Let’s say you’ve finally resolved that this is the time to break away from the time-suck of a 9-to-5 job and commit to achieving the Dot Com lifestyle.
That’s the first step along the road to glory.
The next one is putting yourself in a position to do it.
Freelance writer Amy Freeman found a logical and relatively swift way to accomplish this.
She paid off thousands of dollars of college debt with the help of an unorthodox method known as zero-based budgeting:
Income – Expenses = 0
In other words, every dollar you make this month will be earmarked for a specific task the next month, whether it’s your rent, utilities, food, car payment, loan repayment, or emergency savings. It doesn’t mean you end up with nothing, but rather, that every penny intentionally goes to something useful.
She found helped her plan better because it kept her from scrambling to cover expenses. With zero-based budgeting, she had an idea of how much money on hand for the month to come. Thus, she doesn’t fritter away money that she’s not actually going to earn that month.
How it works
Let’s take a hypothetical situation where your goal is to pay off a student loan at $1000 a month on an income of $4000 a month. Your rent is $1000 a month, too.
Your zero-based budget for the next month may look something like this:
- $1000 … Rent
- $1000 … Student loan
- $400 … Food
- $300 … Utilities
- $140 … Phone
- $200 … Entertainment
- $590 … Emergency savings
- $200 … Retirement investment
- $100 … Business startup investment
So, $4,000 (income in current month) – $4,000 (expenses in next month) = $0.
Save enough money to cover your expenses for one month
To get started, you will need at least a month’s worth of savings that will cover your expenses for next month
If you don’t have that money already in your savings, then set an accumulation period where you save to set aside an entire month’s worth of income.
Keep track of your monthly expenses
In order to have a solid budget, you’ll need to have an accurate idea of how much money you spend month to month. Your monthly expenses will vary, but the longer you track them, the more accurate your estimate will be.
There are budgeting tools that can help you track expenses.
For example, take a look at these:
Pay attention to your income
This step will be easy if you make a steady paycheck. Simply record on your budgeting tool your regular month-to-month income.
However, if your income is irregular, estimate your income based on the lowest amount you earn in six months to a year.
And be honest with yourself.
This will keep you from the risk of your expenses being higher than your income.
It will also help you save for emergencies. For example:
- Let’s say your estimated lowest income is $3,000.
- One month, though, you earned $3,500.
- So, you decide to put the extra $500 into emergency savings.
Then, if you only make $2,500 in a following month, you can add the extra $500 to your active income.
Create expense categories based on your needs
After you’ve covered your basics, you may have some money left over.
Think about how you’d like to use that money.
Perhaps you want to pay off a loan, build a retirement investment, or save for a vacation. It really depends on your personal goals and preferences.
Now, about your credit card debt
Obviously, the goal is to stop interest charges, especially on carried balances.
It’s no secret, either, that the best way for most people to do this is:
- Apply for a new card that offers 0% interest for transferred balances,
- Make certain the offer’s term is at least three months,
- Transfer the balance, divide it by the number of 0% interest months, and
- Include that amount in your zero-based budget.
You’re helping yourself pull cash out of the furnace more than you might realize.
For example, if you’ve got a $10,000 balance, then $150 of a $200 monthly payment would go toward interest charges. That leaves only $50 of your $200 that actually reduces your balance, with the rest vanishing into bank pockets.
Clearly, this gets you a head start in your pursuit of the Dot Com lifestyle.
This is a practical plan. All it needs is for your to stick with it.