Successful businesses understand the power of budgeting. In fact, when it comes to business consulting, understanding how to budget effectively can make the difference in whether your strategic decisions are viable or not. Neglecting to budget or miscalculated revenue and expenses on your report can make it increasingly difficult to run a business. Thus, budgets must not only be done frequently, they must also be audited and iterated to ensure accuracy.
Budgets are not just important for business, they can also help improve one’s personal finances. Because many small businesses are being self-funded these days, budgeting is becoming an increasingly popular tool for entrepreneurs. By balancing your personal budget, you can optimize your monthly income and find opportunities to add more money back into your personal business.
Zero-sum budgeting is an easy budgeting technique that any entrepreneur can use to optimize their personal finances. To perform a zero-sum budget, you need to know how much money you earned the previous month. Assuming that this income is consistent, you will then reallocate every penny you earned last month to some categorical expense in the current month.
For instance, let’s say you earned $5,000 last month. You know that you have rent expense of $1,000, utility expenses of $500, and a car payment of $250. These fixed costs add up to $1,750 which you’d simply remove from your $5,000 income leaving you with $3,250. You then apply estimates of your other expenses like food, entertainment, and gas and remove those from your income.
Hopefully, after you’ve budgeted for all the fixed and common-variable expenses, you’ll have some remaining income left over. When this happens, you still need to assign a category to every dollar. The goal of zero-sum budgeting is to end up with $0 at the end of your budget. What this means is that you should assign your extra income to things like savings, long-term debt repayment, and to put back into your small business.