Zero-based budgeting is one of many budgeting styles you can try. I used it with the combination of paycheck budgeting. This budgeting style can help you pay off debt, save money, and achieve your financial goals. Remember to use the budgeting style that you can stick with, and that works best for you. Personal finance is personal. Using the zero-based budget has helped me balance my life. I have money for fun, bills, and savings.
What is Zero-based budgeting?
Zero-based budgeting allows you to assign every dollar to a specific expense, saving, and debt pay-off category within your budget. You should have zero dollars left per paycheck that you budgeted since every dollar has a purpose in your budget. Your total income minus all the expenses should equal zero. For example, if you have $200 in your bank account, you may budget $100 for groceries, $25 for toiletries, and $75 to go out with friends. You have zero dollars left to allocate.
Some advantages of zero-based budgeting
Save More
With this method, you will notice how much more money you have available that you can save. You can allocate savings toward your emergency fund or sinking funds for vacation and car repairs. You can allocate specific amounts to each goal. Usually, people save what they have left over at the end of the month but need to remember to save because they’re busy spending on other stuff. But now you can purposefully plan to save for what you want. Unless you put it in your budget, it won’t happen.
Debt Reduction
You can assign specific amounts in payments towards your debts, such as credit cards, student loans, and mortgages. With the zero-based budget, you can ensure that you make consistent payments towards your budget.
You can either use the debt snowball or debt avalanche as a payment strategy. The debt snowball is when you pay the smallest balance debt to the largest. You will pay the minimum on all your debts and then pay extra on the smallest debt amount. The debt avalanche is when you pay off the highest-interest debt first. Do what is best for your budget and be consistent with it.
No Deprivation
Most people don’t like the word budget because it feels restrictive, but with the zero-based budget, you can plan for the items you want to spend money on, such as coffee and dinner with friends.
Flexibility
Let’s see what you’re spending money on and what you can eliminate. You may forget about a subscription or membership that you are not using and cancel it to save. Month by Month, you can add more money to a different area or cut back in another area because you assign your money to a category.
Spending Control
By assigning every dollar, you gain complete control of your finances. No more surprises or unexpected expenses that will derail your goals. Also, you will stop impulse shopping when assigning money to specific categories because you can only spend what you assign to that specific category. You can assign the money you want to spend on things such as vacations, clothes, and other things you may like and need.
Getting Started with Zero-Based Budgeting
1. Track Your Income: Calculate your monthly income from all sources.
2. Categorize Expenses: Group your expenses into categories like housing, transportation, food, entertainment and saving
3. Assign Every Dollar: Allocate each dollar of your income to a specific category. Ensuring that expenses do not exceed income.
4. Review and Adjust: Regularly review your budget to ensure it reflects your current financial situation and goals; make necessary adjustments
Tips for Success
Start Small: Don’t try to do everything at once. Start with a few categories and gradually add more.
Be Realistic: Set achievable goals for your spending and savings.
Be Flexible: Life happens. If unexpected expenses arise, adjust your budget accordingly.
Zero-based budgeting empowers you to take control of your finances. By assigning a dollar to a purpose, you will have less stress, a great financial plan to save more and pay off debt, and money for things you enjoy.
Is this Zero-based budgeting method right for you?