The best way to pay off debt once and for all is to create a workable budget that is realistic and somewhat easy to stick to. Budgeting is going to be hard as first, but eventually it will bring order and financial peace to your life, and trust me, sleeping well at night because you aren’t worried about money is definitely worth dealing with a budget.
The “Zero Sum Budget” is an excellent tool for telling your money where to go (like go pay off debt instead of getting wasted on eating out or spending frivolously!)
So, what is a Zero Sum Budget? Basically you take your net income (for the month, week or bi-week, depending on how you prefer to do the budget. Personally, I prefer to do bi-weekly Zero Sum budgets so that I do one every time we get paid), so take your net income and make a list telling every dollar where to go. It’s easier to show an example than it is to explain it, so instead I’ll share my upcoming Zero Sum Budget for this Friday, 3/31/17:
-$305 (Credit Cards)
-$250 (Family Loan)
-$159 personal loan
-$250 auto insurance
$435 left after bills
=$85 to put on the debt snowball
My trick to having a successful zero sum budget is that I double check all of my accounts the day or two before I get paid, that way I’m sure that I don’t miss anything that’s due and there are no unexpected expenses. The mornings we get paid, I go online and pay all the bills so that the money goes where it needs to right away (versus sitting in the account for a week, with the potential to get spent on frivolous things). The point of a zero sum budget is to “tell every dollar where to go.”
The zero sum budget sounds intimidating at first, but it’s really not as bad as it seems! It was really hard the first couple of times that I did it, but now I have no problem with it. I used to feel really uneasy about working it down to the exact dollar, so at first I left a buffer of $300 in the account. $300 is really too much buffer to leave in the account though. Debt free community members who are really good at doing the zero sum budget leave a $10-20 buffer in their account. Currently I’ve been doing the zero sum budget for about three months and leave a $50-100 buffer in my account.
Doing the zero sum budget really does help cut down on frivolous spending. Since I started doing the zero sum budget, I’ve cut down on unnecessary spending by hundreds of dollars a month.
Some people use cash envelopes for categories like food, gas, spending money and household necessities. We personally don’t do cash envelopes because we are very good at keeping track of our spending and bank account. Not everyone can successfully keep track of their spending, so cash works better. A lot of financial gurus claim that the psychological aspect of holding your money in your hand and letting it go makes people less likely to spend. For me, it’s easy to swipe a credit card and not think about it, but when it comes to swiping my debit card, I know that’s my hard earned cash in there and yes I do have a problem letting it go! But you have to do what works for you. If you don’t check your bank account frequently or keep track of what you’ve spent on paper, then maybe the cash envelope system will work better when it comes to the zero sum budget.