Rock Your Debt

Budgets are not fail-proof approaches to managing your money. At the end of the day it requires effort on your part to make it work. I know that my wife and I have struggled in the past to keep and stick to a workable budget. While traditional budgets are effective for some, most people still find themselves spending money on whatever they want rather than depositing their extra money in their savings account.

Benefits of creating a zero-based budgeting plan

Zero-based budgets are an effective way to allocate your resources based on your own individual needs. Understand how they differ from traditional budgeting plans and how to create your zero based budget so you can take control over every dollar you spend.

What is Zero Based Budgeting?

Zero based budgeting involves documenting and assigning every dollar of your monthly income. The concept forces you to assign all of your money to either expenses or savings until your total income minus your expenses equals zero. The primary goal is to spend your money on paper before you actually spend it. If you end up earning more during the month, you can redirect money to your savings instead of spending carelessly.

Setting Up Your Zero-Based Budget

The first step to creating your zero-based budget is preparation. You will need to get out all of your statements, pay stubs, recurring bills, and records of other forms of income to set up your monthly budget. If you use checks to pay your bills, your check register will quickly become your best friend.

Once you gather all of your records, start by writing down all of your sources on income for the month. This can include employee income, income from rental investments, alimony, child support, or anything else that comes in regularly.

After you calculate the total amount coming in, you will need to write down a list of all of your regular expenses. Expenses include everything from insurance payments and your mortgage to clothing and entertainment. If a special occasion is coming up like a birthday or anniversary, make sure to include this in your list.

Once you have created your lists you will need to identify your expenses as fixed or variable. After the expenses are categorized, allocate funds from your income for fixed expenses first. Once you have allocated the fixed expenses, move onto allocating funds for variable expenses. Calculate the difference between your expenses and your income. If you have money left over, the purpose of zero-based budgeting is adjusting expenses until your income equals your expenses.

One of the primary benefits of creating a zero-based budget is learning how to save without spending money frivolously. You may be able to identify areas that are of less importance that you can even do without and eliminate from your budget. If you have a positive difference between your budget and your income you can use the extra money to pay down debts, save for retirement, create a vacation fund, or save for large purchases.

Creating a realistic budget and then sticking to it does require some work and effort. What I have found is that it actually reduces my stress when I know exactly where my money is going while at the same time allowing me to cover my expenses, pay down debt, save and also to spend money on things that are important to me.

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