Creating a Zero Based Budget & Using It!

Creating a zero based budget is easy! Sticking to any type of budget can be more difficult. There are many methods and types of budgets. Today we will explain some of the benefits of a zero based budget.

There are many ways to track a budget. A good old pencil and paper is one method available to all. One of the more enticing ways is on an app such as Every Dollar, but there are many more. An Excel spreadsheet would work just fine as well.

What Is A Zero Based Budget?

This is a method where all of your income is assigned to a category. Leaving you with “zero” dollars at the end. Most people would complete this monthly. You would list all of the categories for spending. This includes needs such as a mortgage or rent payment. This includes, utilities, phones and insurance. It also has variable spending categories such as grocery, beauty and even spending money. If you spend money on it, it needs to fit into one of these categories. Special categories such as “gifts” should also be considered.

At the start of the month, list all of your income. This includes income from your main job, rental income, side jobs, expected gifts and any dividends. ALL income you will receive in the month. Then you analyze and look over all of your expenses. Assign your expected income to all of the expenses. Adjust for special purchases such as a wedding coming up or Christmas presents. You also adjust for how well you did in previous months in these expense areas.

Sometimes there are annual expenses such as insurance or license tabs. Depending on your income level, there are two ways to handle this. For instance, a $1900 annual tax bill could be saved throughout the year. In this example, you would set aside and save $159 each month to anticipate this expense. You may have a large enough income to make this payment without infringing on other monthly costs. In that case, you would just assign $1900 to the tax expense in that month’s budget and adjust other categories such as “savings” down.

In a Zero Based Budget, there is no surplus. EVERY dollar is assigned. If you put in your income and expenses and you have extra income, that’s great. You would then assign this to “savings” or to pay off additional debt. You could also set it aside for a large upcoming expense. Such as vacation or a new car. Just make sure to assign it to something so you are left with ZERO!

There are many ways to budget. A simple online search will provide you with templates and information galore! The important thing is that YOU have one and commit yourself to controlling your finances. Don’t let your finances control YOU!