Inside: Do you ever wonder where your money went? Find out how zero-based budgeting could help.
Have you ever looked at your bank balance at the beginning of the month and wonder why it’s lower than it was last month? You remember picking up a pizza that one night. And, yeah, you went out with friends for drinks a few other nights and, well, everyone at work eats out at lunch. But, surely, you didn’t spend THAT much, did you?
Where is Your Money Going?
The only way to know where your money goes is to keep track of expenses. And the only way to plan your spending is to make a budget.
Budgets, budgets, budgets. Yes, it can be a boring topic and a pain to deal with, but it’s a necessary evil. A budget is the only way to know where your money is going.
There are different budgeting methods and one is right for you. There is the envelope system, and another one closely related is the zero-sum or zero-based budget. What is the difference?
The Zero-Sum Budget
With the envelope system, you may have extra money at the end of the month but you are still done. In zero-sum budgets, every dollar has a job and so if money is left over at the end of the month, you are not yet done with your budget.
When making this budget, you can set it up by drawing a line down a piece of paper. On the left is your income. On the right you list all expenses and savings.
The basic idea is
Income – (Expenses + Savings) = 0
Next, you allot your money to different categories like fixed bills, everyday expenses and also periodic payments such as insurance or property taxes. If you don’t have an emergency fund built up, put that in as a line item. Worried about holiday spending? Create a monthly line item for that as well and build up a fund. If there is money left at the end of the month, you add it to a savings line item or reducing debt.
Tip: Overestimate variable expenses. Use any overages to help out other categories or use toward savings at the end of month.
You may find with both this and the envelope system, planning spending for the month can be tricky. One way to know what you have or will have is to scrimp and save until you have 1 full month’s income tucked away. You might even use a bonus or tax refund. This way, from that point forward you are budgeting with last month’s income: a known quantity.
It can all be overwhelming. If you check on progress weekly it will all seem easier.