Zero-Based Budget And How To Up Your Money Game
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I’m one of those people who like to get everything out of something.
I’ll clean the plate out of a good meal.
When watching a movie, I’ll follow the characters and the story from start to finish.
I highlight and make notes when reading books to not miss a nugget of wisdom.
The same applies to money.
I want to make the most of every penny earned.
So I use the zero-based budget.
Table of Contents
What Is A Zero-Based Budget?
A zero-based budget is where every single penny is allocated.
It’s when your income minus your outgoings equal zero.
This doesn’t mean you spend all your money and have no money left.
It’s about planning what you’re doing with each penny earned.
We love our zero-based budget.
We view our budget as a plan for our money.
The best approach is to plan every penny.
This has been the best way to achieve our financial dreams.
How To Create A Zero Based Budget
To successfully set a zero-based budget, you need to know your numbers.
Start With Your Total Monthly Income
Your income is the heart of your budget.
If a budget is a plan of what you’re doing with your money, the question is how much is that?
Your income should include all your sources from employment to side hustles.
If you’re in a relationship, discuss whether you’re open to sharing your finances.
If so, add your incomes together as household income.
Calculate Your Living Expenses
Work out how much you need to live on every month.
Start with your essential living expenses.
This would be your household bills, food, transport and family care.
Also include things you have to pay for such as insurances and debt repayments.
For debt repayments only calculate your minimum payments, for now.
Then, work out your non-essential living expenses.
These are a part of your lifestyle but aren’t necessary for survival.
This could include streaming services, takeaways and the gym.
Again, these may be important to you but you could, in theory, live without them.
Finally, add the two together.
The total of these is how much your lifestyle costs you.
Review Your Income vs Your Living Expenses
Before we talk about the other bits, it’s a good idea to review your finances.
What is the difference between your income and your living expenses?
Are you spending more or less than what you earn?
The next elements are savings, investments, giving and your money goals.
If you live above your means this means you have no room for these.
It’s also a good time to review your outgoings.
Do you have expenses you no longer need or use?
Are you still happy to pay for that expense?
In summary, aim to have your living expenses less than your income.
This way you’ll have money to put towards your financial goals.
We have designed a budgeting spreadsheet for you. It is the Ultimate Money Plan spreadsheet template with everything you need to take charge of your finances and crush your money goals.
Your Financial Goals
As a reminder, the point of a zero-based budget is to allocate every penny.
Given that you have room in your budget after living expenses, the remainder is for your goals.
Savings & Investments
If you have a short term goal, then savings would be the choice.
Your goal may be to save an emergency fund to cover 3 months of expenses.
Or, to buy a house in 2 years.
However, if it’s a long term goal, then investments would be the choice.
This may be to build wealth over time and become financially independent.
Debt Freedom
If in debt, then debt freedom could be one of your goals.
Remember we only looked at minimum payments previously.
With the extra money you have, you could decide to allocate some to debts.
Giving
Being charitable with what you have is important to us.
It may not be a goal for you but we believe it should.
This could mean charitable donations.
But it also could be gifting your friends and family.
It’s simply about not every penny being for your needs alone.
Fun Money
Finally, have some fun.
Not every penny is to be pinched for the sake of saving or debts.
Life is also meant to be lived and enjoyed.
Have a spending allocation where you can go wild guilt-free.
It’s guilt-free because you’re not taking from your goals or bills money.
You’re spending your allocated spending money.
All Equal To Zero
In summary, add up your total monthly income.
Subtract your lifestyle expenses.
With the remainder, allocate towards the various places based on your goals.
Ensure that every penny is accounted for.
And don’t forget to have fun money too.
Until you’re left with zero.
Zero Based Budgeting Pros And Cons
As I said earlier, we love our zero-based budget.
There are so many benefits with this budgeting style.
Having said that it’s may not be for everyone.
Zero-Based Budget Advantages (& How It Transforms Your Finances)
Here are three reasons why we love it.
First, it puts you in charge of your money.
If you didn’t budget everything, you may forget your goals or spend more than you should.
A budget is you telling your money where to go rather than wondering where it went.
That’s the power of a zero-based budget.
It makes you intentional and conscious of your financial decisions.
Secondly, you priorities your goals.
Many people set financial goals with no plan of achieving them.
The zero-based budget makes you think about that plan.
You calculate the amount you’re allocating to your goals and set it in motion.
Finally, it feels complete.
By this I mean your budget is complete.
You won’t have any gaps or holes in the budget you avoid.
There won’t be money that you have no idea what happens with it.
Everything will be in place.
Zero-Based Budget Disadvantages
Firstly, it can be a lot of work.
If you’re not used to numbers and budgeting it can feel like a huge jump.
It can easily be a sink or swim situation.
If it feels like a huge jump for you, take it easy to begin with.
This leads to the second point, it needs time.
Despite having a zero-based budget for years, we still take time with it.
It’s not a quick method.
For instance, there’s the 50-30-20 budget.
With this, you allocate by percentages and that’s it.
Whereas the zero-based budget is calculating the actual numbers.
With that said, money is about the numbers (and much more).
The best way to handle the numbers is to deal with them.
Final Thoughts On The Zero-Based Budget
When it comes to your financial goals, you need to be intentional.
Being debt-free is an intentional decision.
So is working towards financial independence or buying a house.
The zero-based budget is the epitome of being intentional financially.
Whether it’s a financial goal or a personal spend, it’s all intentional.
That’s the power and the beauty of the zero-based budget.
It puts you in control of your finances.
And that’s the best place to be.
Take Action
Start a Zero-Based budget and transform your finances.
Share this to others if you found value in it and feel others should too.
Check out our Ultimate Money Plan to get in control of your money and smash your financial goals.
Let us know how you’re getting along by getting in touch with us, we’d love to hear from you.
Knowledge is powerless without action
So take action, and take care
Thando