If you’re constantly losing track of your money, zero-based budgeting can help you stop the bleeding.
At the end of a month, you will open your banking app and know exactly where your funds went. You will have no mystery transactions, nor will you be surprised by anything that could have potentially ruined your month. What you’re left with is the understanding of everything your money’s done over time—this is what the zero-based budgeting philosophy is all about.
Zero-based budgeting is not about being cheap or denying yourself the fun things in life. It’s about taking control of your finances by assigning a purpose to every single dollar before they decide to go missing. This means that every dollar has a task assigned to it; there is no idle money floating around.
Your total income for the month (which includes any side jobs, freelance work, etc.) minus all of your planned expenses must equal zero—not because you waste everything you make, but rather because every dollar is assigned a specific purpose, including savings.
If you hear the word “zero,” you might panic at first.
Zero does not mean you are broke.
Rather, zero represents that you are being intentional.
Start by determining how much money you expect to receive next month. Include any salary, side hustle income, etc., and write down this total amount. This will serve as your base amount.
The next step is determining how you plan to spend the money.
- Housing costs (including rent)
- Groceries
- Utilities (including electricity)
- Internet access
Then, what do you want to buy that are less important to you?
- Purchases like coffee runs
- Subscriptions for streaming services
- Movie tickets
- Hobbies that don’t seem to produce income (though you think they should)
When you finish writing everything down, subtract all of your expenses from your total income.
If your total is zero, congratulations! You’ve created a zero based budget.
If your total is anything other than zero, don’t worry about it.
- Did you have any money left? Please assign a job for it.
- If not yet assigned jobs, add it to your extra savings,
- to your debt repayment plans, or
- as an investment into developing your own wealth.
Unassigned or unplanned money goes away very quickly.
Creating a zero based budget does not mean you will always create a perfect plan. It means that you have a better idea of how much you will earn and spend. The difference is in knowing how much you can realistically expect to use and spend at any given time.
With a zero based budget, you will know where your money is and how to use it wisely, rather than guessing every time you decide to spend or earn.
One of the easiest ways to begin budgeting using zero based budgeting methods is that you don’t need fancy or complicated spreadsheets, special app programs, or any sort of finance-related education to successfully use the method, just an understanding of what you bring in and making sure you make honestchoices on what you will spend on.
With this method of budgeting, you have confidence. Instead of just reacting to when you get bills, you plan ahead and anticipate your bills. You no longer need to feel guilty about spending money because you are already aware of where you have allocated those dollars.
If money seems cluttered, confusing, or out of sort (or all three), using zero based budgeting provides structure without taking away from living your life. It’s not about taking things away from you, but rather giving you ways to direct your spending.
Once your money has direction, all other aspects of your financial life become much easier.
