Zero based budgeting is a system of budgeting where you account for every dollar that you spend. You might think you do that now with a checkbook program like Quicken. However, with a zero based budgeting system, you do it before you start to spend the money.
The Zero Based Budgeting Plan
Since most of your bills probably come on a monthly basis, sit down every month at the beginning of the month, and plan where every dollar will go. Try to plan for everything you can think of. Then budget what you think you will need. Then, during the month, spend only that amount of money.
Every month you will need to sit down and do it again. You may need to make some big adjustments for the first few months, when you find out exactly how much you are spending on certain items. It could be that you finally realize how much you are spending on coffee each morning, and you want to allot it somewhere else. Or you could decide you need to budget more for the coffee, because you want to buy it.
This is no judgment on what you are spending money on, just budget for it. A lot of people just spend their money as things come along, and then wonder where it all went. With zero based budgeting, you are deciding at the beginning of the month where you want to spend it, and sticking to it.
Make sure to plan extra for those areas where fluctuations exist. If you need to replace the tires on the car once a year, put and extra $25 in a tire fund, or put it in a car fund to use for any car emergency. If you want to plan on a vacation, start budgeting for it now.
Maybe put away $100 a month, and go when you have enough to go on the dream vacation. Start thinking ahead and plan these in as you can. If you need those tires right away, put all your money into the tire fund until you get them. Then the next month, put a few dollars in the tire fund, to start planning on the next set, and start the vacation fund.
There will be times when something happens you did not plan for. Plan for an emergency fund. Try to put $1000 dollars in the bank separate from any savings. Use the fund only when real emergencies come up, not just when you need a night out. After you use money from it, start budgeting to replace it.
“I Don’t Have Enough Money To Budget”
Sure you do. Write down your list of items that you need money for. Then write them down in order of importance. Then pay them, starting from the top, as far as you can go. The ones that do not have money assigned just lose out. If you do not have money to pay them, you cannot. If you were right in the ranking of order of importance, there should not be necessities without money assigned. If items at the bottom are cable TV or piano lessons, maybe it is time to give those up for a while.
“I Need More Money!!”
Don’t we all! Now start looking at the list of items. What can you do to lower your expenses? Now it is time to be judgmental. If you are buying that coffee every morning, and cannot pay the water bill, you will need to ditch the coffee. However, if it is coffee or those piano lessons, decide on which is more important to you, and then go with it, knowing that you did so before hand. This way, when you complain at the end of the month about not having any money, you know you spent it where you wanted it to go.
Try to lower costs where possible. Insurance is a place to start. Shop around and try to get your premiums lowered. That will give you more money for other things. Food costs are a place that most families can lower costs. Eat out less, and eat better at home for less. Eat less of the expensive snacks at home. Again, if you have the money and want to eat out, feel free. However, if you need to lower costs, look at the food bill.
“I Can’t Pay My Credit Cards This Way”
If you cannot pay the credit cards now, you probably could not before, and were just juggling bills, and everything was getting behind. Now you are deciding that you are going to pay the rent or mortgage every month, and let the credit cards go. Before you were probably trying to keep everyone happy and not keeping anyone happy. Ask the credit card companies if you can get in any of the special payment plans they offer for those in financial trouble. This make work if you enough money for lower payments, but not complete payments. Or else, just wait until you do. You need a place to live!! You do not need the Visa card.
“I am getting along just fine”
Sure, you are paying all the bills every month with no problem, but you are not tracking it. You need a zero based budgeting system also. You still want to know where your money is going. Will you still be happy when you realize you have spent $10 on lunch every day for the last three years and that $6000 could have bought you a trip to Europe, or a retirement savings? Again, if you want to spend $10 on lunch, that is fine. With zero based budgeting, we are just making the decisions intentionally, before we spend, so we do not look back and say “Would’ve, could’ve, should’ve.”
To state it just one more time, no matter what the state of your budget, or how much or how little you have, with zero based budgeting you are just trying to budget to make sure your money goes where you want it to go.