Once you are past Mayday Clear and current on all your bills, it’s time to narrow in on developing a zero-based budget.  Our second WayPoint is labeled Zero In.  This is where you narrow in on your target and create discipline that will lead you toward developing a workable and usable balanced budget.  There are only four data points used in budgets:  1. Monthly take home pay; 2. Fixed expenses; 3. Variable expenses; and the one that most don’t factor into their plan that causes the greatest disruption – 4. Periodic expenses.  Monthly take home pay is a finite and usually fixed amount.  Without a pay raise, a bonus or a change in deductions, this amount is fairly easy to calculate.  Fixed expenses are rarely adjustable, so they are easily transferred to a budget worksheet with minimal thought. Variable expenses can either be discretionary or non-discretionary.  When developing a zero-based budget, you will want to minimize the discretionary expenses (non-essential purchases) so more cash is available for that particular WayPoint you are working on.  Periodic expenses are those expenses that occur only on a periodic bases. Once again, these expenses can be discretionary or non-discretionary.  Some typical examples of Periodic expenses are: water/sewage bill, car insurance, gift purchases, vacations, lawn care, etc.  To properly prepare a monthly budget, we teach our clients how to pre-plan all the periodic expenses and turn them into a fixed monthly expense.  For example, if you plan on taking a vacation in 10 months and your planned vacation expense is $2,500, you will want to set aside $250 a month to cover that future expense.  If your water bill comes every three months and let’s say it’s $120, you should set aside $40 a month to cover the expense when it comes due.  The key to a zero-based budget is to give every dollar a name and have it allocated to the categories that apply to your specific needs.

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