The last couple of years have been tough ones. We’ve seen the economy tank, unemployment numbers skyrocket and incomes remain relatively stagnant for those lucky enough to keep their jobs. Because times are so hard most of us are looking for ways to cut back, create new income and keep our families in the black. Something many may not realize, however, is that they can easily get themselves a raise, without having an increase in income. Here’s how.
Set Up A Zero Based Budget
A couple of years ago my wife and I started doing a budget for our family for the first time. Up until that point we had never bothered to keep track of what we were spending, or figure out where our money was going. Because we weren’t keeping track we found that our money quickly disappeared every month. After we paid our regular monthly bills, anything that was left over was quickly spent.
After we started doing our zero based budget and a cash flow plan, however, we found that we were able to save more every month than we could have imagined was possible. It was like getting a raise!
So where do you start?
Write Down Your Income And Expenses
The first thing you have to do when doing a zero based budget is to figure out what you’re working with. Sit down with your spouse if you’re married and figure out what your income and expenses are for the household.
Income: Tally up all the money that is coming into your bank accounts during the month including any income from your day job, part time jobs and freelance income. This shouldn’t be too hard as most people will have regular income streams that don’t change much from month to month.
Expenses: Figure out what your monthly expenses are for the necessities like food, clothing, shelter, utilities, insurance and so on.
Less Frequent Expenses: You’ll also need to nail down your less frequent expenses that can be variable from month to month. These can be things like entertainment, gas, property taxes, pet supplies.
Set Up A Cash Flow Plan And Allocate Every Penny
Once you’ve tracked down all of your monthly income and expenses, it’s time to create a monthly cash flow plan that will set out in writing exactly where every dollar of income will be allocated. You will assign every dollar to either a spending, saving or giving category.
For example, if you have 4,000 dollars of income coming in for the month, you would allocate every penny of that 4,000 dollars to one category or another. First you spend money on your monthly or irregular expenses. If you have money left over when you’re done, that money gets allocated to a saving, investment or giving category. When the month is done you have allocated every dollar, and reduced the total to zero.
The Result Of A Zero Based Budget: More Money!
When you start allocating your incoming funds to specific categories every month, and don’t go over those spending limits set forth in your budget, the result is that you’ll end up having more money left for saving, investing and giving every month. My wife and I found we were able to go from a surplus of $50-100 a month, to almost $500-600 per month just by doing a budget. You can do the same.
Review Of The Budgeting Steps
- Write down all income sources and come up with a figure for total net income.
- Write down and allocate for all giving and saving categories. Come up with a total for giving and saving.
- Figure out a dollar figure for total expenses, both regular monthly and irregular expenses.
- Subtract total expenses and giving/saving from total net income. You should come up with zero as the final tally.
Note: If you have money left over it needs to be allocated to a category, preferrably a saving or giving category. Good luck!