zero-based budget

5 Things Every Single Person Needs to Do With Their Money

Denise Hill — Mon, 12 Mar 2018 10:00:06 +0000

The number of Americans who wait to get married — or never get hitched — is growing. In fact, for the first time in history, the number of unmarried Americans almost equals those who are married. The U.S. Census Bureau reports that there were 110 million unmarried adults (age 18 and older) in 2016, which is 45 percent of all U.S. residents over the age of 18.

Living a Sex in the City lifestyle may be alluring, but it also comes with hidden financial pitfalls. This is especially true for singles who have never been married. While divorcees and widows have distinct challenges, there are resources and services out there to assist them through their transition. However, if you are someone who has never been married, you're pretty much on your own.

With that in mind, we've compiled a list of the top things that every single person should do with their finances.

1. Make saving money your top priority

As a single person, you only have one income. You have to pay for living expenses and handle any emergency that arises on your own, so having a true emergency fund is paramount.

Financial experts advise that singles have as much as a year's worth of living expenses put away in lieu of the traditional three to six months' worth. A larger emergency fund will help sustain you for longer during lean times or a job loss. Married couples have the benefit of sharing expenses and may have a second income to help them through difficult times. As a single person, you don't have that luxury.

It is also highly advisable that you begin saving for retirement now. Look for ways to maximize your contributions. Take advantage of things like a company match, and contribute 10 to 15 percent of your pay to your employer's 401(k) or an IRA. Educate yourself on the different types of investments and pay particular attention to index funds, which usually have low fees. (See also: 5 Actions Women Can Take Right Now to Get Their Retirement On Track)

2. Stick to a zero-based budget

As a single, your budget is your financial guide and road map. It undergirds your financial success.

It's a good idea to use a zero-based budget as your cash flow plan. A zero-based budget makes you account for every single dollar you spend before you spend it. It makes you accountable for how you choose to allocate your funds and makes you cognizant of where all your money is going. If you earn $3,000 per month, your monthly budget — including every cent you spend, save, or invest — should be accounted for and should total $3,000.

It's also a good idea to institute a routine system to track your expenses. Every few months, keep an extra keen eye on the dollars that go in and out. This will help you gauge and adjust how much you are spending on things like gas, eating out, groceries, and clothes. It will also show you where you can cut back during lean times or if you want to build a fund for a specific purpose such as a vacation or a new vehicle.

3. Protect your credit and avoid debt

Protecting your credit is very important no matter who you are. When it comes to using credit, make sure you use it responsibly. If you use credit cards, keep your balances low enough that you can pay them in full at the end of each month. You should also strive to keep your credit utilization ratio below the recommended 30 percent threshold. (See also: The Fastest Method to Eliminate Credit Card Debt)

If you do have debt — including the dreaded student loans — prioritize paying it off as soon as possible. And once you've gotten rid of it, only use additional financing for large purchases such as a home or a car.

Another part of protecting your credit is routinely reviewing and correcting any mistakes on your credit report. You're allowed one free copy of your credit report every 12 months from each of the three nationwide credit bureaus: Equifax, Experian, and TransUnion. You can obtain these reports from AnnualCreditReport.com. You can also use free resources such as Credit Karma to check your credit score and monitor your information to ensure it's accurate and that your identity hasn't been stolen or misused. (See also: How to Read a Credit Report)

4. Get disability insurance

Disability insurance is critical for all singles, but especially for single women. A 2012 study from the American College showed that women were more likely than men to have a disability that prevents them from working.

The study also found that women were more vulnerable to experiencing tremendous financial distress if they became unable to work due to a disability. Nearly 50 percent of the women surveyed categorized experiencing a disability as "somewhat devastating" in regards to their family's finances. And 22 percent believed that their savings would last less than a month if they were unable to work.

Regardless of your gender, if you are single and employed, your entire source of income could be in jeopardy if you suddenly become disabled. It is imperative that you have adequate disability insurance (especially if you are a single parent).

If your employer offers both short- and long-term disability, take both. Choosing to forgo disability insurance to save a few dollars a month isn't a gamble worth taking. Sure, you are healthy today, but what if …? Insurance helps you plan for and protect against life's what-ifs. (See also: 4 Things You Need to Know About Disability Insurance)

5. Get an accountability buddy

Discipline is easier when you use the buddy system and when you are required to account for your actions and decisions. Married couples often rely on each other for this, but you can rely on the advice and motivation of a trusted friend or family member. Making good financial decisions is tough. Having someone to help you weigh your options will save you time, energy, and money.

When choosing a financial accountability buddy, choose someone who is financially astute, knows you well, is frugal, and has your best interests at heart. Get someone you know will be brutally honest with you and will make you talk through financial decisions. It should be someone with whom you are comfortable sharing financial intimacy.

This may not be your best friend or the one you go to when your heart is broken. This person should be practical, pragmatic, and analytical. He or she should make decisions from the head, not the heart.

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

A better way to create a budget

Philip Brewer — Thu, 31 Jan 2008 14:02:18 +0000

The only easy way to create a budget is to start with what you spent last month (and last year) and copy the numbers forward. If you don't do that, you're going to miss some important expenses. However, you don't want to just uncritically accept those numbers, or even those categories.

In Kate Luther's excellent post on Making every penny count, she uses the term "zero-based budgeting" to mean tracking every penny, so that every expense goes into the budget, with zero left over to just vanish (spent on little things that didn't make it into the budget). It's a great idea--that's the way to find the little blind spots where your spending doesn't match your true values. But I've heard the term zero-based budgeting used to refer to something else that's also a good idea.

A few years ago, back when Jimmy Carter was president, something that he called "zero-based budgeting" actually blew up into a big political issue.

Jimmy's idea was to avoid the common practice of starting your budget by just filling in whatever you spent last year as your starting point. Instead, start from zero, and figure out what you really need to spend. It's a powerful notion, because it gives you a chance to take a fresh look at expenses that otherwise seemed locked in.

In the normal budget process, you'd fill in the "electric bill" line on your budget with what you paid last month or last year. (If you were very conscientious, you might go so far as to get a year's worth of bills, come up with a summer average and a winter average, and then adjust both for expected changes in electricity costs.) What Jimmy Carter called "zero-based budgeting" was to start at zero, and then figure out how much power you need to run your household, and then budget for that much.

Now, on the electric bill, that's not so easy to do. (Jimmy would have had you looking on the back of each appliance, reading how many amps it takes, estimating how many hours a day it'd be turned on, and then adding it all up.) But it's a powerful concept, because it's your best chance to find savings.

Once you get beyond putting in compact fluorescents and turning out the lights when you're not using them, how can you make real headway in cutting your electric bill? The only way is to get down into the nitty-gritty detail of where the electricity is going. How much goes for power adapters that are left plugged in when the device they charge isn't in use? How much goes for TV and stereo devices drawing power when they're idle? Does your old refrigerator draw so much power that you'd come out ahead buying a more efficient one? Jimmy's style of zero-based budgeting gives you a structure for looking at expenses this way.

The electric bill is probably the toughest one to do a zero-based analysis on (although there's enough money there to make it worth putting some effort into). Your other line items aren't going to require quite so much research and calculation.

Instead of just filling in the "rent" line on your budget with the number from your lease, analyze your housing needs and then look for the cheapest place that satisfies them.
Instead of just filling in a guestimate of your last month's grocery bill, do some serious thinking about what you want your family to eat, and then calculate how much it would cost to feed them that diet. (I bet it's cheaper than what they've been eating, as well as healthier.)
Instead of just filling in your car payment and insurance payment, think about what transportation you actually need, and then figure out the cheapest way to provide yourself with that transportation.

Probably the biggest pay-off comes when you can start with a category at zero and then just leave it there.

That, by the way, was why it was such a big political issue for Jimmy. Everybody was used to the process where you started with what was spent last year, adjusted it up for inflation, and then considered making a cut if necessary to balance the budget. Everybody in government had a program, and nobody liked the idea of their program starting at zero, for fear that it just might stay there.

No doubt every line item in your budget has somebody who wants you to spend the money that way (even if it's just you). But there's a lot of power in the idea of starting each line at zero and then figuring out how much money you really want to spend there. Even the big line items (in fact, especially the big line items) are worth revisiting from time to time, even if those expenses seem locked in.

Consider starting your budget with zeros in every category. It's a powerful tool for finding savings, and a powerful tool for making sure that your spending aligns with your values.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Making Every Penny Count With A Zero-Based Budget

Kate Luther — Thu, 31 Jan 2008 02:00:14 +0000

Maybe you use one of those nifty little budgeting books from the office supply store. Maybe you've created an impressive spreadsheet with pre-programmed formulas to calculate your cash. Or maybe you keep track of your green with sticky notes tucked inside the back of your checkbook.

It doesn't matter how you do it - unless your a multi-billionaire, budgeting is just a way of life. And if you do it right, if you pinch pennies, shop wisely and post-pone splurging on that sizzling leather coat you've been eyeing, you may just have money left over when you finish paying all your bills. After all, that's what the budget is for, isn't it?

But what happens to that leftover cash?

If you're like most, that's free money. Woo Hoo! Bills are paid and you've got cash leftover. That's money that isn't allocated anywhere for anything, meaning you can choose to spend it as you please, right?

Well... no.

At least, not if you're trying to get the most from your paycheck. And this is where the zero-based budget comes in.

Traditionally, your budget includes two basic columns: your income and your expenditures. If your income is $4000 a month and your expenditures total up to $3500 per month, then you've got $500 free and clear each and every month to spend. End of budget.

With a zero-based budget, you still have two columns. You still list your income and you still list all of your monthly expenses. But when you get to the end, you have nothing left over - zilch, nada... not one penny.

Where did that $500 go?

In a zero-based budget, you account for things that you normally just "leave to fate". Your gas for example, running money for the week and that $5 to buy the latest issue of Cosmo or Maxim or whatever it is that adorns your coffee table. In this type of budget, you list everything and I mean ev-er-y-thing, until you have absolutely nothing else left to spend.

Sound scary?

Of course it does! What happens if you have a flat tire and need to buy a new one? Or if your co-workers unexpectedly invite you out for the $3.99 lunch buffet? What happens if you run out of milk, bread or have a craving for a Snickers that just can't wait? What do you do then?

That's why you have to account for everything.

When building your zero-based budget, start out by listing all of your normal expenses. Rent, car, insurance, etc. - these are fixed payments that come due around the same time every month. Next, you're going to list your long-term items such as property taxes, annual vehicle inspections or medical checkups. Any big purchases your planning - that new plasma TV for example, can go into this list as well and then you break up the total cost into twelve equal payments.

But you're not through yet.

Equally as important is your "miscellaneous money". You need to allocate money for gas, groceries, movies or DVD rentals, parking meters, subway tolls or anything else you tend to spend money on. You can even create a "mad money" category if it makes you feel better, so that you have an allocated amount going into a fund just in case there's something you've left off your list. A savings account should be included here as well because if you're not saving, you're not really getting ahead.

You'll also want to create an emergency fund and this is oh-so-important in the zero-based budget process. The reason is that you're not likely to allocate money for flat tires and broken water heaters. Those things pop up unexpectedly and usually when you don't have money to spare. The emergency fund takes care of this - just be sure to keep it funded so that you don't end up short when an emergency actually occurs.

If you added everything up and came up with a leftover balance of zero, then yea for you! You now have a workable zero-based budget. If on the other hand, you ended up in the red, you now know why you've been having trouble keeping cash in your pocket.

Let's face it: those magazines, fast-food runs and trips to the beer store all add up. $5 here, $10 there... and before you know it, you've just blown through $200 and have nothing to show for it.

That's where the zero-based budget can really help. By allocating money for absolutely everything, you can fine-tune how much you spend on eating out, going out and pleasure spending. Simply tweak your numbers until they fit with your income and you'll discover that you can live on a budget after all.

This article is from Kate Luther of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: