We all want to build wealth, get out of debt, and take control of our lives, right? Well, that is not possible without an income. How do we use our income to meet these goals? I’m glad you asked! The best way of managing your income is through budgeting! Budgeting helps you create a plan for your money. If you are trying to control your spending, build your savings, invest or simply get out of debt, budgeting is a crucial component of that process, and a step you can’t skip.
Unfortunately, many people overlook this key step. They start paying bills, buying whatever they want or find that they’re unable to buy something they want and have no idea what they’re spending their money on. For my husband and I, creating a budget was key in actually becoming debt free! We used a zero-based budget plan that we learned from Dave Ramsey, started to take control of our money, and basically told our money where to go.
I want you to achieve the same success that we were able to achieve. Grab a pen and let’s get started!
What is a zero-based budget?
A zero based budget is a monthly budget where your INCOME minus your EXPENSES equals ZERO (INCOME – EXPENSE =0). So, if you make $2500 per month, then once you minus your expenses, savings or investments, you are left with $0. It doesn’t mean $0 in your bank account, but that ALL the money has been given a purpose and used up fully, and there’s 0 leftover for that month to plan for. You gave every dollar a name! You know where the entire $2500 went for that month, and are not left wondering how much do you have to spend or put into savings.
How do I make a zero-based budget?
In order to do this and be precise, you will want to use an app, spreadsheet or old fashioned pen and paper to get going.
1) Start out with your monthly income (let’s use $2500)
2) Write down your expenses for your necessities, like; groceries, rent, utilities, transportation, phone, basic clothing, child expenses if you have kids, and savings (savings is a necessity! Even if it’s only $25-50/month, but with consistency and time, it will add up)
3) Write down your expenses for miscellaneous things (which will vary every month) like; entertainment, household items, holidays, special events, etc.
4) Subtract those expenses from your income and it should equal zero! If you have money left over, then add extra to the savings or pay more towards your debt so that you are left with 0. If you are in the negatives, then re-analyze those expenses and figure out where to make cuts (ex. Cutting out entertainment like movies or eating out, making a gift instead of buying one, etc). You should not be in the negatives! Your monthly expenses should NOT be more than your income. If you are, then you are in too much debt and NEED to make cuts.
5) Repeat these steps anytime there is a change in income or expenses. If you get a higher or lower paying job, unexpected expense, etc.
That’s it! That’s the simplest way to make a budget and take control of your money again. Taking control means YOU telling your money WHERE to go, so you’re not asking what happened to your money! You can use whatever you want to organize and get it done (app, spreadsheet, envelope system, pen and paper). Just do it!
P.s. Go to my youtube channel: “Naturally Freckled” for more inspiration!
