Zero-Based Budget

Zero-Based Budget

Zero-Based Budget

There are many ways to budget. My husband and I choose to do a zero-based budget each month to make sure that our budget balances.

Get a free budget template to start budgeting to wealth.

What is a Zero-Based Budget?

A zero-based budget means each dollar from your income is given a purpose in your budget. There is no money left over in the budget. If there is money left over, it is given a purpose.

If $2146 comes in, $2146 worth of expenses are placed into the budget. If only 40% is spent on bills, the remaining 60% would go towards retirement, upcoming activities, paying off the mortgage, savings, etc.

The numbers won’t be exact, but the numbers will keep you on track to accomplish your goals. For example, our budget for food is $100 biweekly. We may spend $95.85, but the $100 budget gives us a guideline to follow.

Why We Choose a Zero-Based Budget

My husband and I choose to do a zero-based budget because it gives each dollar a job in our budget. We’ve seen our income accomplish a lot more when we plan each dollar out.

We already have budget items like date night and our own personal envelopes to spend on what we want. We plan for car expenses, medical expenses, future vacations, and more in our budget. So, we choose to do something constructive with our left over money instead of being tempted to use it on ourselves.

How to Balance Your Budget

Using the zero-based budget, balance your budget by making income and expenses equal.

In the free basic budget, you will see the “Leftover” line item which will show you if you are spending more or less than you make. You can find this number in your own budget by subtracting your expenses from your income (= income – expenses).

What to Do If You Spend Less Than You Make

If the leftover money is a positive number, job well done! Aim to get that number even higher to accomplish your goals.

Choose what to do with your extra income to start building wealth on your budget. These steps are good guidelines to follow at any stage of your budgeting journey and meant to be followed in order:

Build a Buffer Fund
Pay Off Debt
Build an Emergency Fund
Contribute to Your Retirement
Pay Off Your Mortgage

Make an extra line item with one of the above goals and contribute every extra dollar in your budget to this goal. These goals are the primary steps to take to start making the most of your income.

What to Do If You Spend More Than You Make

If your leftover is negative, you are spending more than you are making. By creating a budget and taking a look at the numbers, you are already making a step towards improving what you do with your money. Further, improve your budget by doing one or both of the following:

– Decrease your expenses
– Increase your income

Decrease Your Expenses

Start by reviewing your zero-based budget. Make sure to include all expenses in your budget, so that you are making a plan for your money. You will be able to find money in your budget by letting go of unnecessary spending.

You will notice that you have many opportunities to make better financial decisions each day. Whether that’s choosing to meal plan instead of going out for lunch and dinner each day or lowering your utility bills, there are many ways to decrease your expenses. Here are 9 ways we save on groceries – only spending $100 biweekly on groceries.

Increase Your Income

You should also increase your income – even if only temporarily.

Kickstart your savings to get positive cash flow into your budget and start accomplishing budget goals until your full-time job completely covers your bills and accomplishes your goals.

Whether you are just beginning to budget or have been budgeting for a while, a zero-based budget can improve the efficiency of your income. Each dollar will go towards building wealth.

What type of budget do you use?

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