Thursday, April 15, 2010

In The Trenches - Zero Based Budgeting

To the Professional Financial Manager of the home:

Yes, you now have a title.  A title that reflects your growing skills and knowledge.  A title is good, that's why businesses give them out.  It makes you and others feel you are a VIP.  And, you are.  :)

In The Trenches differs from other budgeting plans because it is based on zero-based budgeting techniques that are commonly used in businesses.  What this means is that every expense is evaluated before it can be included in the budget.  A thorough evaluation is made.  Is this service or expense needed?  Is this the most cost effective method for obtaining this service?  Has a comparison been made of other similar services?  Can paying on a quarterly or annual basis reduce the cost?  How will this expense contribute to my financial net worth?  These questions and many more help to evaluate and determine if this is the best possible use of funds and should be reviewed monthly for the first year and at least annually thereafter to insure that the services or needs have not changed.  An example of this is to do a price comparison of your auto insurance every year. Is this still the best plan for your needs? Is it the most cost effective?

The basic expenses are part of what is called the Minimum Basic Budget.  Additional items such as vacations or entertainment can be added but only if there is enough money to afford them without going into debt to do so.
The simple result is:  Am I getting the best deal for my money?
If we are In The Trenches most of us want to get out as soon as possible and taking the time to do this evaluation can save dollars or thousands of dollars so that we may reach our goals sooner.
Financial Web also defines Zero-Based Budgeting in this post: 
Using zero-based budgeting will assist in reviewing all the options and come up with solutions that will work your your family.  It will help you answer the question "What are we going to do?!"


Forest@Frugal Zeitgeist said...

Sounds like a very rigid thing to follow but I guess the trenches need solid plans to be escaped from (bad use of language by me there, but you get the point :) ).

I have found I have managed to cut my spending so much that I almost find it pointless to budget now. However I might give a Zero Based Budget a go and see if I can tighten my belt even more.


Carol Schultz-Weil said...

I guess it might sound somewhat rigid. But, you are the manager so you are able to make only the decisions that seem to make the most sense.

Recently I talked to a single man who was working on rebuilding his finances. After looking at all the options he decided to rent a room instead of an apartment for a number of months. This will allow him to use much more of his income for debt repayment, investing and savings. He mentioned that the relief he felt over having such low living expenses gave him the freedom to enjoy life again after feeling strapped for so long.

The primary benefit is that it allows you to have a fresh start and look at all options instead of limiting yourself to trying to just get more money to do what you have always done.

In our family we say that a soldier carries a backpack not a moving van. Yes, it is extreme but so is having four children and losing your job. Thanks for the comment and good luck. Hope you will let us know what you come up with.