The Charleston County School District, faced with a rather shocking $18 million budget gap, plans to get it’s fiscal house in order with zero-based budgeting, and you may be wondering if such an approach could help with your own personal budget.
Well, it might. A different approach to budgeting can’t fix everything — such as, in the school district’s case, being fined half a million dollars for failing to file tax forms on time — but zero-based budgeting can help take a hard look at where one’s money goes.
The idea is, instead of starting an annual budget by looking at what was spent the previous year, you start from zero and lay out a spending plan. For example, instead of budgeting $1,200 for cable in 2016 because that’s what you spent in 2015, zero-based budgeting means considering if cable is something you need, and can afford, and how to spend no more than necessary to have it.
Some of those blanks on the budget will get filled in quickly. Schools need teachers. Individuals need homes and food. There are some costs that can’t be avoided.
Still, so many of the expenses that individuals and businesses face are arguably not essential. I’m often struck by just how much money people now spend on monthly or annual fees for all sorts of things.
Internet service, cable, cell phones, satellite radio for the car, streaming video services (Netflix, Hulu), streaming music services, ATM fees, identity theft protection — these things simply did not exist decades ago, and they can add up to serious money. Major appliances that used to be one-time costs have even turned into recurring costs that suck on bank accounts.
Take my new refrigerator. It’s nothing fancy, but unlike the broken one it replaced, it has water and air filters (an air filter, really) that of course need to be replaced regularly at some expense. But I digress.
Taking a big-picture, start-from-zero look at your expenses can be a good way of examining your priorities and where your money goes.
You may find that you are paying small monthly or annual fees, out of habit, for services you don’t even use.
There’s also a good chance you’re paying more than you need to for some things. Putting together a household budget is an opportunity to make a list of the expenses that you can potentially reduce by shopping around, or simply by making a few phone calls.
At the top of my list for things to price-check yearly are insurance and banking.
With insurance, first see if your coverage still meets your needs. You may need less insurance, for example, if you have a paid-off car that’s aged to the point where its value doesn’t justify paying for comprehensive and collision coverage. After determining the coverage you need, shop around to see if you can get a better deal from a reputable, rival company.
With banking, consider the services you need, the interest you are earning, and whether you are paying any fees. You may be able to cut or eliminate fees you pay, and earn more interest, and maybe get a sign-up bonus as well by switching to a different bank or credit union. Personally, I can’t remember the last time I paid a bank fee of any kind.
Cell phone plans are also ripe for cost-shopping, due to falling prices and the competition between service providers.
Some expenses may be reduced with just a phone call. Call your cable or internet provider and tell them you want to be sure you’re getting their best deal, because you’re thinking about switching to a different company. You might end up paying less, though first they’ll probably transfer you to a customer retention specialist who may try to up-sell you to an even more costly plan.
Just last week I saved $89 by calling one of my credit card providers and telling them I planned to cancel their card rather than pay the annual fee that was coming due (which was true). After a little back-and-forth with the service rep, they asked if I would keep the card if they waived the fee. Sure, I said.
Ideally, taking some of these steps will help beat your recurring expenses down, which could make budgeting for 2016 a little easier.