How to Make a Zero-Based Budget Work for You

Rising prices have made many people more interested in budgeting, which can help you keep track of dollars going in and out. You might have heard of one type, a zero-based budget. It means that everything going out or into savings should equal exactly the amount coming in. It gives each dollar a purpose, which prevents money from being spent mindlessly.

woman counting the items on a receipt

Consider Getting Your Existing Finances in Order

It can be hard to keep track of every dollar if your existing finances are not in order. Perhaps you have debt at a high rate of interest, or maybe you are trying to get something else in order. While a budget can help you stay on track, it might be hard to make a zero-based one when other aspects of your financial life are not as they should be. One option is to take out a personal loan to help pay and get money in order. Some choose to take out a personal loan as a way to pay down other debt that has a higher interest rate.

List Out All Expenses

The first step is to figure out how much you are spending compared to your existing income. You may list out any expenses like important bills, insurance, debt, and anything specific to that month, such as celebrations or holidays. List out savings as an expense as well โ€“ putting money into savings before paying other bills is known as paying yourself first. Add in a miscellaneous category, which will give you an extra buffer if something unexpected comes up. If nothing does, you can use that extra money for something fun, like going out to eat or getting coffee.

Do the Math

When you subtract the expenses from your income, the number should be zero. If you do not get zero, it is time to go over the numbers again. If money is leftover, it means you have even more wiggle room in your budget, and you could put the funds toward something like debt repayment or more savings. It is more common to end up with a negative number when you do the math, which means your expenses exceed your income. You can bring the number down by trimming your budget. You might need to cut down extra spending a bit. Perhaps you will eat at home instead of going out to eat, or you may give a handmade gift instead of buying something.

Track Expenses Throughout the Month

Of course, you canโ€™t just set up your budget and forget about it, since that defeats the purpose of having one. Any money that comes in or goes out should be listed in the budget, whether it is from a side hustle, a mortgage payment, or a receipt from your grocery haul. It helps you stay on top of how much you are spending and prevents overspending. You can use an app or budgeting tool so all you have to do is plug in the numbers and compare it to your goals.

Krystal | Sunny Sweet Days
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