Do you know where all your money is going? Are you broke before your next paycheck? Are you looking for a way to have control over your finances?
Zero-Based Budgeting
Zero-based budgeting is a spending plan that helps you account for all your money. Your income minus your expenditure should be zero. The approach will help you always know where all your money is going.
A Practical Example
Tina earns 10,000 per month. Tina allocates 2,500 towards her rent, leaving her with 7,500. She budgets 500 for utilities. The food budget line is 2,000.
Tina remains with 5,000. She allocates 1,500 for gas, leaving her with 3,500. Clothing and entertainment are at 500. The balance is at 3,000.
Tina chooses to allocate the remaining amount to investments. The balance of her budget at this stage is at zero.
Tips and Tricks
- The success of zero-based budgeting lies in implementation. Choose an app or pen and paper to feed how you spend the money. Find a rhythm of follow-up that works for you.
- Be flexible in your approach to zero-based budgeting. Many people take up to 6 months to get used to this spending plan. The needs within varying payment cycles may also differ.
- Consider spending guidelines for your budget to aid you in achieving your financial goals. Frameworks include limiting your rent or mortgage to a maximum of one-quarter of your income after tax.
- Handle basics, for example, food, transport, and shelter first.
- Aim to come up with an emergency fund for rainy days. Fill up these savings any time you utilize them as soon as possible.
Additional Tips
Try to break savings for large purchase items into smaller chunks over several paychecks. Aim to buy depreciating assets, for example, cars in cash. Use the zero-based budgeting system to put up an emergency fund.