How to Make a Zero-Based Budget

Ready to get serious about saving? Trying out the zero-based budget may be for you. Here’s how to ensure you account for every penny each month, while rocketing your savings Goals into overdrive.
Understanding the Zero-Based Budget, and How to Make One

One major budgeting pitfall people tend to succumb to is failing to account for every single dollar coming and going from their accounts. They make well-meaning statements about how they’ll save, say, $1,000 a month but end up only saving $900 and call it a win. Some people need a stricter budget in order to maintain control of their money. That’s where the zero-based budget comes in handy.

What is the zero-based budget?

Simply put, the zero-based budget means that your income minus your expenditures equals zero at the end of every month. It forces you to account for every single expense, every penny of savings, and how much you invest so you know exactly what is happening with your money and you don’t spend outside of your budget at all; not even for that extra cup of coffee while you’re on the go. It’s stringent, but it might be the perfect budget for those who have a hard time with numbers.

List all your income sources

Start out the zero-based budget by dividing a worksheet, spreadsheet, or piece of notepaper, whatever works best for you, into two separate columns. In the first column you’ll tackle your income sources. Sit down and write out every penny coming into your bank account for the month. This includes paychecks, residual income, child support, money from side jobs, and even that birthday check from your grandma. If it’s going to see the inside of your checking account, it goes on the list.

Write down your expenses

Now, on the other column you want to list all of your expenses for the month. You’ll need to write down every penny you plan on paying out. Start from large to small, from your mortgage down to your monthly Netflix bill. Things like groceries and trips to the coffee shop can be combined, but it’s important you stick to your food expense exactly. No going over. You have to buy a present for your co-worker’s anniversary party this month? That goes on the list, too.

If your lists of income and expenses don’t equal out once you’ve tallied both sides up, that means you have a problem with your spending habit. This list will help you see where you’re going wrong and allow you to devise a way to fix it. The end goal is to be able to add up the lists, then subtract the right from the left and equal zero.

If you find yourself spending too much on groceries, see if you can shave some money off that expense by cutting back on buying brand-name products or find more coupons. Are your entertainment expenses too high? You might have to stay in a couple of weekends this month.

One important facet of the zero-based budget is that having extra money is just as bad as having too little. Remember, the goal is to have a total of exactly zero. So, if you find that you managed to have a surplus of $200 for the month instead of a deficit, that’s great, but you need to assign it to something. We recommend moving it into the savings portion of your expense list.

Make a new plan every month

Since the zero-based budget requires specificity when it comes to tracking your money, you’ll have to make a new list every month. It’s unlikely that each month will be exactly the same, and that’s OK. Tons of people find it impossible to stick to a rigid budget that doesn’t leave room for life to happen.

Why will this work for you?

The zero-based budget seems pretty simple, right? That’s kind of the whole point! The idea behind it is to teach those who have trouble balancing their checkbook a way to visually hold themselves accountable. It might not be the best budget for those looking to save, but it’s a great starter budget for people who want to establish a reliable cost-cutting routine each month. The fact that you must sit down and re-create it every few weeks allows you to establish a pattern and keep careful track of your spending patterns. Once you’ve got it down to a science, you can either continue to use it or switch to something that allows a little more freedom if you think you’re ready for it.

Just remember, the key to making this budget work is to never spend more than you allow yourself in the expense column every month.

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