Do You Budget?

I’ve always prided myself on my budgeting skills. I could tell you where every dime was going and pay the bills on time. But over the last couple of years my income and expenses have changed slightly and instead of re-evaluating and adjusting, I kept on the same path I’d been on.  Instead of actually budgeting, I realized I’d only been accounting for my expenditures after the fact without any real plan.

I finally sat down and took a hard look at the numbers. What I make, what I spend, what I have, what I need for retirement, and how much it would take to get there. It wasn’t pretty, but it was a wake-up call. I have been in the workforce for about 30 years now and my retirement savings hardly reflects that fact. No, I don’t have any credit card debt or a school loan, I don’t have car payments and I put away money each month to a 401K. But is it enough? No, not really. What I realized is that I am not saving as much as I should be for retirement, instead I’ve been spending the bulk of my discretionary income mindlessly without having a plan for that money.

I began doing some research on different budgeting methods and found that one of them stood above all the others in regard to ease and simplicity. Zero Based Budgeting

What is it? It’s when there is a plan for every dollar coming in. Month by month you allocate all of your income so that there is nothing left at the end to spend. That doesn’t mean you can’t ever eat at a nice restaurant or go to the movies, it just has to be part of the budget. It’s much easier not to overspend or make impulsive purchases if you already have a plan for that money.

This is why I believe in and have adopted Zero Base Budgeting. When I am allocating every dollar of my income to a purpose, discretionary and impulse spending starts to disappear. Any remaining money after budgeted my needs and (reasonable) wants goes into savings. Savings could be an emergency fund, investment account, IRA (Roth or Traditional), debt repayment or some combination of the four. When I take the time to ensure that every cent of my income is accounted for, it’s harder to find justification for that nice pair of shoes or that fancy new widget everyone is talking about.

Here is a sample budget. Since I don’t believe in car payments or cable these days, I left those categories out. Everyone’s budget will be different, but below is a sample of what it might look like.

100%     income – $2000

40%       Rent – $800
12.5%    Food – $250
7.5%      Gas/Tolls – $150
7.5%      Utilities – $150
2.5%      Internet – $50
3.5%      Phone – $70
2.5%      Entertainment – $50
5%          Dining Out – $100
1.25%    Beauty –$25
1.25%    Household – $25
16.5%    Savings – $330

You see that every dollar is accounted for in the example above. There is no extra. And any money that does come in outside of what’s budgeted can be added to the savings category or used towards paying down existing debt. It’s actually quite a simple and effective plan and that’s why I love it. It can work for everyone.

If you’d like more information on Zero Based Budgeting, you can find it here!