How to budget to fit your income – Part 5: Zero-Based Budgeting & building your Emergency Fund.

How to plan your budget Part 5

Well Done! You’ve made your budget, now lets allocate every penny so that we don’t waste it.

You know what it’s like, you’ve planned your spending, there is £100 left over that you MEAN to use against your overdraft or debt, but then come the end of the month, it’s gone.

Zero Budget

That is where Zero-Based Budgeting comes in.
If you make sure that every penny you get in has a home, you can’t waste it. Its psychological, if you know that the £100 you have left in your bank is to pay a bill, you don’t spend it do you, but if it’s just sitting there, well……
That’s why allocating EVERY PENNY is so important. Taking our example budget here, you can see that in week one, there is a balance left of £50.01 which needs to be allocated. Now it would be tempting to put all that into a sinking fund or your Emergency Fund, but if you look at the following week, there is only £22.01 left, so you will be taking that money back out again to pay a bill that week.
What I do here is budget ahead. I would save my £40 for the following weeks shopping and my £10 for my Christmas Sinking Fund. This means I would double them up in week 1, but remove them from week 2. The odd 1p I would put into my ‘Stuff I forgot’ budget as I spoke about before. That means all of Week 1 funds are now zero’d out. Carry on like this for the whole month (you can see the areas I have made changes are highlighted in yellow).
Weekly Budget - Example 1.jpg
Even in this instance when you don’t know what is coming in, you allocate what you can. Then you adjust it once you have the funds. So in the example above, If in week one Chris earnt £220, then you could allocate the extra £20 to the Emergency Fund, if in week 4 he got £180, then I would only pay £60 toward the Emergency fund.  The budget often has to be flexible, but just make sure you stick to only using money that has come in and not topping up with credit cards to meet your ‘needs’
person holding pink piggy coin bank

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Emergency Fund:

You need to build your emergency fund as quickly as possibly can. Depending on your income, your EF should be between £500-£1,000 and is there for, well, emergencies. It is not there for Christmas or a Birthday or a new pair of shoes – these are NOT emergencies (no, not even at 50% off!)
Saving for your EF comes before putting extra money toward your debts. It’s to get you into the habit of saving quickly, putting everything you have into a goal and having a backup fund to stop you spending on your CC’s. I can’t stress how much having an EF will help you, it removes so much stress. I won’t go into it too much, but you can find out more about the virtues of the EF and how it will help you here – https://www.daveramsey.com/blog/quick-guide-to-your-emergency-fund
saving

Spending:

Once your budget is in place, you need to track your spending to make sure that you stay on budget. For instance, you’ve driven a little more than usual this week and spent £10 more on fuel, don’t worry, adjust your budget and cut back on something else. However, if you find your budget is out every week, then take another look at it and make sure you are allocating your money correctly.
I cannot recommend Dave Ramsey’s 7 step plan enough. It has honestly changed mine and so many other people’s lives. I have put below some links to groups that you may find useful and Dave’s own websites, I think you may like him (or not, he’s a slow burn…)
Now that you have the budget done, don’t forget to keep it updated with your spends and check on it regularly to see what you have in there.
How to keep your budget up to date
I hope this has helped you get your head around budgeting, just pop me a line if there is anything you’re not sure of.
Take care,
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