What is Zero-Based Budgeting?

If it isn’t obvious to you yet, budgeting is my jam. I can spend hours poring over expenses and spreadsheets, helping people look for ways to best allocate their money and meet their financial goals. I love it when people have a realization of how they can use their money more effectively. Those little ‘aha!’ moments keep me going. I’m passionate about this because I believe it’s crucial to your ability to manage money. Budgeting just makes everything easier and more organized. In my coaching practice, I help people get organized and on a path to winning with money. And it’s a blast.

I coach people to use a zero-based budget. I think it’s the best method, but I recognize that it’s just one of many paths to success that are also viable and helpful. I want you to make a budget and I want you to win with money. Above all, I want you to make the best decisions with your money. To help with this, I’m going to describe some of the best money-management methods out there, starting with zero-based budgeting. As I go through these, think about how they might help your life and finances.

What is Zero-Based Budgeting?

Zero-based budgeting is an accounting method in which all expenses must be justified for each new period. This type of budgeting starts from scratch, or a “zero base”, and causes you to decide if you really have a need for all your expenses. It’s typically used in organizations, but you can apply it to your finances as well.

The other key component of this type of budget is that you spend all your money on paper. You allocate everything down to the last cent to make sure you are spending intentionally.

Let’s look at these two pieces in greater detail.

1. You start from scratch, and nothing is safe.

With a zero-based budget, your job is to put your goals first by getting rid of or cutting the expenses you don’t need. Every time you sit down to write your budget, you assess what you need to keep or let go of in order to win with money. Could you meet your goals a lot faster if you stop eating out, or switch to biking instead of driving, for instance? What if you downgraded to a cheaper apartment and groceries at your local supermarket, instead of shopping at Whole Foods? These are the questions you’d ask yourself when building your zero-based budget. It’s not to make your life miserable; it’s to give you more options when prioritizing the things you truly want.

Why this matters

The benefit to this is that it gets you to re-evaluate your values on a regular basis. It gives you the opportunity to address any frivolous spending and to ask yourself if the things you are spending money on are really investments in yourself and the life you want to live. By starting from scratch every time, it gives you the opportunity to put yourself first. It won’t matter what kind of budget you had before this new one – you get to start fresh and do better.

2. Your budget must equal zero

When you make a zero-based budget, you plan to use all your money. You don’t have to plan to spend it all (in fact, I don’t recommend this), but you at least need to allocate every cent. For instance, if you bring home $2,500 after taxes during a pay period, you need to plan out how you will use all $2,500 dollars. You need to know what you’ll be spending on food, transportation, gas, utilities, etc., and have your plan in place to save or use the rest.

You’re being very intentional with your money.

Why this matters.

Making a zero-based budget is your opportunity to be proactive with your money. Even if you give away most of your money to bills, you still get to make the plan of how you will do this. It puts you in the drivers seat, giving you some control over your financial situation. You get to make your money work for you, instead of being disorganized and at its mercy.

Additionally, this is another way to make sure you are using your money efficiently and effectively in service of your goals. If you don’t have a plan for your money, you’ll be much more likely to waste it and wind up in a bad spot financially. The last thing you need when you are working to accomplish your goals is to have your money slip through the cracks. Hell, that’s the last thing you ever need.

Final thoughts

Zero-based budgeting is an incredibly powerful system. Given that it forces you to confront your values AND your habits, I’d say it’s the best system for personal change/long-term growth. But, of course, I’m biased. I’m happy to talk more about your situation and see if we can work together. More than anything, I’d encourage you to find the system that works best for you. Your overall success is what matters most.

Let me know what you think of zero-based budgeting. Did I miss anything? Are there other systems that work better?

Best of luck and happy budgeting!

Why Pen and Paper Budgets are Best

Technology has advanced tremendously in the last one hundred years; so much so that our way of life would be drastically different to a person alive in 1920. While I appreciate my cell phone and the other improvements brought about my technology, I can’t help but notice that technology can 1) complicate things and 2) make us forget our personal power.

For example, I used to rely on physical maps when I traveled around the city. Now I just use Google Maps. It’s awesome and is usually convenient, except for when I want to find a Chipotle less than an hour before they close and the app won’t work to save my life (I’m not bitter at all). I also struggle navigating my city without Google Maps; I get nervous sometimes when I try getting around without it. The point is, the technology is great, but if we rely on it we become dependent and forget how to get to our destination on our own. WE forget what works and has worked for years.

I feel this way with budgeting. While I love making Excel spreadsheets as much as the next nerd, I can’t help but notice that I rely on it. So, for anyone who is thinking of budgeting but doesn’t want to use a spreadsheet or a piece of software, know that you can be still successful without them. In fact, as I alluded to above, there are benefits to using a pen and paper budget over other types. So today, I’m going to give you some reasons why a pen and paper budget could be the way to go for you.

Paper budgets are free

You can make a pen and paper budget at any time with no cost to you – you don’t need to rely on software or pay for a subscription to a budgeting program. Your budget will be simple, but it will be able to do exactly what you need it to do: track your finances. This shows you that you don’t really need all the bells and whistles when it comes to making and keeping a budget.

Paper budgets are great for beginners

If you’re new to budgeting, apps and software can actually get in the way of your learning. I started with a pen and paper budget in order to understand the most important elements of a budget, and to get hands-on experience with it. You don’t have to go through that, but you may find it helpful for you, too. Later down the road, after you’ve spent time with your budget and feel confident you understand how it works, you can look into more sophisticated tools.

Paper budgets force you to do all the work

When you use a piece of software to budget for you, it does all the math on its own. However, when you do it by hand, it’s all up to you. You have to make sure all the amounts add up properly, which can be tricky for even the most diligent among us. You’ll need to focus and face your fear of math with this type of budget. It forces you to pay attention to everything in your budget, which leads us to the next point.

Paper budgets force you to re-evaluate your finances

When you re-write and update your budget by hand, you are forced to copy the information over and over again. This gives you an incredible opportunity to re-evaluate your finances and make sure they are what you want and need them to be. You are forced to re-write what is and isn’t important to you on a consistent basis, giving you tons of chances to make changes as they come up.

Paper budgets give you extra motivation

Since your budget is paper, you can easily put it on your wall if you wanted to. This ensures you never forget what you budgeted so that you stay on target with meeting your financial goals. It serves as both motivation and inspiration, especially if times get tough.

If you’ve never budgeted, I recommend trying a pen and paper budget. It isn’t perfect but, for the reasons I mention above, it’s a great option for anyone who is ready to start managing their money. Another great option? Working directly with me through one-on-one coaching. I’ll make sure you have the support you need to make you – and your budget – shine like a diamond. No matter what, just get started!

Good luck, and happy budgeting!

4 Questions to ask yourself about your budget

If you take managing money seriously, then you know how important it is to continue to learn and grow. You sit down at the end of the month (or however frequently – it’s your choice) to review your budget like a good money manager, then you look for ways to do even better. I love that about budgeting and it’s what I do in my own life.

Every December, I look over my budget and plan for the next year. I look at the progress I’ve made, where I went wrong, and the questions I still have. Then I plan for the next year with this reflection in mind. I always feel confident that I will have a good year because of my planning. I’d like to offer you some of the questions I ask myself when I review my own budget. Give these a shot if you want to take your money management to the next level.

Would my problems be solved with more money?

Obviously everyone wants more money. Sometimes, however, making more money isn’t necessary. Before you go for a second job that steals your precious free time, see if you can squeeze more money out of your existing budget. If you can find a way to meet your needs without that second job (or a raise with more responsibility), you’ll keep your free time to yourself. And if you have no choice but to make moves to make more money, you’ll know that it’s the best move to make in your situation.

Have I eliminated all my wasteful spending?

You can improve your budget (and save money) by getting rid of expenses for items that you don’t really need. The most obvious would be for purchases of things you don’t use anymore, such as memberships or subscriptions that you used to use but stopped enjoying a long time ago.

Keep in mind that you can resubscribe in the future if you ever decide you want to access it again. But for now, let it go. Your budget will thank you.

What else can I adjust to reach my goals faster?

If you really had to push yourself to find an extra $50 in your budget to put toward your goal, could you do it? Think deeply about how hard you’re working to accomplish your goals. I’m sure you’re doing just fine where you’re at, BUT if you want to turbocharge your efforts, dig deeper. Doing so may allow you to pay off a debt a few months faster, which means you get to move on with your life. So think about how you can move more quickly.

This is also a great way to test yourself. You’ll realize you’re capable of doing more than you thought when you meet that goal faster, and you may be encouraged to re-evaluate all your goals.

Is it doing everything I need it to do? Am I getting the most out of my life right now?

If you’re not pushing yourself to reach a goal, you’re most likely maintaining a nice status quo with your budget. How are you doing with that? Is your budget helping you to do everything you need it to do to allow you to lead the kind of life you want to live?

Sometimes we get so caught up in managing money that we manage to squeeze our life out of it. Take a step back and make sure that you’re setting yourself up for success and enjoyment. You can readjust as needed. It’s your budget after all – you need to make sure you can be happy with it. By the way, it can be natural to have these challenges in budgeting. If you ever need help, I’m here for you.

There you have it – four questions to help you improve your budgeting. This is by no means the complete list of things to think about but if you ask yourself these questions, you will see things change. Budgeting works for those who work at it. Trust in the process, keep up the good work, and you’ll see the progress you desire.