The Zero Based Budget Method
Let’s talk about the one and only budget method you need to see change in your finances. A budget is how you prioritize what’s important enough to spend your hard earned dollars on. A budget is simply a plan to tell your money where to go and the budgeting method that works best is the Zero Based Budget. This ensures that every dollar (or penny, if you’re a numbers nerd like me) is accounted for and assigned a category in the budget.
Related : Why You Need a Budget
What is a Zero Based Budget?
With a Zero Based Budget you start with your total monthly income (take home pay) and subtract the entire month’s expenses (this includes both spending and saving). You’re going to assign every dollar to a category line item on the budget so at the end of month what’s left is … zero.
Why it Works
The Zero Based Budget works because it’s actually going to help you get back in control of your money. If you finish the budget for month and you have $300 left over (unassigned) it’s going to cause you to lose control. Having $300 extra dollars means you might get a little relaxed in overspending categories because you have the cushion. Having $300 extra means you are probably going to spend that money rather than throw it into savings at the end of the month. If you don’t give that money a purpose, you won’t know what to do with it and you’ll lose it.
Using the Zero Based Budget to give every dollar a purpose is the #1 tool you can use to achieve your financial goals whether that be getting out of debt, saving for a home, vacation, retirement. Whatever the goal, the only way you’re going to get there is with a plan and the plan must have every dollar accounted for.
How Often to Budget
With the Zero Based Budget, most families will find that creating a monthly budget is the best way to go. This means each month starts fresh with a new budget. Most of your expenses are probably going to stay the same from month to month and you will only need to make a few changes. The only time you might find weekly budgeting to be necessary is with a very irregular income, however, even with irregular income you can budget monthly with just a few extra steps we’ll get into later.
Keep It Going
While creating the budget before the next month begins is crucial to your success in any financial goal, it is equally important to continue tracking expenses throughout the month making sure you stay within the budget you created. When you reach the middle of the month and notice your grocery budget is more than halfway spent, you know it’s time to get creative in the kitchen and make your grocery budget stretch for the duration of the month. Better yet, before you even get halfway through the month, figure out how to pace yourself with your spending.
It’s also important to remember that your budget won’t be perfect. Unexpected expenses and items you forgot to include are going to come up. Don’t stress about these changes. Just make adjustments to your current budget and carry on. It will take at least 3 months of creating and maintaining a Zero Based Budget for you to get the hang of this.
Embarrassingly enough, the first budget Ryan and I ever created was a complete flop. We had over spent in so many categories within the first week. We had no idea how much money we actually needed for food and gas. And it took some time to figure out how our budget related to our bank account. Don’t worry about it being perfect, just get it done and after the first 3 months of staying committed I’m confident you will feel more at ease with the Zero Based Budget and you will be well on your way to financial freedom.