ZERO BASED BUDGETING
For almost 4 years now, I have followed a zero based budget and honestly I will never look back!
A zero based budget is where you allocate ALL income out until you get to a zero balance. This means that every single pound of your earnings has a job! No more getting to the end of the month and wondering where your money went.
NET INCOME
This is your income after taxes, pension contributions and any other payroll deductions. AKA what you have available to spend! This is your starting point.
FIXED EXPENSES
All the bills you have to pay. I am talking rent, mortgage, utility bills, loans direct debits plus your MINIMUM debt payments!
SINKING FUNDS
These are the variable costs you need to put money aside for larger annual or semi-regular expenses. For example, car maintenance & MOT, glasses, Christmas, holidays, dental work. I prioritise these after fixed expenses as they are items which without planning for could lead me to falling into my overdraft or stealing from my savings.
CASH ENVELOPES
This is my variable spending money for the month. I used to use physical cash, but now I use Monzo pots (other banking apps are available) to keep my spending money separate. This covers my food shop, petrol budget and treat myself money for the month!
DEBT OVERPAYMENTS
I do not currently have any debt, but if I did then the remainder of my income would go to overpaying the debt to clear it as quickly as possible. If you have no debt, skip onto the next step!
SAVINGS & INVESTMENTS
All remaining money I split towards my bigger goals! This includes my emergency fund, travel fund, Stocks & Shares ISA, Lifetime ISA and mortgage overpayments!
If there isn't quite enough money to put toward the things I want to achieve, I re-assess my non committed spending to see where I can cut down to ensure I can prioritise my money in line with my life goals.
Budgeting in this way is amazing and something that really works for me because I am telling my money where to go and focusing it toward my goals. It's easy to fritter money away without thinking, and before you know it all those £10, £15 & £20 payments have amounted to hundreds without realizing, leaving you caught short.
Let me know in the comments if you budget this way, and what you think!