Have you ever heard of the 60/20/20 budget?? This is a budgeting method where:
- 60% goes to Needs: Housing, utilities, groceries etc.
- 20% goes to Wants: Entertainment, dining out etc.
- 20% goes to Goals: Saving, investing, debt
This method, in my opinion, is a very slow way to tackle debt and build wealth. I don’t know about you, but once I’ve set my sights on a goal, I want to get there as soon as possible.
This method of budgeting is akin to a maintenance diet versus a diet and exercise routine that is designed for weight loss.
Instead, I recommend and use the Zero-based budgeting method.
In this budgeting method, Income [minus] Expenses = Zero, and every dollar is accounted for. In a corporate setting, zero-based budgeting is a strategic planning tool where instead of using the prior year’s budget for the upcoming year, every department must justify their spending for that year starting from zero.
In practical application, this means that every expense is reviewed and re-evaluated periodically:
- Income
- Can I increase my income on an ongoing basis? (salary increases)
- Can I increase my income temporarily? (side hustles)
- Can I earn one-time income? (sell stuff, side hustles)
- Can I increase my margin or cash flow on an ongoing basis? (pay off debt)
- Expenses
- Is this a need or a want?
- If an important want, can I afford this right now?
- Can this expense be ‘deleted or delayed’?
- Delete
- Do I even use or need this anymore?
- Is there a free or cheaper alternative available?
- Delay
- Can I extend the time between recurring expenses?
- Can I minimize the frequency of use?
- Is this a need or a want?
By critically examining every expense, you can likely uncover more discretionary dollars, appropriately assess whether a particular want is a good use of resources, make intentional decisions regarding tradeoffs of your time and money, and decrease the time it takes to achieve your goals.
If you’d like to partner to examine your budget strategically using my Money SIMPLE method and accelerate your financial goals, book a free consultation at MakingMoneyIsSimple.com.