In today’s fast-paced world, it’s never been easier to embark on an adventure. Most of our roads are mapped, GPS systems update us to the quickest route, and multiple stops allow us to pickup extra fuel as needed. Using these modern conveniences make it possible to get to where you want to go in a timeline that’s convenient. A zero-based budget allows you to do the same thing, but with your finances. It gives you a plan and the tools necessary to achieve it. As a Dave Ramsey Endorsed Local Provider, we completely support the idea of a zero-based budget. However, you may be reading this and wondering what one is and how it can help you.
The overall concept of a zero-based budget is simple. You take your income and subtract all the things that you spend money on so that it equals zero. For example, if you earn $3500 a month, every thing that you spend money on, give to, or invest in should equal out to $3500. That way you’re telling your money where to go instead of wondering where it went.
Constructing a basic zero-based budget as simple as 1-2-3.
- List every source of income for the month.
This will include paychecks, small-business income, side jobs, residual income, child support and so on. Any and all money that comes into your household bank account should be written down and added up.
2. List every expense you have each month
These would include rent, food, cable, phones and everything in between. Expenses may very from one month to the next which is why it’s important that you make a new spending plan each and every month. Gift budgets may be high in December and low in April. Because of these fluctuations, focus on one month at a time.
3. Subtract your income from your expenses.
In a perfect world, this number will always be zero, but it may take some practice to get it there. Don’t be shocked or concerned if they don’t perfectly balance out at the beginning. That just means you need to do something to bring one of the numbers up, the other down, or maybe both. The important thing to remember is to not spend any money that’s not accounted for. If you budget $100 dollars for eating out and you’ve already spent $95, look on the dollar menu or pack a lunch. DO NOT BREAK YOUR PLAN!
If you’re spending more than you make, you ‘ll need to make some spending cuts in order to make your income and expenditures equal zero. To reduce expenses, try using coupons, buying value brand items and catching the carpool to work. If you want to generate some extra income, consider getting a second job or selling something.
Remember, every dollar must be assigned a place. That means that you need to have zero dollars left after planning your budget. If you fill out every item in your budget and come out $100 ahead (meaning you have nowhere for that $100 to do) you haven’t finished your budget. You must assign that $100 dollars somewhere. A good suggestion is to assign extra dollars to an emergency fund. This way you have a financial “cushion” to fall back on incase you have an unplanned expense, such as a medical emergency.
For more information on a zero-based budget or to learn how our team of certified public accounts can help you, contact our offices in Joplin, MO. We specialize in tax preparation and tax services and are certain that we have the solution you need.