Our budget, how to spend, and the day-to-day of Zero-Based-Budgeting

 Our budget, how to spend, and the day-to-day of Zero-Based-Budgeting - you've heard me mention Zero-Based-Budgeting before - but what is it exactly, and how is it different than regular "budgeting"? Well, get ready for a deep dive, grab your favorite relaxing beverage, and read on.

Traditional Budgeting is more accurately called "Forecasting". What were we taught to do? Write down our income, and then list our expenses, make sure our expenses aren't bigger than our income, and then spend accordingly. Easy, right?

Then why do we fail at it? Because our standard budget might be a good blueprint, but it doesn't guide our day to day spending decisions. Me know our rent is due in two weeks, and we've got $1900 in the bank. I can afford that plate of BBQ and a few beers right now. $300 later, and then some gas to get to work, and some groceries for the week, and we're below our $1200 that we need. And payday isn't until after the 1st!

What's the answer?

Well, you look at your priorities and decide what my money needs to do *right now*.

Let's say we're starting the budget mid month - we've got some of our bills paid, along with this month's rent. I have $1900 in the bank after I got paid. I'll need $1200 in two weeks for rent. That leave me $700. I need to buy groceries for the next two weeks - there's another $175. I need gas to get to work - that's $110. Ok, I've got $415 left, but the credit cards are also due - there's another $80. Streaming services come due before next payday, as well as the utilities. Down to $237. I need to save $25 for vacation, and $160 for car insurance. That leaves me with $52. I can put that towards dining out, and I still have $45 in my fun money, if I want to spend a bit more at the brewpub.

Next month, when you get your paycheck, you follow the process and allocate all the dollars in your paycheck to your categories - $1473 came in on the 3rd. What does that money need to do right now? Well, rent was paid from saving money from the last paycheck. Let's look at our budget, but notice I've changed things a bit - I've renamed our categories to show the due date, and the amount, and ordered them by due date. Any category without a date gets filled as it can:

So we now know that when we get paid on the 3rd, in this example, we need to cover:

Gas $55

Groceries $166

Gasoline $110

Macy's Card $49

Hulu $7

Those are just the bills that are due. We have $1473 dollars to give jobs sto - so far those jobs total $387. We still have $1086 dollars that need jobs. Lets take another look at our budget, and our priorities - let allocate some dollars to Fun Money, and Dining out - $856 left. Let's get Home maint, Vacation, "Forgotten", gifts, clothing, and Self Care allocated. $716 left. Lets put some dollars in Charity, and put the other $706 toward rent. That's everything, allocated. But everything isn't fully funded - there's still money needed for the rest of the bills for the month. That's ok. When we get paid again, we'll take those dollars, and allocate them toward everything else that needs to be paid when we get that money.

So while the money is in the bank, how do we actually use it? That's where we focus on the transaction at that moment, and evaluate whether it is aligning with what we have allocated in that category. Our spending becomes intentional. It becomes directed. We make a conscious determination before we swipe that debit card or hand over that cash. We ask ourselves - "Does this align with my priorities?" "Is there enough money allocated for this purchase?" If the answer is yes, then spend. If it's not, you'll need to figure out if it's really necessary - and if it really is, where is that money going to come from. Example:

You have $166 allocated for groceries. You're shopping, and before you get to the register, you've figured out your groceries total to about $130. (yes, keeping a tally of your bill as you shop is highly recommended, as is preparing a list before you go, after looking in the fridge and pantry to determine what you really need, and don't shop hungry!). So the $130 or so is a safe purchase, you'll still have $36 left in your groceries category.

You also see a nice shirt - it's reasonably priced at $37, but you've only got $25 allocated for clothing. Time to put it back, and buy it next month when you've put more money into that category.

Or...

You have to have it. It's too good a deal and you actually do need some new clothing. There's nothing wrong with that. It's your budget, and you decide what you want your money to do. But, that extra $12 will have to come from somewhere. Is there any money still left in Dining Out? What about Fun Money? You can move money from any category you wish, as long as you don't have an expense due before you can replenish it, or if there isn't enough in the category to cover the move. So you move $12 from Fun Money to Clothing, and now you have enough to cover the purchase. Time to swipe that debit card.

Moving money from one category to another is often referred to as playing "financial Whack-A-Mole" or "WAM'ing". It's perfectly fine to do, and can be a way to get spending covered amongst categories, but if you find yourself WAM'ing a particular category several times a month, you may need to reevaluate your priorities and allocate more funds to that category, so you don't have to move money around so much.

So how do we keep track of all that? Zero-Based Budgeting is also known as "Envelope Budgeting" - back in the day before debit cards and such, people would actually take envelopes, write down the category and how much to allocate, and then put actual physical dollars into the envelopes, then remove and record the amounts as they spent the funds.

Now with the advent of computers and smartphones, there are a myriad of ways to integrate Zero-Based-Budgeting in our day to day routine. There are apps dedicated to Zero-Based Budgeting. You can use a spreadsheet app. You can use a notepad app. You can even use a  pencil and paper. Heck, you can even use envelopes and cash if you want. I don't recommend it, though. What I do recommend is an app called "You Need A Budget", also known as YNAB. There are other apps as well, such as EveryDollar and GoodBudget, but my favorite app is YNAB. We'll discuss using YNAB later. The basic concept I want you to grasp is Zero-Based-Budgeting.

Zero-Based-Budgeting in a nutshell is looking at the money we have *now*, and determining what it needs to do *now*, based on our needs and priorities. As long as we have less money going out than we do coming in, and we align our spending with our priorities, we'll be on track. I'll discuss how to handle emergencies and paying off debt in future posts, but right now, I really want you to understand the concept of allocating money as it comes in to our spending, based on our needs and priorities, and then spending only the money we have allocated in those categories.