When it comes to the topic of managing your money, are you taking the best approach? While many people may believe they have a sound budgeting system and process, only a few manage to set aside money for their future.
The basis of zero-based budgeting, also referred to as zero-sum budgeting, is a simple elementary school math equation. Your budget is considered “zero-based” or “zero-sum” when your total income minus total expenses equals zero.
The beauty of zero-based budgeting is that you account for every dollar you receive. Using traditional budgeting methods, you typically list all necessary expenses, such as rent or mortgage, car, and debt payments.
Begin by listing all money that flows into your bank account throughout the month. This income will fund your entire budget and should include the money you earn and any money you deposit into your account throughout the month.
The next step is to list all of your mandatory expenses. These are payments that you need to make every month and usually include costs such as:
– Interest payments on debt (credit cards)
– Food / Groceries
– Transportation expenses
Once you’ve gathered your income and expense information, it’s time to analyze your financial data. Sticking with our equation from above, total up your estimated expenses and subtract them from your total estimated income.