money allocated to each expense category. For instance, the money allocated may allow you to buy a blender or a rice cooker but not both items. If both of those items rank high on the list, then the expense allocation must be taken from the chart's other categories.
After expenses are maneuvered and budget allocations for each category and subcategory of items are compiled and totaled, the matrix budgeting process is complete and the table or chart is ready for used as a road map to navigate monthly non-essential expenses. The model often requires multiple adjustments and iterations before and after finalizing the chart. Therefore, the budgeting model should be flexible to fit unexpected expenses.without breaching the forecast overall expenses budget.
Kiran Bharthapudi has more than seven years of experience in print, broadcast and new media journalism. He has contributed to several major news agencies, including United Nations radio, BBC online and "Consumer Reports" magazine. His articles specialize in the areas of business, technology and new media. He has a Ph.D. in mass communications.