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Creating a budget is a tool to help you. It does not need to be complicated. In fact, the simpler you make your budget, the easier you will be able to stick to it. It gives you the freedom to spend and helps you be less stressful.
The simpler you make your budget, the easier you will be able to stick to it.
If your budget is not working for you, I recommend following a zero-based budget. Zero based budgeting is a budgeting method that accounts for every dollar earned. Each dollar must be justified and your income minus expenses will equal zero. This process helps ensure that your total expenses do not exceed your income within any timeframe whether you budget weekly, bi-weekly, or monthly.
Adhering to a zero based budget does not mean that you end with zero dollars in your account. You will include a buffer as an “expense” so that you have a cushion in case an unbudgeted for situation arises. Therefore, if you earn $2,500 per month, all your spending, saving, debt payments, and giving for the month should add up to $2,500.
How to create a zero based budget
Determine your net income
Net income is the amount of money deposited in your account after taxes, 401K contributions, health insurance premiums, etc. You should be able to find your net income on your pay stub. This amount is deposited into your bank account. If you have a side hustle or bring in any other cash, tally it up and add it to your budget.
Now, you can record your budget using any method that works best for you whether it be pen and paper, Excel or a budgeting app or software.
Calculate your expenses
Your expenses include your needs such as mortgage or rent, bills, groceries, gas, etc. Keep in mind expenses will differ for everyone. Be sure to include all your essentials first followed by the remainder of your monthly expenses. Month to month this may look different, so just focus on a week or month at a time.
Assign every dollar a job
Your income minus expenses should equal zero. It may take some time and practice for you to perfect this step. If your expenses minus your income is positive, congratulations. That means that you are currently living beneath your means. If your expenses minus your income is negative, you need to work on either increasing your income or decreasing your expenses. Remember, the goal is to have zero dollars left in your budget, not your bank account.
Track your progress
Keep track of all your spending. This is the only way you will know if you are staying on track or not. I use the You Need a Budget (YNAB) app, but you can use an excel spreadsheet, notepad, or whatever is most comfortable for you. Once you have learned your habits, you will begin to make progress and develop a better relationship with money.
Revisit your budget as needed
Expenses and priorities will change so make sure you are flexible and adjusting your budget accordingly.
No matter how you are paid, you can create a zero based budget. The easiest way to accomplish this is to budget only using the money you currently have in your account instead of forecasting money that set to come in the future. Work towards becoming a month ahead so that you are able to break the paycheck-to-paycheck cycle. This way you will move from budgeting by paycheck to budgeting on a monthly basis.
No matter what your financial goals are you need a budget. Want to get out of debt? Create a budget. Need to save for an upcoming family vacation? Create a budget. Trying to prepare for retirement? Create a budget.
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You are the owner of your budget. It will only work if you do! Share any zero based budget tips below that have allowed you to eliminate your debt.