How To Create A Zero-Based Budget That Works
Estimated reading time: 8 minutes
Take control of your finances with zero-based budgeting. Learn how to give every dollar a purpose and achieve financial freedom.
Zero-Based Budgeting Is Our Financial Success
I’m a simple guy who likes to understand finance without having to look up words that are hard to understand.
A zero-based budget may sound complicated, but it’s nothing more than being organized with your cash!
What is zero-based budgeting?
In easy-as-pie financial terms, a zero-based budget means that your money needs a home and name tag, whether in the bank, investments, or paying everyday bills.
When all is said and done at the end of each month, you will want to see a big, fat ZERO to show that you’ve balanced your money and there’s nothing left to do but smile.
Smile right now just for practice purposes.
I do it every day, regardless of my financial situation. Do you know why? Because life is worth that much, try it.
What I mean is that not every month has clocked out at zero which means we’ve spent more money than we earned, it happens.
You still need to keep that optimism because bumps happen along the way, but you’ll get better at handling them if you stay focused.
But I have NO MONEY to spend!!
Making a zero-based budget doesn’t mean you don’t have any money in the bank which plenty of people worry about. Not at all true.
It simply means you’ve lined up your money and distributed it where it belongs.
This may also mean you’ve created a budget category called “savings,” where you stash some of your cash. Ta-da.
For example, I give myself an allowance every month and tag it as a budget category so I have money to spend.
Zero-Based Budgeting Our Way
Let me explain our zero-based budget story; perhaps it may give you better insight.
Although some financial gurus may say that savings at the end is not a zero-based budget, we disagree.
Before you read any further, perhaps looking at our budget Excel spreadsheet first might help you understand what I’m talking about.
You can download our budget spreadsheet to your computer for free because we want you to SUCCEED!
Any money left over is just a bonus for us since our investments are covered in our monthly budget categories, and our emergency savings fund is already in place.
We went this route because so many people try adding savings to their bank accounts when they have debt.
It doesn’t work that way.
You must pay your debt first, not yourself, even though some may disagree with us.
There is lots of FREE stuff to do to entertain yourself without cash.
There’s no point having money in the bank earning peanuts of interest when your credit card smashes you for more each month.
Some credit cards strip people of money in bits monthly, and they have no idea it’s happening because they only pay the minimum amount.
Don’t be this person.
Once your debt is paid off, you can increase your savings power, although I agree that saving a little bit is better than no savings.
What I mean by this is when readers tell me they can’t save any money because they have debt to pay.
You must save a bit for emergencies, whether $5 or $10 a month, even if it’s sheltered in a Tax-Free Savings Account, which is easily accessible and tax-free.
This may mean no coffee from Tim Hortons, cutting grocery expenses, No data on your phone, or using free wi-fi outside of your home.
Cleaning your financial house with a zero-based budget
When we first started tracking our finances, we needed budget help, and we did our research online just like you are.
We wanted budget results that were going to help us go from having debt to debt freedom in a reasonable amount of time.
That meant two things for us as a couple,
- Commitment
- Zero-Based Budget
At the time, we didn’t realize we were creating a zero-based budget, but it makes sense because we needed to give every dollar we earned a home.
Zero-based budgeting is all about sheltering your money, paying your bills, and relaxing at the end of the day because everything is tidy and clean in your financial house.
How to create a zero-based budget
You can still use a zero-based budget if you have irregular income, like I used to for a while because I was working various shifts, bringing in random amounts of money, or being paid monthly.
Ideally, you will want to create a zero-based budget using the least amount of money you’ve earned or the average amount you earn when you get a paycheque.
There is no perfect way around it and there will always be learning curves but this is the best route, trust me I’ve been there.
I’m old-school, so I like to use a piece of paper and pencil, but if you’re comfortable creating your zero-based budget draft on the computer, you can also do that.
If using a budget app is the route you want to take, there are a few out there, such as You Need A Budget, but you’ll still need your detailed financial information for a zero-based budget.
I’m not an app guy because I don’t like giving my personal information away to anyone, especially when I can do the work myself.
Let me explain the 6 Zero-Based Budget practices we have used over the past 8 years.
First, I want to say that we wouldn’t be debt-free today without the budget we created.
We could not have saved as smart as we did to pay off our mortgage in 5 years, buy a new truck with cash, and increase our savings and retirement funds.
Perhaps your goal is to save for a new vehicle or to pay off your credit card bill once and for all, then try a zero-based budget.
It may work for you, but you won’t know unless you give it a shot.
What is your monthly net income?
This is how much money you bring home net, which may include your spouse or partner if they are part of your budget.
If you are unsure how much you are bringing home each month, take a month to evaluate or look back on your banking deposits to see what previous months have given you for income.
What essential bills do you need to pay for?
Every bill that you must pay for needs to be documented.
Write them down (Rent, Mortgage, Food, Utilities, Gas, Insurance, Investments, etc.)
You can keep These budget categories as simple as you’d like or elaborate by adding as many as you’d like.
How many budget categories should I have?
What are your projected expenses?
You may also call projected expenses irregular, which you pay for throughout the year.
An example might be your CAA membership, which comes due every October for $100.
That means you need to save $10 a month starting in January in your projected savings account for this October expense.
These are VERY important to your budget because you MUST save for them each month.
Track Your Monthly Expenses
Collecting all of your receipts and bills wherever you spend money.
This may sound daft, but if you want to make your budget work, do it.
Create a zero balance by ensuring all your money has a home.
Any leftover money goes to savings, but if you are short, you must review your budget to save more money.
An example of this might be you net $5000 in October, your budget is $4900 so you are left with $100.
Balance the budget to zero by placing the money in savings or paying down more debt. Whatever is feasible based on your situation.
You might also earn extra cash on the side that fluctuates from month to month, which means your result may yield bonus cash you need to place in a home to zero out your budget.
The Significance of a Zero-Based Budget
A zero-based budget is imperative for those who want out of the debt race once and for all.
Financial success for the CBB family is based on our income; however, the steps that got us to this point are relevant to all users of a Zero-based budget.
Your path may be faster than ours or take longer, but you’ll get there if you commit to financial success and budgeting practices.
Discussion: Do you use a zero-based budget?
Please leave your questions and comments below.
Thanks for reading,
Mr. CBB
