What is a zero based budget?
A zero-based budget is a budget that runs on the principle of every dollar you earn having a purpose. Your income minus your expenses equals zero. It’s that easy. You bring in $3,000 a month? Every dollar of that $3,000 has a predetermined place to go. For my family, this type of budget makes the most sense. If every dollar has a place to go, it’s harder to waste money. It’s very simple.
How to start your own Zero-Based Budget
Step One: Add it Up
Add up all your income. This is your take-home pay, after taxes and deductions.
This is easiest if your income stays the same month to month. If it doesn’t, fear not! Calculate for the lowest pay you anticipate receiving in a month. If your money is irregular, be sure to truly prioritize in Step Two. Add in things like child support, and money made from any side gigs. Every dollar you’ll bring in!.
Step Two: List it Out
Starting with your most important expenses like your mortgage/rent, utilities and groceries, list out everything you’ll have to pay for this month. From gasoline to your phone bill, from Netflix to debt payments. Include savings and also giving/donations if applicable. Every dime you’re going to spend, save, give away or invest.
If your income is very irregular, be sure to prioritize here. Order your expenses from most important to least important. For example, you have to pay your electricity bill. If you bring home a smaller check than you expected, you don’t have to pay for Netflix.
Step Three: Add it Up (Again!)
Next, add up your expenses. Now compare this number to your income. Is it less? Great! You’re in a good position!
If it’s more than your income, don’t panic. You probably knew this was going to happen. It’s okay! That’s what we’re here for. Take a look at your expenses to see where you can trim the fat. Do you need Hulu AND Netflix? Can you cancel your cable? Have you read my post on saving tons of money by monthly meal planning? Make your changes, and lets keep rolling!
If you have no expenses you can cut, how can you make more money? There’s tons of things you can do as a side hustle!
Step Four: Make it Zero!
If you have some extra money not allocated to a bill, hobby or savings account, awesome! Now you have to decide what to do with it. Make extra debt payments, stash it in your kids’ college fund, treat yourself to a monthly family pizza party and give the rest to charity. Whatever you want! Its your money. Use it how you want.
Just make it zero.
If you had to make some changes, re-assess. Recalculate your income and expenses, and balance them to zero.
Step Five: Stick to it!
If you only budgeted to spend $300 on food this month.. you better only spend $300! You set this budget for a reason. Stick to it.
I recommend linking your accounts with a free app like Mint or Every Dollar! You can enter in all the expenses we wrote down earlier, and the app will track your spending for you!
Step Six: Evaluate
At the end of the month, check in. How did you do? If you’re using a spending tracker app, this will be easy to see.
Did you spend more or less than you anticipated in certain areas? Make adjustments for next month, and keep it going. The key is consistency! Stick to your budget. You’re in charge of your money.