Basic Budgeting Principle: Zero-Sum Game

Photo credit: Casey Serin

This article is all about the b-word: budget. If that word scares you, just call it a household spending plan or a ticket to wealth or whatever code word you want to use to make it seem less intimidating. Because in fact, budgeting should not be something you avoid.

Budgeting is a tool you can use to be in charge of your own life. One effective approach is to think of budgeting as a game in which you take the cards you have been dealt and distribute them in the best way possible. The game just has one rule: at the end of the day, you can’t be in the red.

One of the best ways to approach a budget is with a spreadsheet. Most programs display negative numbers in red, which really drives home the fact that you can’t sustain a budget in the red. Even if you choose to borrow to make it up, you will have to pay it back later. Instead of turning to borrowing, approach your budget as a game in which the way you win is to come out with a zero at the bottom of the spreadsheet.

Set up your game with a list of categories down the leftmost column of the spreadsheet. The top one should say “income,” and the ones below that should be everything your income might be used to pay during a month. These include your paycheck deductions, insurance premiums, rent or mortgage, groceries, eating out, debt payments, clothing purchases, and everything else you might conceivably spend money on.

Brainstorm to list all of your options because you want to see exactly how you can spend your money. If you want to save up for a vacation, list that option, and if you have had your eye on a new outfit, put that down too. You want to see not only the boring ways you can spend your money, but also the interesting ones.

At the bottom of the spreadsheet, create one final category called “bottom line.” Set the cells to the right of this category to automatically start with your income and subtract all of your expenses to calculate your bottom line each month.

Now, on to playing the game. Every month, enter your income at the top of the spreadsheet. This is the hand you are dealt for the month, and your job is to allocate it in a way that keeps you out of the red. Most people will want to start by filling in the boxes that are most critical to their well-being: housing, transportation, and basic groceries.

Beyond the basics, how you spend your money is really up to you. As you go, take a look at the bottom line to see how you are doing. If your goal is to scrape together enough money to pay for something you really want this month, fill it in first and see if you can create a balanced budget by decreasing your usual spending in other areas you don’t care about as much.

As long as you fill in your spreadsheet each month, avoid the red in your bottom line, and stick to the plan, you will be operating on a balanced budget. Planning it out allows you to set your own priorities and be in control of where your money goes.

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