How to Make a Zero Based Budget
How to Make a Zero Based Budget
When people hear the term “zero based budget” it freaks people out. No lie. When I talk to
people about Zero Based budgeting the very first thing they say is “I could never feel
comfortable bringing my bank account to zero!”
That is NOT how zero based budgeting works.
Zero Based Budgeting is simply knowing exactly what is coming in (income) and making a plan for every penny of it (to expenses or debt or savings).
Personally, I keep a cushion of $100 in my bank account. Then I track all the income set to come in that month. THAT is the money I budget down to zero. If I have $100 in the bank and my income for the month is going to be $2000, I make a budget for that $2000
Step One: List all your monthly income
This means all your income whether it comes from employment, child support, alimony, side hustles, or garage sales. Every Dollar gets noticed and written down.
Here is my zero based budget for June from EveryDollar.com
Before the month starts I insert my planned income for the month once it comes in I mark it as received.
Step Two: List out all your monthly expenses
Make a list of all your household monthly expenses. and order them by importance. Your four walls should always be at the top of this list.
Four walls includes: Food, House payment/rent, utilities, car, gas, clothing
Your monthly list might look similar to this
- Utilities (electric, gas, water, trash & sewer)
- Car payment(s)
- Phone bill
- Credit cards
- Gym membership
Step Three: Make a list of all non-monthly expenses
This list could include auto or homeowners insurance or annual subscriptions like Amazon Prime.
For me, my list includes my water/trash bills (which is $120 quarterly) and my Amazon Prime (which is $120 annually)
From here, you will determine how much to set aside every month for each of your non monthly items to ensure the payment is made when it comes due. Say your Amazon payment is annual and you have 4 months before it is due, you would need to save $30 each month but once it is paid then you would only need to save $10 per month for the next annual payment.
Step Four: Enter your expenses into the Every Dollar app
The every dollar app allows you to input all your income as well as your expenses.
After you have entered all your income and expenses, does it balance out? If this is your first time the answer is probably NO.
This is where the tweaks come in. Do you still have income left over? GREAT, send it the rainy day fund.
Is there a negative number? (If you are like over 78% of Americans then the answer to that is probably YES.)
Here you are staring at your budget wondering how you are over spending. What costs can you cut? How often do you eat out? Do you really watch all 200+ of those cable channels? Have you even BEEN to the gym this year? Cut or trim what you can.
Once you play around and make the necessary modifications needed to balance your budget to a zero based budget
Once you are more aware of where you money is going it is easier to be able to save.
But life is NOT all about working and paying bills!
You NEED to have motivation in your life.
Is there a trip you are looking to take?
PUT IT IN THE BUDGET.
Create a line item for any goal you have, whether it is saving up an emergency fund or taking a vacation. Maybe you are wanting to save up to buy a new car. Give your self a goal. I want to save up $XXX.XX for [insert goal here] by [insert time frame here].
A budget is telling your money where to go instead of wondering where it went.