Budgeting: Your Guide to a Zero-Based Budget

Take that step toward financial freedom. Here is a quick look at some simple steps on how to put together your zero-based budget.

I can already sense the hatred that you have toward the word Budget. When most of us think of a budget, we think coupons, bland meals, and not buying what you want. The main goal of a budget is to help you achieve financial freedom so that the stress of money will no longer exist.

A budget is like a map, it helps you get to where you want to be. Your budget tells your money where to go instead of you wondering where it went. It will be very difficult at first then even more difficult in those times you’re tempted to spend more than you should but will get easier the more you do it.

What we’re wanting to do here with your budget is know how much money is coming in, and where it’s going out. By doing that, you will be able to better assess your financial situation and make appropriate changes. The most popular and probably the best budget system is the Zero-Based Budget. The Zero-Based Budget is when all your income minus all your expenses equals zero.

Here is a simple 5-step process you can use to create a Zero-Based Budget:

First: List your revenue, or income.

How much money is coming in and where it’s coming from. You will use your estimated monthly allowance to determine how much should be spent on expenses and how much should be saved.

Second: List all of your important expenses

List the things you pretty much can’t live without. Things like mortgage/rent, utilities, groceries, gas, insurance, car payments, phone, medicine etc. Some of these expenses are fixed and some are not, but for the most part, they are essential.

Third: List your goals

Basically, you want to know how much money you’re putting aside for your savings, debt, and other goals (including big purchases such as: new house, new car, new furniture and appliances, etc..)

Fourth: List your other expenses

List your other expenses such as: eating out, gym membership, Netflix, make-up, haircuts, piano lessons, etc. These expenses are a little bit more flexible and not as needed, but still there. I put this one fourth because it should definitely be considered after your important expenses and goals. Saving money for your dream home should be much more important than your taco bell and Netflix.

Fifth: Set a budget for each expense

Determine how much money will go towards each expense and each savings account. If you can, look at how much you’ve spent in each category in past months and track every purchase you make so you can get an accurate number for how much you should set aside for that category. Start from the top and go down to what’s not as important. Assign all your money a place so when you subtract your expenses and goals from your income, it should equal zero. If you happen to have any extra money (lucky you) then increase the amount of money you are setting aside for your savings and goals.

From there, you should focus your efforts on changing what you can/should. After covering the important expenses, saving towards your goals, and paying off any debt you may have, you can spend what’s left over in other expenses.

Final Thoughts

When you first start to make a budget, you’re going to be wrong. Plan for that and make frequent adjustments to better hone into your optimum budget. If you have a partner, communicate, and do your budget together. As difficult as this may be, this is an incredibly important aspect of maintaining a healthy relationship.

Your budget is what you make it. A budget is only restricting if you make it restricting. If your expenses are too high, then you either need to lower your expenses, or increase your income. Since increasing income isn’t as easy as buying something from amazon, you’ll most likely need to simplify your life by eliminating what is not necessary. You will need to make sacrifices, but those sacrifices are definitely worth the financial freedom.

Budgeting is that first and very crucial step towards achieving financial freedom. Start budgeting today and take it one step at a time.

Some other tips for a budget are:

- Allocate a little bit of money for yourself to buy whatever you want.

- Make a “Yearly Expenses” list of things you don’t buy every month such as: clothing, gifts/Christmas, car repairs, dentist, etc. Estimate how much these will cost and divide that by twelve so you know how much you should put aside each month to cover these yearly expenses.

- Look over your budget often (preferably weekly) so that there are no surprises. This also makes it easier to actually do your budget because it will just take 10 min instead of an hour.

- Find a software that can help you automatically track and sort income and expenses. I use Intuit Mint and love it.

What are some things you can do to help you keep with your budget?