Budgeting can seem complicated when you first start. The concept of a zero-based budget can seem confusing at first. Predicting upcoming expenses can be overwhelming. Sticking to the budget may not seem possible. And you’re worried you’ll feel constricted.
If any of these budgeting concerns have come up, this post will walk through 3 easy steps to creating a zero-based budget that won’t feel constricting.
A budget really does give you permission to spend on whatever you need to spend money on. It also gives you a realistic financial picture as you begin each new month. Writing down how you’ll spend every dollar at the beginning of the month will help you stay on track with your financial goals and ensure that you aren’t overspending-and in the event that you do bust the budget, there are definitely ways to get back on track.
1. Total all monthly income
Our biggest budgeting secret is that we are one month ahead of our income, meaning that each month, we total the amount that we earned and that’s what we budget for the next month. As we spend money throughout the month, paychecks for the current month are coming into the account.
Regardless of whether you use the previous month’s or the upcoming month’s income, when you’re starting your budget, the first step is to total the amount of income you’ll have to spend throughout the month. If you have the same amount to work with each month, this step will be easy, and your budget will be pretty set once you’re done. If your income is variable, this step is a little trickier, so estimate your income to the best of your ability, but be prepared to adjust throughout the month if necessary.
2. List all expenses
There are a lot of budgeting sheets that you can download. After using Dave Ramsey’s version for years, I finally made my own that is more tailored to our needs. I made a downloadable version for you that you can edit to make it work for your specific situation.
List all of your monthly expenses. Sometimes this is easier said than done. You’ll obviously have regular monthly expenses such as bills, investments, donations, subscriptions, etc.
There are a few other categories that stay pretty consistent for us, including:
- Gas: We spend about the same amount on gas each month, but every few months, we have to re-evaluate whether or not we have too much left over at the end of the month or if we keep going over. Both scenarios have happened, so in that case, we’ll pick a new amount and adjust until we’re using about that much each month.
- Personal money: My husband and I each get a certain amount to spend each month on anything we want.
- Entertainment money: In addition to our personal money, we also have a category for family entertainment. It’s mostly for eating out, but it covers entry fees for any activities we want to do or treats if we’re out and about.
- Kid money: This includes diapers and milk for the kids plus anything else that comes up throughout the month.
- Savings: Include any money that goes to savings in the budget.
After that, think about other upcoming expenses that may not come up every month. Things like car registrations, oil changes, clothes or shoes, special events, birthdays, etc.
You can also put sinking funds into the budget as well. You can read more about sinking funds here and here.
3. Subtract expenses from income
Simply put, a zero-based budget means that you assign each dollar to a specific purpose for the month. Whether it is spend, invested, or saved, when you subtract expenses from income, the end result should be zero. That means that there’s no money that’s just handing out, waiting to be wasted, and you won’t wonder where your money went.
There you have it! Three easy steps to creating a zero-based budget. Budgeting can be intimidating, especially when you’re first starting out, so there will be bumps in the road, you’ll get off track, and sometimes you will wonder what you spent your money on, but overall, budgeting is one of the best things you can do to take control of your finances and make your money work for you!
Do you have any tips that have made budgeting easier for you???
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