Heres a simple question for you: Are you spending more than you earn each month?
Lets get even more specific: Are you spendingexactlywhat you earn each month?
If you create a zero-based budget, thats precisely what youll be doing.
Trust us, its the furthest thing from it.
We explain exactly what zero-based budgeting is and how this budgeting style can help you.
What Is Zero-Based Budgeting?
No Interest Til Almost 2027?
How to Make a Zero-Based Budget
Budgeting gets a bad reputation.
But the fact of the matter is thatsetting a great budgetdoesnt restrict you it actually sets you free.
And compared to traditional budgeting, the zero-based budget is the most customizable and flexible budget out there.
Heres how to make a zero-based budget that fits your finances, lifestyle and goals.
That means all your side jobs, bonuses, tax refunds, gifts, irregular income everything.
Any deposit thats made to your checking account should be accounted for.
Do your best to make an educated prediction of what your income will be.
you’ve got the option to always add to it or take away from it throughout the month.
For our example, lets say you bring home $4,500 per month.
These expenditures should be fairly stable, so youll probably know how much money to allocate for these costs.
Finally, include expenses that you only pay once or twice a year.
This will include bills like HOA fees or license and registration renewals.
before you roll building your budget, take a moment toconsider your financial goals.
Are you excited to eliminate your debt?
Trying to pad your emergency fund?
Working to catch up on your retirement contributions?
Its up to you.
But however you break them down, youll want to prioritize these costs by importance.
Then finish with your discretionary expenses.
The example budget above includes $4,650 of expenses, but our income is only $4,500.
So in this case, our budgeter will have to decide where to find $150 in cost savings.
The Pros and Cons of Zero-Based Budgeting
Zero-based budgeting is simple, but its not easy.
It takes a lot of upfront commitment to get all the benefits.
Here are some positives and negatives to weigh before you dive in.
But this shouldnt be a problem as long as you have a buffer.
Some people keep anemergency fundin a separate or linked savings account.
Others will keep an extra $1,000 or $2,000 in a checking account.
Still others want a full month of expenses sitting in their account before they start using a zero-based budget.
The choice of how much buffer youre comfortable with is up to you.
Zero-Based Budget vs. 50/30/20
The 50/30/20 method is a popular alternative to the zero-based budget.
But what makes them different?
While both methods are great, they serve different goals.
Zero-Based Budgeting Apps
Need help getting organized?
There are budgeting apps and budgeting software geared towards the zero-based budgeting system.
Check outour recommendationsfor both free and paid user-friendly budgeting apps for beginners.
Is Zero-Based Budgeting Right for You?
Despite its popularity in the business world, not everyone thrives on a zero-based budgeting process.
Kaz Weida, a senior writer at The Penny Hoarder, contributed
