What is Zero-Based Budgeting?
Zero-based budgeting is a proactive method used to strategically manage your money. Simply stated, a zero-based budget is when income minus all expenses (including debt payments and savings deposits) equals zero.
So, if you make $4,000 each month, then your spending, saving, and debt payments should add up to $4,000. Every single dollar you make has an intention and a purpose.
To be clear, this does not mean you have zero dollars in your checking account at the end of the month. I recommend keeping a buffer of $100-$1,000.
Here are 4 steps to get started:
1. Write down all monthly income sources
Your income includes any paychecks from your employer and any additional income derived from sources like a side hustle, child support, or alimony.
2. List all expenses
Typically, this can be broken down into a few categories including fixed expenses, variable expenses, savings, and debt payments. See the visual below.
| Fixed Expenses | $ Amount | Variable Expenses | $ Amount | Debt Payments | $ Amount | Savings | $ Amount | |||
| Giving | Utilities | Credit Card | Emergency Fund | |||||||
| Mortgage/Rent | Groceries | Student Loan | Roth IRA | |||||||
| Car Payment | Restaurants | Auto Loan | House Fund | |||||||
| Car Insurance | Gas/Tolls | Medical Debt | Other Investments | |||||||
| Life Insurance | Car Maintenance | Other Debt | Other Savings | |||||||
| Phone Bill | Fun Money | |||||||||
| Internet/Cable | Gifts | Total Debt | $0 | Total Savings | $0 | |||||
| Subscriptions | Buffer | |||||||||
| Other Expense 1 | Other Expense 1 | Total Income | $0 | |||||||
| Other Expense 2 | Other Expense 2 | Total Expenses | $0 | |||||||
| Remainder | $0 | |||||||||
| Total Fixed | $0 | Total Variable | $0 |
3. Make sure your income minus expenses equals zero
Your planned budget (income minus expenses) should balance out to zero. If your ending balance is over or under zero, then adjustments need to be made. I will be posting budget hacks on our Facebook page weekly if you are interested in learning more!
4. Track expenses!!!
It might take a few months to get everything right so give yourself some grace. I recommend tracking each expense manually in the beginning to increase proactivity and accountability. Once you have this system down, you will become the boss of your money and feel like you got a raise!
Pro tip: Consider using technology to make this process easier. While there are many great apps out there, I prefer to use our holistic financial planning software, WealthVision. This software helps me keep track of my budget and ensures that my strategy is aligned with other goals like retirement, college funding, or debt freedom.
If you need help managing money or creating a zero-based budget, then don't hesitate to reach out! I would be happy to help you get started for free!!
BOOK YOUR FREE STRATEGY SESSION
Samuel Shinn, MBA
Wealth Strategist
samuel.shinn@lpl.com
856-437-9294