All About Budgets

How To Create A Zero-Based Budget That Works

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I’m a simple guy who likes to understand finance without having to look up hard to understand words. 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 it’s in the bank, investments or paying for everyday bills.

At the end of each month when all is said and done you will want to see a big, fat ZERO to show that you’ve balanced your money and there’s nothing left for you 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 that 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 what money you had 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 tagged it as a budget category so that way I have money to spend.

Zero-Based Budgeting Our Way

Let me explain our zero-based budget story and perhaps it may give you better insight although for some financial guru’s they may say that savings at the end is not a zero-based budget, we disagree.

Before you read any further, perhaps having a look at our budget excel spreadsheet first might help you to understand what I’m talking about.

You can download our budget spreadsheet to your computer absolutely free because we want you to SUCCEED!

Any money left over is just bonus for us since our investments are covered in our monthly budget categories and our emergency savings fund is already in place.

The reason we went this route is because so many people try to add savings to their bank account when they have debt to pay.

It doesn’t work that way.

You must pay your debt first, not yourself even though some may disagree with us.

There are lots of FREE stuff to do out in this world if you want to entertain yourself without cash.

There’s no point having money sitting in the bank earning peanuts of interest when your credit card is smashing 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 payment.

Don’t be this person.

Once your debt is paid off then you can increase your savings power although I do agree that saving a little bit is better than no savings at all.

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 emergency situations whether it is $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 sure enough 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,

  1. Commitment
  2. Zero-Based Budget

At the time we didn’t realize that what we were creating was a zero-based budget but it makes sense because we needed to give every dollar we earned a home.

This is what 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

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 you can still use a zero-based budget.

Ideally, you will want to create a zero-based budget using the least amount of money you’ve earned or average amount of money you earn when you do get a pay cheque.

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 to create your zero-based budget draft on the computer you can do that as well.

If using a budget app is the route you want to take there are a few out there such as Mint and You Need A Budget but for a zero-based-budget you’ll still need your detailed financial information.

Personally, 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 that we use and have used over the past 8 or so years.

First off, I want to say that without the budget that we created we wouldn’t be debt free today.

There is no way we could 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, it may not 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 not sure 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.)

These are your budget categories which you can keep 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 expenses that you pay for throughout the year. An example might be your CAA membership 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 and every month.

Track your monthly expenses

Collecting all of your receipts and bills wherever you spend money. This may sound daft to do but if you want to make your budget work then just do it.

Create a zero balance by making sure all of your money has a home. Any money that is leftover goes to savings but if you are short then you must review your budget for ways 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 pay 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 end 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 not only important it’s imperative for those of you who want out of the debt race once and for all.

Financial success  for the CBB fanily is based on our income however the steps that got us to this point are relevant to all users of a Zero-based budget.

This simply means that your path may be faster than ours or take more time but you’ll get there if you commit to financial success and budgeting practices.

Discussion: Do you use a zero-based budget?

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