What Is A Zero Based Budget?

Summary

A zero-based budget ensures every penny of your income has a designated purpose. The process involves listing your monthly income, prioritizing essential expenses like food, shelter, and transportation, and then covering other costs, such as entertainment and savings for future events. Any remaining funds should be allocated to things like debt or financial tools. By using budgeting apps like EveryDollar, you can easily track your expenses and stay on top of your finances, whether you're paying off debt, saving for a home, or planning for retirement. It’s a clear and structured way to keep your money in check.

Takeaways

• 😀 A budget is a plan for managing your monthly income and expenses.
• 😀 A zero-based budget means your income minus your expenses equals zero, ensuring every penny is accounted for.
• 😀 The first step in creating a zero-based budget is listing your take-home pay for the month.
• 😀 The second step is to list all your expenses, starting with five essential categories: food, shelter, utilities, transportation, and clothing.
• 😀 Prioritize necessities like rent or mortgage before budgeting for non-essentials like memberships or luxuries.
• 😀 Step three involves listing all remaining expenses, such as entertainment and children’s needs.
• 😀 Plan for unexpected events or special occasions by budgeting in advance for holidays, birthdays, or other events.
• 😀 If you have leftover money after accounting for all expenses, assign it to a purpose, such as paying off debt.
• 😀 Using a budgeting tool, like the EveryDollar app, can help simplify the process of managing your budget.
• 😀 A zero-based budget helps you stay organized and prepared for financial goals, whether that’s paying off debt or planning for retirement.
• 😀 Consistently sticking to your zero-based budget allows you to remain financially stable and control your money.

Q & A

What is a zero-based budget?

A zero-based budget is a budgeting method where you allocate every penny of your income to specific expenses or savings, so the money coming in minus the money going out equals zero.

How does a zero-based budget differ from a typical budget?

A typical budget estimates monthly income and expenses with categories, but a zero-based budget takes it a step further by ensuring every dollar has a specific job, leaving no money unaccounted for.

What are the first two steps in creating a zero-based budget?

The first step is to list your take-home pay for the month, and the second step is to list all your expenses for the month, starting with essential categories.

Which five categories should be prioritized in a zero-based budget?

The five categories to prioritize are food, shelter, utilities, transportation, and clothing. These are the basic necessities that should be budgeted first.

Why should you budget for necessities like rent before things like yoga memberships?

You should budget for essentials like rent first to ensure that your basic living needs are covered before allocating funds to non-essential expenses like hobbies or memberships.

What types of expenses should be listed after the basic categories?

After the basics are covered, you should list other expenses like entertainment, personal care (e.g., haircuts), and things your children need, along with any planned or unexpected events.

What are some events or situations to plan for in a zero-based budget?

You should plan for events such as holidays, weddings, birthdays, and other significant occasions. A dedicated fund can be created to save for these events in advance.

What should you do if you still have leftover money after budgeting for all your expenses?

If you have leftover money, you should allocate it towards debt repayment, savings, or investing in something that will help you improve your financial situation.

What if someone feels they are bad at math and can't create a budget?

There are budgeting tools like the 'Every Dollar' app that can help you create and track your budget without needing advanced math skills.

How does a budgeting app help with zero-based budgeting?

A budgeting app helps by allowing you to input your income, expenses, and savings goals, then automatically tracks and adjusts your spending to make sure every dollar is accounted for and your budget balances to zero.