Budgeting is an important practice that helps a person in their financial management. A budget is a plan that has been written about how a certain amount of money is to be spent. Similarly, a self imposed budget is a plan that is done by the people who will be spending the money. The self-imposed budget is prepared by the management team of a business. It may also be prepared as a collaborative effort. The staff , their supervisors and the low level managers all contribute to the overall compilation of the budget. The main difference between an ordinary budget and a self imposed budget is the author. An ordinary budget will come from one or more members of the top management. A self imposed budget will be written by people who are more involved with the day to day activities.
Self imposed budgets are prepared through various levels of collaboration. Most of them are adjustments of an ordinary budget that was fronted by top management. The staff members may then oppose this budget and present an alternative working plan. Self imposed budgets do not always arise as a result of opposition. Sometimes they are proposed by members of the top management (Loureiro & Haws, 2015). This may be due to an understanding that there is a disconnect with the financial needs at the grass roots. Company management may then ask for the assistance of staff on the ground to ensure that work goes on smoothly.
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A self imposed budget can also be applied to a person's individual finances. In this circumstances, it can be described as a personal spending plan where an individual imposes certain spending restrictions on themselves. They include standing orders to a savings account, limitations on their involvement in leisure activities and specific limits on recurrent expenditure such as food, clothing and shelter.
The self imposed budget has some advantages within a business. The first is open communication. The participation required during the preparation of the budget encourages consultation and exchanging of views. This helps the staff to feel appreciated as their input is considered. Another advantage is that it creates accountability (Loureiro & Haws, 2015). Awareness of budgetary allocations allows senior management to hold other staff members accountable for their spending. This is also an effective way to demand performance from the staff as their needs have been adressed.
The company also spends less on expenses because the self imposed budget is based on accurate compilations. This also helps the staff to be able to set achievable goals that will be in line with company expectations. Employees of companies that use self imposed budgets, are said to be more motivated than those who don't (Cools et al., 2017). The final advantage is that the self imposed budget contains information about every aspect of spending. This budget often has to be approved by the senior management, so the staff must quantify everything.
Self imposed budgets have some disadvantages as well. The main one is that the consultation process is costly and time wasting. The budget will have to go through back and forth discussions before arriving at a consensus. The process is also subject to abuse as everyone will be seeking their own interest (Loureiro & Haws, 2015). The budget may then favor the majority who are able to convince the top management of their validity. Self imposed budgets may also be unrealistic as the staff may not be aware of the amount of money at their disposal. Finally, this budget may lead to under performance because the staff have been allowed to set their own limits. Self imposed budgets should be used within some framework of control in order to maintain productivity and profit margins.
References
Cools, M., Stouthuysen, K., &Van den Abbeele, A. (2017). Management control for stimulating different types of creativity: The role of budgets. Journal of Management Accounting Research, 29 (3), 1-21.
Loureiro, Y. K., & Haws, K. L. (2015). Positive affect and malleable mental accounting: an investigation of the role of positive affect in flexible expense categorization and spending. Psychology " Marketing, 32 (6), 670-677.
