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!

Specificity: The Key to Achieving Your Goals

“I’m going to pay off at least $21,500 in student loan debt next year”.

My heart skipped a beat. My palms started sweating, and it wasn’t because of the summer heat; my mind and body was sending me signals that I couldn’t do it.

“Hey,” I said to myself, cutting off the negative mental chatter. “I’m going to pay off at least $21,500 in student loan debt next year. I can do it. It will work”.

I was giving myself this pep talk last August on the eve of paying off an $8,500 debt. This seemed like a lot to pay off when I set the goal in December 2018, yet I managed to do it in nine months. It got me thinking of what else I could do.

“HEY! Listen. You can do this. You can reach this goal. Focus in and get serious”.

The part of me that was scared finally got on board and helped me break the goal into more manageable pieces.

“I’d need to pay off at least $1,791.66 each month. That’s $447.92 per week”.

“I’d also need to work at least 6 hours per week at my part-time job, as well as any overtime hours at my full-time job that I can get”…

The more specific I got with my goal, the more I believed I could do it. The specificity gave me objective proof that it was possible: the numbers showed me exactly what I needed to do to succeed.

Even though the goal was lofty to me, I knew beyond a shadow of a doubt that I was going to achieve it if I followed my plan. The path ahead was as clear as day*.

Making your goals specific

You’ll need to set goals to better your finances. Whether you want to save money or pay down debts like me, you’ll need to decide what you want and come up with a plan of action. I think your goals should stretch you a little bit. If you always feel comfortable with your goals and plans, you aren’t growing as much as you could. So challenge yourself to go for the dreams that seem out of reach. You’ll be asking yourself to do something you’ve never done, and you may feel resistance as a result. If this happens and you start thinking of excuses for why you can’t reach your goal, get specific.

The great thing about goals is that you can break them down into the steps you need to complete them. You do this to create actionable steps that help you succeed. I didn’t have $21,500 on hand to pay off my debt. I knew if I wanted to succeed, I’d need to make $21,500 over the course of the year. That meant breaking my yearlong goal into monthly and weekly goals, and then figuring out how many hours I’d need to work each week. I even went as far as developing a spreadsheet to calculate this information in real time.

The end result was that my goal stopped being overwhelming and became doable. It put responsibility back on my shoulders by making my success or failure up to me.

When looked at in their smaller pieces, your goals will appear more manageable, too. From there, it’s just a matter of accomplishing the smaller tasks until you get what you want. If you’re ever feeling stuck, ask yourself how you could break what you’re trying to do into even smaller pieces. I can guarantee that by figuring out those smaller steps, you’ll feel more empowered to accomplish your goal.

Good luck, and happy budgeting!

*Unfortunately, I couldn’t predict COVID-19 or the effect it would have on the world. My industry has ground to a halt and, like everyone else in the world, I’ve been forced to put my life on hold. This includes pausing my goal. I’ve switched to using my emergency budget to protect my finances against economic further changes and I am using my time to learn about business and finance. When this ends, I’ll be ready to pick up where I left off. My plan may have changed but my goal has stayed the same.

The Best Way to Control Your Spending

Have you eaten any food today, dear reader? Do you feel hungry, even hangry? No one likes feeling their empty stomach rumble!

How about a bowl of cereal?

Better yet, how about a nutritious, filling salad?

Not good enough? Come to my steakhouse and enjoy a nice filet mignon, with a side of broccoli and potatoes!

There are so many options to fulfill your needs that it can be confusing to know where to begin or what messages to listen to. You know you can’t go too long without eating (roughly three weeks) or you’ll eventually die. But you have your choice of what to eat to stay alive. Companies know this, and they create all manner of products to help meet your needs. They are also becoming increasingly adept at creating things you don’t need while simultaneously becoming more sophisticated at convincing you that you need it. That’s a huge problem, especially if you want long-term financial success.

Why it’s hard to control your spending

We live in a world that encourages us to spend on things we don’t really need. Our perceptions are shaped by companies concerned with profit. Marketers pay top dollar for advertising campaigns that get you to buy items that you may not even be able to afford or hurts you in the long run. They won’t care if their food makes you healthy or sick or broke, as long as they make money. Companies need to grow to make their shareholders happy. Your success is not their goal.

In order to protect yourself from falling into the spending trap, you’ll need to accept that the world doesn’t care if you succeed. Your success needs to be your number one priority, as their success (even at your expense) is their priority. It’s your responsibility to control your spending and meet your financial goals, not theirs. It’s unfortunate that companies’ goals are sometimes at odds with our own, but that is how it goes in the world we’ve built. Choose to break out of the mold. Know what you want and put yourself first.

The best way to control your spending

Now that you know you need to take responsibility for your success, how do you do it?

Spend on what you need

It’s up to you navigate the unlimited wants and to figure out what you actually need. Do you need to go for a steak dinner if you could use that same money to buy groceries for a week? Do you need the newest iPhone when an older model would work just as well? It’s up to you to decide.

Buy things you can afford

If you have a budget, you should already know what you can or can’t afford. Trust your budget and use it to buy what you need when you have the money to do so. I wouldn’t tell you not to buy that iPhone. I would, however, caution against buying an iPhone on credit, or buying it and then not being able to keep your lights on in your house or gas in your car. You can always save up for it if you really, really want it.

Stick to your financial goals

Your financial goals are your plans for your life. If what you want to buy negatively impacts or dramatically slows down your goals, then you should consider a cheaper alternative. It’s not worth buying a $700 phone now when it prevents you from funding your emergency fund. Wait to buy it, or choose another item that better serves your needs.

Put yourself first

Personal finances work for those who work at them. By keeping your goals in mind, sticking to your budget, and buying what you need, you can be successful at budgeting in spite of our consumer culture. Having an accountability partner or a coach can help as well. And remember to put yourself first. Make sure what you buy fits your needs and you’ll be well on your way to controlling your spending.

I’m rooting for you.