Let me guess…
You are also one of those people who go through the pain of carefully budgeting all their finances at the beginning of the month. But, half way through the month, things take a negative turn and you are stuck asking yourself how you got here.
Frankly speaking, money has a way of mysteriously disappearing. Almost everyone who works has had this feeling at one point or the other. It’s not like there are holes in our pocket so where all the case could be going?
Budgeting is a way of life and a smart one at that. Way better than living things to chance. It doesn’t matter whether you are a multi-billionaire or salary worker. It always helps to keep your daily, weekly and monthly expenditures in check.
And given the right measures, you can really prioritize and spend money on the things that matter the most. Though it might be tempting to splurge on that eye-popping leather jacket you can’t help but eye every day on your way home. The financial backlash might be too much to bear in the long run. However, given proper planning of your budget, you can save enough to buy just about anything you want.
It’s really just a matter of time.
After making bill payments and other necessary expenses you might be left with some amount of money. The question is what do you do with all that cash then? After all, you earned it. Most people spend it differently depending on their nature and taste.
In other to achieve the most of your paycheck and do more with the little you have, nothing can be left to chance. This is the point Zero-based budget comes into play.
As tradition will have it, most budgets include two basic columns. One is the income column and the other the expenditure column. Assuming for a minute you had $10 000 as your income and your expenditure for the month is $75 000. Then you are left with $25 000 without any obligations. Money you can blow. And most people blow.
Using the Zero-based budget, you follow through the saving processes of the traditional budget but just your left over got to be zero. Not $100, $50 but $0. Every penny down to the very last one will be accounted for. End of the budget.
I bet you wondering where the $25 000went, right?
That’s what to the Zero-based budget all is about. Using this budget type you are able to account for things you formally live to chance. Expenses like the gas refill and the latte you just can’t seem to do without. These all need to be accounted for. Then you allocate a huge chunk of the remaining cash as savings.
I know it sounds scary
But let’s not dwell on that. Rather let’s consider the benefits we will derive from this new and improved means of budgeting. For instance, what do you do when you get a flat tire and all that left over cash has been spent to the last dollar? When you run out of groceries? Or when that craving for a Subway just won’t go away. What do you do then?
Now I hope you beginning to see why you have to account for everything.
During the process of building your Zero-based budget, all normal and obligatory expenses have to be listed first. Car insurance, rent, transport fairs, etc. – all these form part of the fixed payment since they come due approximately at the same time every month.
Next, comes the list of long-term items such as annual vehicle inspections, medical checkups or property taxes. Maybe you are planning any big purchases, e.g. a new car. This can also be added to this list and the total costs broken into twelve equal portions.
But you just not there yet.
Now can an equally important section; miscellaneous money. So you allocate a fair amount for expenses you will make on movies, gas, coffee and what have you. I mean, you can even create your own category just in case there is something that can’t fit into any of the above-listed categories.
Finally, an emergency fund is added. This pop up unexpended and the wise person is prepared for anything. Occurrences like repairs, and flat tires will fall under till category.
It’s undeniable, small expenses like fast-food runs, $4 here $5 and before you even know it, you’ve eaten through $500 with really nothing to show for it.
I used to experience it all the time. Until I was taught the Zero-based budget. And it has totally transformed the way I handle my personal finance. Hope it will do you as much good as it did me. Please do ask any questions you may have in the comments section below.
Enjoys writing about the post-industrial revolution, personal finance and changes such as how job postings for employers can facilitate the much-needed change in today’s world.