Over the past three days, you have been working really hard at laying the foundation for your budget. You have started to track your expenses (some of you were already tracking – which is so awesome), tallied up your income, and identified your top three money goals. I am really proud of you!
Now it’s time to start putting these pieces together into the big picture. The big picture that I like to call YOUR BUDGET.
The basic premise of creating a balanced budget (otherwise known as a zero-based budget) is shockingly simple. You don’t even need to have taken 6th grade math to be able to handle the computation.
It’s just X – Y = 0 (<— that’s a zero, not the letter O).
But wait, you may be thinking, that’s not a solvable equation since I don’t know the value of the variables. Well, good news – you do know them. Or at least you will soon!
X represents your total income in a month.
Y represents your total outflow in a month – i.e. all of your spending and saving.
So when X – Y = $0, you’re in balance.
What if Y (outflow) is greater than X (income)? Then your total will be a negative number. This is known as running a deficit, which we will be talking about in greater detail in a couple of days.
And finally, if X (income) is greater than Y (outflow), your total will be positive, which means you have a surplus. This may sound like a fun “problem” to have, but I think it’s actually a sign that you haven’t yet been intentional enough about your budgeting. Stay tuned for more on that as well.
Budget Math is really as simple as it gets. In fact, you probably knew all of this already – it’s hardly rocket science. But sometimes there is knowing things… and then there’s KNOWING them. Numbers are neutral – it’s how we feel about them and act upon them that can get us into trouble.
Tomorrow we are going to start moving from tracking to budgeting, from theory (and mathematical equations) to reality. Are you ready?
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