Although the budget is often seen by many as something akin to a diet (i.e., denial of fun), it is actually the foundation for winning with money. Larry Burkett was known to say that budgeting is just telling your money where to go instead of wondering where it went. But what exactly is this zero-based budget?

It’s simpler than it sounds. A zero-based budget is when the money coming in minus money going out equals zero. Why? It’s about spending every dollar on paper on purpose before the month even starts.

First Things First

If you’ve ever used a GPS for a long trip, you know the GPS system has to know your location before it can plot a course. Just like the GPS, you must determine where you are (your financial standing) before you can establish a plan of action.

First, list your monthly income and expenses. Calculate the difference.

Spend Every Dollar

Assuming it’s positive, this difference is the money you must allocate for things like groceries, clothes, gasoline, repairs, credit card payments, vacation, entertainment, etc. Don’t stop until every dollar has been allocated.

At this point many people say, “Holy crap! We have a lot of money leftover to allocate.”

Where’d Our Money Go?

A few years back, I let myself get out of shape, so I started using the My Fitness Pal app and the Health app to assess my nutrition and fitness. When I saw that I was eating all my calories before the end of the day and not moving enough, I was able to make changes to regain my fitness.

Tracking what we spend is kinda like tracking what we eat. What gets measured gets improved. (This a mantra of Six Sigma.)

Viewed as a lifestyle change, we’re not denying ourselves anything. Rather, we’re ensuring we can have the things we want by putting it in the budget.

Next week? More budget specifics!