Zero-Based Budgeting Tips for Your Monthly Budget

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Almost all adults have heard that it's important to create and maintain an accurate budget. However, this can be challenging if your income and expenses change every month. Also, many people do not know how much they spend in certain categories, and others may not want to take the time to bring order to the chaos of their personal finances.

However, the benefits of a personal budget cannot be overstated. You can finally know how your money is being spent and exert control over your finances and future. You will be able to work toward your financial goals, prepare for emergencies, and even pay off debt. One of the best types of budgets that can help you meet each of these goals is the zero-based budget.

Zero-Based Budget

A zero-based budget ensures that your income matches your expenses completely. You will determine how every dollar is spent, whether you are using it to purchase groceries, pay a credit card, or build up your savings account. Because expenses change frequently for most people, you will need to make a new zero-based budget for each month.

During the month, you can move money from one category to another. For example, if you spent more than you intended for groceries, you can take money from your entertainment category. However, at the end of the month, your income and expenses must come out even.

This type of budgeting does not allow you to spend all of your money every month. Instead, you should build savings, investments, and charitable contributions directly into your budget to help you spend wisely.

With a zero-based budget, you determine how every dollar of your income is spent. Controlling where your hard-earned dollars go can simplify your life and help you reach your financial goals.

How to Create a Zero-Based Budget With an Irregular Income

If you do not earn the same amount every month, you can still create a zero-based budget. To do this, you will need to set up your budget based on the least amount that you earn in a month. That way, you will not overspend by incorrectly estimating a higher income for a low-income month. You will also need to calculate your monthly expenses in order of importance, such as rent, food, and cars, which need to be paid off first.

If your income is commission-based, pay off the most important items with your paycheck and the remainder of items when you receive the next check. If you have any surplus, use it to pay off debts or deposit it in your savings account.

Benefits of a Zero-Based Budget

The longer you work with a zero-based budget, the more you will understand where and how you spend your money, and the more financially organized you will feel. You will finally be able to see where your money goes and why you may not be meeting your financial goals. For example, many people are surprised to see how much money they are spending on groceries or on those seemingly “little” expenses, such as daily coffees.

Once you see where you’re spending your money, you will be able to make wiser decisions. Some decisions may seem difficult at first. It may be hard to cut out cable or go without the luxury of eating in restaurants twice a week. However, being able to control where your money goes can be incredibly empowering.

Zero-based budgeting is also a great solution if you have a changeable monthly income, such as if you are a freelance worker or are self-employed. Your budget will help you build a safety net with an emergency fund and will help you plan for months when you may not have as much coming into your bank account.

How to Create a Zero-Based Budget

Although it can take a few hours to set up your first zero-based budget, you will find that succeeding months become much faster. Many categories will be able to slide seamlessly into the new month, especially if your income is regular:

  1. Start by determining your monthly income. You may need to estimate some items but select a low amount so that you are not struggling to meet expenses later in the month. Be sure to include other small sources of income, such as child support or side jobs.
  2. Next, write down your regular monthly expenses as well as seasonal expenses, such as Christmas gifts, income taxes, and even spring landscaping. Also be sure to include savings, investments, and retirement account needs.
  3. Finally, subtract your expenses from your income and make sure that your total is zero. It may take a while to balance this budget. See where you can delete some expenses or where you can add income when possible. Creating your first zero-based budget will seem a bit like a balancing act.

    An example of a zero-based budget for a two-earner household for one month might appear as follows:

    Income from Spouse 1: $3,200

    Income from Spouse 2: $2,000

    Total Monthly Income: $5,200

    Rent: $1,200

    Utilities: $210

    Groceries: $500

    Eating Out: $150

    Transportation: $120

    Insurance: $250

    Mobile Phone, Cable and Internet: $200

    Pet Expenses: $50

    Clothing: $100

    Gifts: $70

    Miscellaneous Household Expenses: $150

    Credit Card Payments: $300

    Student Loans: $250

    Charitable Contributions: $400

    Entertainment: $200

    Retirement Account Contributions: $500

    Savings: $400

    Travel Fund: $150

    Total Monthly Expenses: $5,200

    Once you understand how a zero-based budget works, you can create one to simplify your life. It may take time to get used to this method of budgeting. However, you may be surprised at how intuitive the process becomes once you have used it for a few months.