Nowadays, as with many other things the importance of budgeting is undeniable. Actually, having a detailed budget is the best way to attain your long-term and sustainable financial goal. Whether you are on a journey of getting out of debt, or establishing your financial foundations, this is important.
You are the manager of your own money. If you are saving right now for an important spending or investment, you should have need for a detailed budget. If you are looking forward to a hustle free retirement, you need a detailed budget. If you are millionaire right now and you want to allocate your funds effectively and efficiently, you need a budget.
Yes, you have the right to tell where your money is going. It should be noted that having a budget will not take your freedom. It will actually liberate you from spending your money poorly and allow you to make it go even further than you could imagine.
One of the basic ways to navigate your finances is through zero based budgeting. To put it simply, it is the point wherein your total income is equals to your total expenses. With a zero based budget, every penny that you are earning goes into its proper spending places. This type of budgeting is actually on a monitoring side. As we all know, you are setting yourself up for a complete mess should you not know where your hard earned money is going.
We have got to understand that before we start zero based budgeting, it is a must that we have to clarify our motivation in doing so. With that, we have to go to our drawing board even for several hours or days and start answering the following question.
* What are the sources of my income, and how much am I earning from it? Please take note that it includes every cash inflow that we have, even the side hustles. We may start from our annual gross income and then gradually analyze it down to a monthly or even weekly level.
* What are my regular and non-regular expenses? Before we start our zero based budget, we have to track our spending history. Categorize all of our expenses. For example – from needs to wants, or, from material to immaterial. Make sure to list even the smallest amount. We make it clear here that we need to list down even your seasonal or non-regular expenses.
After answering two questions above, you have to deduct your total income to total expense.
This is the start of your actual work in executing your zero based budget.
For some, it may take some time in reaching zero. This equation will determine if you are spending more than what you earn. Mind you, zero based budgeting is simple. If you spend too much, you have only two options – decrease your spending by cutting down activities that cost you more, or find another source of income to sustain your expenses.
As a tip, if you are just starting your zero based budget always go on the first option. As additional recommendation, do not put general descriptions or name to your income and expenses. Always be specific.
Yes it is recommended to obtain templates from various sources, but you should customize it based on your own personal inflow and outflow.