November 5, 2021
- Olsen Breet
- March 5, 2021
More than half of the people struggle to have money stashed away for a rainy day despite the persistent effort. Whether you believe it or not, budgeting can give shape to your finances. All you need to do is give up traditional budgeting and switch to zero-based budgeting.
The goal of this budgeting is to utilize every dime of your money. For instance, if you manage to save £100 at the end of the month after meeting all of your expenses, you will have to find something for that money to do.
You can throw this money at an emergency cushion or utilize it to pay off your debt. Zero-based budgeting aims not to have money left idle in your account, which contributes nothing and keeps diminishing its value. This budgeting can help you prevent from living paycheque to paycheque. Here is how:
Use last month’s income for this month’s expenses.
When you are living paycheque to paycheque, you are dependent on your future income for your expenses. If you come up with an unexpected expense or your client pays late, or a cheque does not arrive on time, you will keenly wait for your next payday.
You would not do it if you stashed away money. If you use last month’s income, you do not have to stress about such circumstances. You will easily manage, even if you are paid late. You cannot get rid of a living paycheque to paycheque overnight.
You will have to start putting aside money. You will have to look over your expenses, and you will find that there is a great scope to whittle down. Whatever the money you are left with after cutting back on your expenses will be your savings.
You do not need to worry about it, even if it is just a nominal amount of money. Keep doing it. Since many a little makes a mickle, you will find emergency corpus growing, and one day it will have worth one-month living cost.
Once you have saved this much amount, you should use that money for your regular expenses in that month instead of using your paycheque. In this way, you will switch to the last month’s income for paying this month’s bills.
Track your spending
Try to track each expense for a couple of months. This will help you know how much and where your money is going. Just knowing your expenses of a current month will not help you get rid of living paycheque to paycheque. You will have to cut back on them.
Find out which expense is discretionary and inessential. Unless you have managed to set aside money worth one-month living cost, you should make only essential expenses. The more strictly you stick to your budget, the better it is.
You should categorize your expenses. For instance, you can divide them into utility bills, fixed expenses like rent, debt repayments, food, and travel. Try to divide your income into these categories.
Since foxed expenses remain the same, you know how much you have to allocate, and for variable expenses, you can look over statements of previous months. This will give you a better idea of how much you can spend on a particular category and how much you are spending.
Do not ignore your income.
Zero-based budgeting will not break the cycle of paycheque to paycheque if you are earning very little money. You will have to figure out ways to increase your income if that is the case.
Consider finding a job with higher remuneration or do some part-time job alongside. You may not understand its solemnity, but it will hold you back from growing financially down the road.
You have to put aside your retirement, mortgage, and car. You can do this all if you have some money in your hand. Although you can access long-term personal loans to fund your big purchases, you need money to show affordability. If you want to get rid of living paycheque to paycheque, you will have to start making zero-based budgeting. This will help you save some money at the end of the month by cutting down on your expenses that you can utilize for other reasons. The most significant benefit of this budgeting is it will let you switch to last month’s income for the current month’s bills.