Intro
Can't believe am doing Zero Based Budget and it's May already! It's been about six weeks since I moved in with my family. During this time there's been an unexpected development. They've gotten so bored, they're actually letting me talk about budgeting with them!
This has never happened before, and I'm really excited.So, over the weekend, I created a sample budget to walk them through the process. It was interesting for me, someone who talks about budgeting every week, to see what their initial questions were.
One area that took a lot of time was the concept of "budgeting to zero." Give every dollar a job.Now, for myself, when I was getting started, I'm a rule follower to my core.
So, this guy named Jesse, who wrote a book and started an app, says you're supposed to budget to zero, that's what I was going to do.
But my sister wanted to leave some extra money unassigned in case she forgot to budget for something, or to cover overspending.
I had never had someone ask me why they couldn't leave some dollars without jobs, and I assumed "well, that's not the way" wasn't a great response.
So, I thought we could dive a little
deeper today and talk about the zero-based budget.
Definition of
Zero-Based Budget
A zero-based budget means that you allocate all of your budgeted dollars to different categories. Let's say you have $100.00 to budget. You might put $50 for food, $25 to clothing, $15 to toiletries, and $10 to entertainment.
You now have zero dollars left to
allocate. But if you change your mind and decide you instead want $15 for entertainment,
then you have to pull $5 from one of those other categories.
The Zero-Based Budget
The true magic of a zero-based budget is that it brings clarity. I found this when I was overwhelmed with our finances. Money was coming in and just as quickly leaving, and I felt like I had no control.
I hated that uncertainty, and the money anxiety that came from
looking in my bank account, seeing a number, and wondering:
·
Is there enough in there to cover all my bills?
·
Am I forgetting something?
·
If I'd like to go on vacation next year, how much should I be setting
aside each month?
My budget gave me the answers to all
those questions.
Giving
Every Dollar a Job
Giving every dollar a job means identifying the purpose of each dollar, and that brings clarity. You might be watching and thinking,
"Well this all sounds wonderful, but I'm kind of
like your sister, and I'd like to leave some money unassigned so that I can
easily cover my overspending."
This is what I told her:
The act of having to pull out your budget and move money from one category to cover your overspending is part of the process. It helps you face your changing priorities, and sometimes that change in priorities is a no-brainer.
Of course, I'm gonna move money from my clothing category to cover an emergency vet visit. But sometimes it's a little bit harder.
Do I want to make progress in this goal
that I set for myself, or would I rather eat out tonight?
Define
Your Priorities
When you're thinking about moving money from clothing to dining out or from vacation to car repair,
you're facing a clear choice:
This, or that. And this clear choice will help define your priorities, and this is where you're finding out what's really important to you.
All these internal conversations wouldn't be taking place if we had just left money sitting, waiting to be allocated. By budgeting down to zero, we're having to have these conversations with ourselves and make decisions.
And this is what's going to impact our
spending and saving behaviors.
Budgeting to Zero
Okay, let's pretend you just got a paycheck for $1,500.00. You would take that money and allocate it to all the different categories you've decided to use.
Of course, the first few dollars
are the easiest. We know we have to cover things like rent or mortgage, utilities,
debt payments, and some groceries.
As we get closer to budgeting to zero though, we're gonna have to start making some decisions.
Do we want to put more money into our rainy day fund, or should we send it all to debt?
And would I
rather upgrade my computer, or start to save for a down payment on a house?
Final Thoughts
It all comes down to priorities.
Getting clear on the goals you have for your life, and making your financial
decisions support those goals.
If you have some perfectionist tendencies, you might be worried about messing up your budget. But there is no shame in changing your budget.
I'm coming up on my two-year budgeting anniversary, and there has not been a single month of savings where I haven't had to move money around.
Moving money around is not failing, that's a part of budgeting.
And budgets aren't set in stone, they are meant to be adjusted.
But I will give you one other piece
of advice that I gave to my sister: create a "things I forgot to budget
for" category because life always happens.
There's a reason I get excited, and maybe with my family, a little overly excited to talk about budgeting. Having a budget reduced my financial stress.
It helped me align my money with my
priorities, be more intentional with my spending, and reach goals. And it can
do the same for you.
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