Two years ago, I attended a free class on financial management for the first time at school. At the beginning of the class, the speaker lectured on the importance of having a clear “budget” for each month to know where every penny you earn goes. He pointed to the board and asked: “Tell me, when planning a budget, how much should your monthly income (income) minus your monthly expenditure (expense) equal?” He looked questioningly at the people sitting in the front row (including me). I remember at that moment I suddenly broke out in a sweat, my face turned red with embarrassment, and thoughts jumped around in my head: “How much should it be? How much should it be? Equal to 10% - 15% of salary to save? go invest? By positive or negative numbers? Oh my God! Why do I not know the answer to such a simple question!” Until, someone from the bottom of the class called out: “Zero”. The speaker nodded: “That’s right! equals zero”. The whole class said “Ah” loudly, and the lesson continued. Thinking back, I’m not sure all of us really understood why the spending numbers had to go to zero and no one dared to put aside their big egos to raise their hand to ask the speaker. At least, I know I only vaguely understand.

Because of this vague understanding, after the class, although I found many ways to build a monthly “budget” such as diligently recording my expenses, checking my account on phone applications, and trying to Trying to balance income and expenditure, I still don’t feel like I really understand what a budget is. It’s true that recording monthly expenses helps me realize some things that need to be changed about my spending habits (for example, the cost of eating out at restaurants doesn’t seem like much at first, but when added up it becomes an insignificant amount. growing up or spending on credit cards makes me not aware of “overspending”…). But simply taking notes doesn’t give me the right to control my finances autonomously. I feel like I’m just following my old spending habits each month and can only correct mistakes the next month. Especially in months when there are unexpected events such as work or medical treatment, I realize that my “budget” does not anticipate such sudden changes in spending. That’s why many times I felt discouraged and gradually stopped tracking my spending, letting the money go wherever it came.

It wasn’t until recently, when I read Dave Ramsey’s The Total Money Makeover and used the EveryDollar app to manage my spending, that I truly understood what zero-based budgeting is. It all clicked clearly in my head: why did the speaker from two years ago talk about zero, why my attempts to control spending went nowhere, why zero- Based budget is so important… After only three months of implementing financial management using this method, I really can’t imagine why I could live without a zero-based budget! It sounds a bit excessive but it’s completely true, this method has completely changed my view on financial management.

I’m not a financial expert and have a lot to learn about money management. But from personal experience, I believe that anyone 16 years old or older, as soon as they begin to understand the value of money, absolutely needs to know about zero-based budgeting. Thus, this article was born:

FINANCIAL MANAGEMENT WITH “ZERO-BASED BUDGET”

SOME COMMON MISTAKES ABOUT BUDGET

1. There is no comprehensive view of income and expenditure. The most common problem when making a budget is just focusing on recording and calculating small expenses without knowing how to put it all in a big picture. This leads to spending “take one pocket, leave another”, “short first, short later”, or even though there is plenty of money, there is no long-term orientation for saving or investing. Therefore, when making a budget, instead of just recording petty notes like how much money went to the market today, how much electricity and water bills… you should put these expenses into a larger group. For example, the large item “Food” may include money for shopping and eating out at restaurants, the large item “Housing” includes all costs for accommodation such as rent, electricity, water, internet… Have a look An overview of spending will make it easier to add and subtract to get the budget back to zero.

2. Do not include savings in spending money. This was the source of my misunderstanding when I first heard about zero-based budget. I used to think that if (Money earned - Money spent = 0), there would be nothing left to save or invest in the long term. But the key point here is, savings must be included in monthly spending; That is, every month before you spend anything, you must pay yourself first (pay yourself first!) by keeping your savings aside. This method is much better than the previous saving method I was taught, which is (Money earned - Money spent = How much is left to save) because if you don’t put money aside from the beginning, it will be worse at the end. It’s very difficult to put away any savings each month. Therefore, count your savings right into your spending money, consider it as spending for yourself, and put it away separately in another account/place that won’t be touched.

In his 7-step financial independence plan, Dave Ramsey advises people to first save $1,000, then pay off debt, then build larger savings equal to 3-6 months of living expenses. (about $5,000 – $10,000). Once you have these amounts, consider spending 15% of your income on other investments.

3. Planning spending at the wrong time. Many people wait until the beginning of the month to get their salary before starting to record their expenses for the month, recording as much as they spend. This practice is already much better than those who do not have any consumption tracking system. However, this is not a “plan” but just a “record” of spending.

Planning means having a vision, orientation for the future and shaping and changing based on current reality. The right time to plan your spending is the last week of the old month or the first day of the new month. At that time, we sit down to plan how much money we will earn in the new month and where this money will be spent; Add up all expenses (remember, including savings) and subtract the amount earned, which must equal 0. That is, all the money we plan to earn has its own purpose. During the month of implementation, based on the actual situation, we can change the planned numbers BUT the immutable rule is that it must be reduced to zero (if the number is negative, it means we have spent too much, if if the number is positive, you should spend the excess money in savings right from the beginning).

4. Not regularly checking and adjusting budget weekly. Along with the above argument, to keep the budget close to reality, we need to review and adjust weekly to see how we are spending, are there any arising items that need to be rebalanced, and are there any redundant items? Where should we put it or not… This checking and adjusting will also help us have more motivation to maintain the budget.

ZERO-BASED BASIC BUDGET

Having read this far, you probably understand somewhat about zero-based budget. The basic formula of this method is (Money earned — Money spent = 0). The purpose of zeroing is to force money users to balance their spending within the amount of money they earn, so that all the money they make has its own spending purpose. In other words, you “command” money to go in different directions, rather than letting money force you to follow it. Each person may have their own ways of implementing zero-based budget (below, I will outline 3 ways for you to choose from) but basically, budget content includes the following large items:

1. Income

Earned money is the estimate of all the money coming into your house such as wife’s salary, husband’s salary, overtime pay…If you are married, I recommend convincing your husband/wife to participate in budgeting, being open about your financial situation to merge the earnings and expenses of husband and wife into one. As a person who likes to be independent, I used to insist on keeping my personal expenses separate. But later, especially when I read more financial documents, I realized this was a wrong way of thinking and doing things. If spending is consolidated, both husband and wife will agree, understand, and work towards the goal of better financial independence.

Thus, Earned Money may include:

• Husband/wife’s main salary (If you are paid weekly, you can separate it into “Weekly salary 1”, “Weekly salary 2”… If your income is unstable, estimate the lowest salary)
• Overtime pay
• Bonus
• Income outside the main salary

2. Expense

Expenses are all the amounts of money that will leave your household in a month. Savings are also included here as a long-term expense for yourself. As mentioned, small amounts should be allocated to larger categories.

Therefore, this Expense category can include:

• Savings: Necessary, if you have enough savings in the future, you can convert it into investment money
• Giving: Donations/gifts/charity/wedding…
• Housing: Amounts related to housing maintenance: rent/house installments, electricity, water, gas, telephone, internet, cable TV…
• Transportation: Travel expenses: gasoline, bus tickets, parking fees, vehicle warranty fees…
• Food: Food expenses: market fees, restaurant fees, coffee fees…
• Lifestyle: Other life expenses: clothes, tuition, hiring a maid, gym membership, pet care… In addition, it is recommended to add to this section the “Miscellaneous expenses” section to calculate these expenses. Not sure where to put it.
• Insurance & Tax: Insurance and tax costs: health insurance, life insurance, car insurance, income tax…
• Debt: Debts that must be paid monthly such as interest and principal. During the debt period, all savings (except the initial $1,000) should be put here to focus on paying off debt. Try not to get into more debt. Pay off debt as quickly as possible.

3. Remaining: Money earned — Money spent = 0

Once again, after figuring out the monthly income and expenses, subtracting each other must equal zero.

THREE WAYS TO IMPLEMENT ZERO-BASED BUDGET

Depending on each person’s needs, abilities, and habits, you will build your own zero-based budget. Budget is only best when it suits your situation, so don’t be afraid to change and experiment with different ways of doing things. Below, I suggest you 3 ways:

1. The “envelope” method

This method is best for people who: (1) primarily spend cash and (2) feel weak at tracking their spending.

This method is very simple. At the end of the old month or the beginning of the new month, you create a spending plan (as described above) and create envelopes for spending items. For example, one envelope for savings, one envelope for food money, one envelope for debt… on the outside of the envelope write the specific number of expenses for the month. When you have your salary, you divide the money into each envelope, so that the amount of money put in the envelope minus the budget amount is zero (zero-based budget). Every time you need to spend something, you take money out of that envelope and spend it on that exact thing. This method ensures you know exactly how you are spending because if an envelope runs out of money, it’s gone! Try to only spend within the specified envelope. Savings envelopes should absolutely not be spent, except in unforeseeable emergencies (such as illness, job loss, accident, etc.).

There are people who are more creative with this envelope method by dividing their wallet into compartments, each compartment corresponding to an envelope. This is also a great way, but you need to be careful of theft.

2. Excel table method

This method is best for those who: (1) regularly use computers, are familiar with Excel, and (2) have the ability to manually enter their spending data on a daily basis.

This method is also very simple, if you know how to use basic Excel. You can find some available templates online, but in general, your Excel template may include 3 main columns: Column 1 – Earnings; Column 2 – Spending money; Column 3 – Remaining money. According to zero-based budget, make a simple addition and subtraction formula in Excel so that the total of Column 1 minus the total of Column 2 equals Column 3 (and finally equals 0). The small content of each row in each column is the small revenue and expenditure segments as written above. Every time you spend something, remember it on your phone or keep the receipt and enter it into Excel.

This method is really good for those who want to be more flexible with their calculations, so that all income and expenses are under control while still being updated according to their own needs on a daily basis. Those who work in the office and are careful and meticulous, I think are best suited for this method.

3. Phone App method

This method is suitable for those who: (1) often spend money via bank cards, have e-banking and (2) are proficient in using convenient apps on smartphones.

This method is very convenient. You just need to download a phone app that has a zero-based budgeting function. The phone app I often use is EveryDollar. These apps also allow you to make monthly plans, record spending, and control leftover money like the “envelope” and “Excel” methods mentioned above. However, the app has a stronger side that allows you to connect to your bank account (a small fee may apply). Every time you spend money in the bank, the app will automatically notify you to put money into each predetermined account. That way, you don’t have to waste time entering it manually or worry about missing an account. You can also check your account anywhere.

This method is very convenient for young people who often use mobile phones and e-banking. Since using the app, I have also discovered many automatic deductions from the bank that I did not notice before. If you often spend by card, this is a very good method to manage money.

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I hope this article is useful for those of you who want to achieve financial independence. I personally feel like I still lack a lot of knowledge about money management and plan to learn more this year. I will continue to share this journey of mine with you through my blog. Wishing everyone to use the money they make autonomously, confidently, and peacefully.