As I see it there are 3 major benefits to using zero based budgeting to handle your finances.
- Conscious decision-making about your money
- Includes saving in budget
- Freedom from thinking about spending money
Conscious Decision Making About Your Money
When you make a zero based budget, you are making fully conscious decisions about how to use your money. You can spend 100 dollars on gas and the rest on beer if you so choose. Of course one would never do that. However the truth is that you could.
A great advantage of zero based budgeting, in my mind, is that you are fully aware about all of your financial decisions. This is an eye-opening affair. You see all the places that your money goes and you decide if those places really deserve your money.
Includes Saving In Budget
Most people figuring out their personal finances tend to pay bills first and think about savings last. There are a lot of recommendations out there to swap that around and do your savings first. However, savings and expenses are the same. Savings has a cost. It’s an important cost. However, if you barely have enough money for the roof over your head and food on the table, then most likely you shouldn’t blindly budget $500 for retirement to begin your budget.
This is where zero based budgeting excels. Savings and expenses go together. If you figure out that your goal is to save $500 per month for retirement, but see that with your expenses totaled up, that’s not possible. Adjust. That is a cool aspect to zero based budgeting. Move money around until it makes sense and there is a zero at the bottom.
When it comes to what you should save for, I’m going to refer you to Dave Ramsey. Dave has aspects of his message that I really love and ones that I don’t. But I do love his ideas for savings and how he says to deal with debt. If you haven’t listened to or read Financial Peace University, do yourself a favor and buy it. It is worth the investment and a wonderful place to start learning about personal finances. Personally I started there and I continually base off of his concepts combined with others I learn to find what works best for my family.
Freedom From Thinking About Spending Money
I often talk about the freedom that zero based budgeting provides because I know how good it feels. I love that my wife and I only have to make decisions about money once every two weeks. When I was getting paid only once a month, it was even better.
The night before my paycheck gets deposited; we sit down as a team and work out the budget. For an hour or so, the two of us make all the decisions around how this new money gets used. In fact, we are so good at this process, my wife creates the budget and I review it. We make any adjustments that we missed. After that, we hardly ever have to adjust. The rest of the pay period we do not even think about money. No more need for thinking about money. It is a very gratifying and freeing situation.
Be sure to leave a comment if you have questions or aren’t sure where to start. I’d be glad to help.