What is a Zero Based Budget?

Everyone needs a budget to keep their finances in order. It doesn’t matter if you’re trying to save money or make money, you always need a budget! There is no way to tell if your goals are being met without one. There are a few different ways you can go about creating your budget and a few different tools you can use to do that.

One of the more popular ways to arrange your budget right now is a process called the zero-based budget. In this system, by subtracting your income from your expenses you should end up with no money leftover. How is this possible you ask? Basically, whatever you earn, you will place into categories like spending, savings, giving, or investing. So every bit of your money belongs in a place and is accounted for, all to equal out to zero. Let’s take a closer look at getting started on your first zero-based budget.

Calculate your Income

This is any income you may receive throughout the year, not only your salary. If you receive government benefits, child support, alimony, or if you do odd jobs on the side, these should all be included. Even if you have an irregular income you can still use this system. A good rule of thumb is to calculate your income based off lower earning months, then correct it as you go. Some people choose to do this process on paper and others like to use apps on their phone or computer. Budgeting forms can be a great guide if you’d like to do it the old fashion way with pen and paper. For those of you that prefer a more tech-savvy approach, apps such as Mint and YNAB are ideal for budget tracking.

 

  • Mint is a highly customizable free app that helps you track and calculate your budget. It can send you alerts and auto-populate your accounting software if you connect it to your computer or tablet. Thinking of making a large purchase? Mint can also allow you to play what-if with your budget to help you make better decisions. It boasts three different levels of verified security systems and a feature that ensures your banking is read-only from the app.
  • YNAB is a multi-user app that syncs to computer software ($50/annually) to help you with all your, and your family’s budgeting needs.  True to YNAB’s Method “Give Every Dollar A Job.” this program allows you to separate your expenses into your own personal categories, instead of creating them for you. YNAB is all about intentional spending so you know exactly where every dollar is going.

Tally your expenses

We are going to start with the essentials here, or the Four Walls- food, shelter/utilities, basic clothing, and transportation. Next list out the rest of your expenses for the month and your spending allotment. Don’t forget to include your seasonal expenses and unexpected expenses as well. What if your car breaks down, your child breaks something in a store, or you have an emergency vet visit? All these things are unanticipated and could cost you a lot of money. In order to keep our zero equation accurate, you will have to re-calculate these estimates each month.

Subtract your income from your expenses

Now we have come to the part where we subtract and see where you stand with your budget. Chances are you won’t hit zero the first few times you do it. That’s ok! Let’s see what happens if your expenses are greater than your income. This means you have a deficit in your equation and we need to make some changes to get you up to zero. To shave a bit off your expenses use coupons, shop at bargain grocery stores, make your coffee at home, or forgo cable TV.

Now let’s say you have a surplus on your income, what are some different things you can do with that? The first and most obvious is to put some in savings. It’s always nice to have more money than you need. So why not make your dividends multiply while it sits there waiting for you to spend it? Another idea is charitable giving. What better way to help others and get a right off on your taxes at the end of the year!

There you have it, the simplest ways to bring your budget together using the zero-based budget! Don’t get caught up in overly complicated software or schemes to help balance your checkbook. It just takes a handy system and sitting down once a month to make sure you are on track. Ultimately, this will give you a clear picture of where your money is going.

 


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