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Tuesday, November 18, 2014

121. Zero Based Budgetting

Are you on a budget? Have you heard of zero-based budgeting? Why not try a zero-based budget today?

I've found the concept of a zero-based budget to be pretty simple and very useful. The basic concept is: income minus expenses equals zero.

Or... I'm more visual so here's how it looks:

Income - Expenses = $0

That way you know where every dollar is going and every dollar is accounted for. Not knowing where money is going hurts our financial situation, causes stress, and often means we end up with a shortage at the end of the month.

So… Here’s what I’d do:

1. Take a sheet of paper and list all your income for the month. Paychecks, side jobs, child support, etc. Then add it all up.

2. On the other side of the page write down every expense you have each month. This can include rent/mortgage, food, gas, car insurance, internet, cable/satellite, kids school expenses, and everything in between. Every month your expenses will vary so you need to adjust this on a monthly (or weekly/bi-weekly basis).

3. If the income doesn’t match the expenses don’t freak out. This just means you need to do something to adjust one of the numbers down, up, or possibly both.

4. If you spend more than you make you’ll need to make some cuts to help make your income match your expenses.

5. You should have $0 left over. Meaning if you end up with $50 ahead you haven’t finished your budget. Put the $50 towards a category be it your savings (emergency fund), your debt, another expense category, or something else.

6. Remember you are the boss of the budget. It doesn’t control you. You control the budget and adjust it as needed. It is a guide to help you win with money. :)


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