Which Kind Of Budget Method Is Right For You?

Everyone needs to budget, regardless of what a family or single person brings into their home in terms of income. Whether they live paycheck to paycheck or there is an abundance of disposable income left over each pay period, families must budget their money to maintain control over their financial life. Knowing where their money is going every week, how much is coming in, and what they can do to increase their savings while also decreasing their expenses is perhaps the most useful knowledge anyone has. Living a life of financial freedom is the ultimate goal, and it’s not one anyone can reach without first developing a budget. Just keep in mind not all budgets work the same for everyone, and it’s helpful for families to learn what kind of budgets are available and which one works best for their family. Start filling in this knowledge now.

Zero-Based Budgeting

Zero-based budgeting is simple, though it can sound a little complicated. It’s the art of creating a budget in which a person tells their money where to go, and they have nothing left over at the end of each pay period. Unlike most budgets, this one doesn’t allow even a dime left over when a new pay period occurs. The goal is to always have the budget reach zero by having a specific use for every dime.

For example, if a family has an income of five thousand dollars per month and expenses of three thousand dollars per month, they have two thousand dollars per month left over after saving, paying their expenses, and living. This is fun money typically spent on new clothes, school field trips, entertainment, and similar. Consider if the family budgets that two thousand dollars for fun every month, but they only spend 1,500 dollars leaving an additional five hundred dollars one month. Since the goal is zero dollars, they need to find somewhere for the remaining five hundred dollars to go, which is typically into savings. The goal is to have no money left over without a place to go each month. If someone has money left over, they send it directly to their savings account.

Continue reading to learn about basing a budget on priorities.