When it comes to financial planning, your income is your biggest asset. Utilizing the money you have in an efficient way is the most important part of budgeting.
The zero-based budget is a method that requires you to utilize your entire paycheck each month. Don’t get too excited. This doesn’t mean you get to have a shopping spree every month. The zero-based budget forces you to put use to each dollar in your account. For example, if you make $2,000 per month, you will need to properly disperse this into spending, saving, and investing until that amount hits zero.
If you still have $200 left over, then you need to find a place for that $200. Nothing is allowed to roll over to next month’s budget. Trying to get your balance to zero gives every dollar of your income a purpose. It gets you in the habit of saving and investing each month rather than just spending.
Doing so makes a huge difference. According to surveys David Ramsey conducted in Financial Peace University classes, people who do a zero-based budget (versus those who don’t) pay off 19% more debt and save 18% more money!
Start this process by tracking your expenses for a few months. After reviewing your financial habits, you can create the perfect formula to use up your paychecks each month. Here is an example of what your zero-based budget might look like.
Monthly income: $3,000
Student Loans: $150
Eating Out: $75
Retirement Fund: $100
Emergency Fund: $150
Credit Card Payment: $125
Total Left: $0
With this method, you are able to spend while feeling good that ALL of your money is going towards something important. This is a productive way to handle your finances and save money each month towards different goals. Having money sitting in your account may feel nice, but building up your savings accounts and paying off debt is better.
Give your paychecks a purpose and try this out for yourself! For more budget tips click here.