As John Maxwell says, "A budget is telling your money where to go instead of wondering where it went."
And if that's true, then the best way to reach your financial goals is through your monthly budget. But with so many budgeting methods out there - which one should you pick?
In today's article, we're going to talk about the zero-based budget.
What is a zero-based budget?
The goal of the zero-based budget is to assign every dollar a job. So if you cover all your expenses and still have 0 left over, then you aren't finished budgeting.
You have to assign that 0 a job. Savings, retirement, emergency fund - whatever. Just make sure you place it in a category.
Here's what that looks like:
If you don't, you risk wasting that money on frivolous things.
According to research, people who use zero-based budgets pay off 19% more debt and save 18% more money!
So just by having a plan for your money means you're savvier with it? Yes!
How to Start
1. Calculate your monthly income
Income includes your wages, side hustles, child support, and any other money that comes in. If it's money that hits your bank account, then it's income!
If you have a variable income, I recommend using your lowest paystub from the last 12 months as a guideline.
2. Calculate your monthly expenses
Before the start of the month, write down every expense. Things like rent, groceries, gas, and everything in between should be calculated.
Be sure to prioritize your necessities like housing, transportation, medical, and food first! Besides, these are priority number one, right?
Once the necessities are accounted for, move to the wants. Things like eating out, recreation, and subscription services fall under this category.
3. Calculate your seasonal expenses
Admittedly, this area is easy to forget about. That's why things like car registration fees, HOAs, and insurance can easily sneak up on you!
So think about the whole calendar year - what expenses should you be planning for?
This could even include things like birthdays, anniversaries, and Christmas.
Birthdays and Christmas are set dates that shouldn't surprise you - or your budget.
If you set a little money aside each month, you won't feel overwhelmed when it's time to pay up! And the best part is you won't rely on a credit card to cover the costs.
4. Make sure your income - expenses equals zero
Don't forget, the goal is zero! You should assign every dollar to a category!
It doesn't mean you have zero dollars in your bank by the end of the month - it just means you have zero dollars left in your budget.
This is a great way to see if you're spending more than you make. If you are, you need to find a way to cut costs! After all, small leaks sink big ships.
5. Track your progress
Someone once told me, you cannot measure what you do not track.
It's the only way you'll know if you're on track to meet your financial goals. This is how you'll start winning with money.
This year is all about making progress. If you fall off the wagon, don't beat yourself up. Just pick yourself back up and hop back on.
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Budgeting is a skill that takes time and practice. You CAN do this.
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