My Money My Way by Kumiko Love

Author:Kumiko Love [Love, Kumiko]
Language: eng
Format: epub
Publisher: Penguin Publishing Group
Published: 2022-02-02T00:00:00+00:00

How to Create Stability in Uncertainty

Financial stability—and your realistic budget—is all about being financially prepared, even when your life feels unpredictable. An emergency fund, for example, is a huge step in this direction. But there are lots of other ways you can give yourself options. Here are a few tactics and tips to support your realistic budget.

Use a Zero-Based Budget

To create the most stability possible, you’ll want to put every dollar to work. Without intentionally assigning your money, you can easily lose track of how much you have or spend money without considering the consequences. So I always recommend that people use a zero-based budget. If you haven’t used a zero-based budget before, it’s not as scary as it sounds.

Simply put, income − expenses = zero.

This method of budgeting is a strategy where every dollar you earn has a job. When you complete your budget, there should be zero dollars “left over” in your budget. This is why it’s called zero based!

For example, if your monthly income is $3,000, then every line item in your budget should add up exactly to $3,000. When using the equation above, this leaves you with zero.

Every dollar must have a plan. Now, this doesn’t mean that you should go on a shopping spree to force yourself to spend everything. Instead, a zero-based budget means that you can account for every dollar and make those dollars work for you and direct them to the places you want.

The primary reason this method is excellent for budgeting is that you can track every dollar spent. By assigning a “job” to every dollar, you can fully see your financial picture and make adjustments. It also makes it easier to see if there are any areas where you can cut back on spending.

When I started with a zero-based budget, I was nervous that I would run out of money. Especially because I was (and still am) working with cash, I’d pull out the money and realize that my bank account was getting dangerously close to zero (as it’s supposed to). I didn’t trust my budget. If this is you, it’s natural. I’ll talk more about creating a checking account cushion to solve this problem in the next chapter. For now, know that zero based does not mean “no money left,” but no money left that’s not budgeted.

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