It’s surprising to see how many people ask what a Zero Based Budget is. Very Simply put, it is when every dollar of income is given a job or a name. Just vision a huge bucket where your take home pay and any other generated income is dumped into that bucket. Attached to the large bucket are hoses that filter down to a multiple of smaller buckets that represent all your expense categories. Those categories will include all your monthly expenses, all your debt; both secured and unsecured, periodic expenses, savings, and investments. A zero base budget will empty out the big bucket and fill up all the smaller buckets with nothing remaining. If the smaller buckets aren’t able to get filled by the larger one, then a negative monthly cash flow results. When this happens, two things might occur. Either money is moved from a reserve savings to finish filling the smaller buckets or money is borrowed (Debt) to top them off. To avoid this from happening, we need to decide how we are going to redistribute the funds from the larger bucket so we have just enough to fill the smaller buckets. When the big bucket is empty and the smaller ones are full, then a zero based budget will result.
Quite often our clients will tell us they have never done a budget because they don’t have enough income or they have an irregular income i.e. they are paid a commision not a salary. However, the most common reason is they don’t want to see how bad their financial situation truly is, which is pure denial. More often than not their budget is not as bad as they think it is and this misinformation and lack of acknowledgement is something that they have been told or learned. The truth is that if you change the way you think about what a budget really is and how it really works then you will clearly understand the purpose and how easy it is to do a monthly budget.
Lets start with changing our vocabulary, instead of using the word BUDGET which I personally don’t care for because it sounds restrictive and as previously stated often misunderstood. Instead, I want to introduce you to what a budget really is from a technical perspective. Are you ready?
A budget is nothing more than a PLAN or as it is formally called a Cash Flow Plan. It is NOT something that happens to you or after your monies have come and gone but something you do to plan and prioritize your income to achieve monthly, short and long term goals. It is that simple and I will tell you personally that it takes me about 10 minutes a month to create my upcoming month’s Cash Flow Plan and about 5 minutes a day to measure my results. If you are not willing to do this simple plan then you are not serious about managing your personal finances and are doomed to disorganizaton with your money and more importantly your life.
I will leave you with thought and quote. “Money is amoral, it is neither evil or good but it is simply a tool. But, it is the one tool that weaves through the tapestry of your life because it touches every part of your fabric”
Tell us how you manage your money and life with or without a Cash Flow Plan and if you want more information about Cash Flow Planning, contact us. Our Financial Navigator Crew members are experts at Cash Flow Planning, and more importantly we practice what we teach in our own lives.
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