Too many of us are bad with money. Forbes magazine reports that 78 percent of Americans live paycheck to paycheck. These people, including most of us, don’t have a plan for our financial futures.
How can you put yourself on the road to financial solvency? It starts with a budget. The purpose of budgeting is simple; it makes you the boss of your money. No matter what your financial goals are, whether you need to get out of debt, save for retirement, or just live within your means, it all starts with a budget.
Budgeting doesn’t have to be complicated or scary. Making and sticking to a budget can actually be quite straightforward. That’s where the zero-based budget comes in.
What Is Zero-Based Budgeting?
Having a zero-based budget just means making a plan for every dollar you earn. At the end of the month, your income minus your expenses is zero.
For example, if you earn $4000 a month, all of your expenses, including saving and investing, should add up to $4000.
It may sound complicated, but once you get the hang of it, you’ll find that zero-based budgeting is one of the most efficient ways to track and manage your spending.
Getting Started with Zero-Based Budgeting
It’s easy to get started with zero-based budgeting. There are just four steps:
The first step to building a budget is figuring out how much money you have to work with. Add up all your income, whether it’s your paycheck, revenue from a business, your side hustle, child support, or that $50 your uncle sends you every Christmas. If money comes into your household, it goes on your budget.
Before every new month starts, write down your estimate of your expenses. Be sure to put the essentials like your food, shelter, utilities, and transportation first. Don’t forget about your investments and savings.
Your goal is to have income minus expenses equal to zero. If your income is too high, great! You can use the surplus to get out of debt or bump up your savings. If your expenses are too high, you’ll need to find places to cut back. If this seems complicated at first, don’t give up; it takes most households a few months to get the hang of it. There are plenty of free budgeting apps to help you, but a spreadsheet or just good old-fashioned pencil and paper work fine too.
Planning is great, but the only way to know it is working is to track your expenses. Start tracking all your expenses to make sure that you stay on track. If you realize that it’s not working out, go ahead and make adjustments.
Budgeting is an essential step on the road to financial independence. A zero-based budget is one of the simplest financial tools available. If you need help getting your financial house in order, contact the financial experts at Firefighters Credit Union today.
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