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What is the best way to budget? Easy! The best way it budget is also the easiest! Let me show you what a zero based budget is and how to create one! Your finances will never be the same again!
I run a frugal living website; you would think that I am absolutely awesome at budgeting, right? Wrong!
Okay, mostly wrong.
I’m actually very good at budgeting but I can also be very good at wasting money I should be saving if I allow myself to do so.I am human, after all and financial mistakes are not just for my readers. We all make them.
In all honesty, it took me quite a long time to learn how to create a budget (Six Dollar Family) and how to stick to it,. And learning how to create a zero based budget is what finally helped me get to that point.
What is a Zero Based Budget?
A zero based budget is a budget that accounts for every penny of income you’ll receive during the month.In other words, you don’t leave any money to chance.
If it sounds complicated, I promise; it’s not. In fact, it’s one of the easiest ways to budget period. In fact, a zero based budget is so easy that it was the method I used to teach my teens about budgeting.
and if my girls can do it, you can too!
Why a Zero Based Budget Works
A zero based budget is great for those who want to save money and while I don’t know for certain; I know that I want to save as much of my own money as possible.
When you use a zero based budgeting system, you pay your necessary expenses and whatever unnecessary ones you must have and anything left over is put into savings.
That is where the zero based comes from. You quite literally budget your money to $0.
Dave Ramsey (Amazon) calls this “giving your money a name” because you’re deciding ahead of time where your money is going. By doing so, you make it far less likely that you’re going to waste the money you have left over.
And you’re more likely to save it.
How to Create a Zero Based Budget
Like I said, creating a zero based is so easy to do my teens picked up on it very quickly. To prepare, you’ll want to do a couple of things:
First, make sure you know how much income you have coming in for the month. If you aren’t certain, a low estimate will work for now.
When estimating your income, always estimate lower. It is far easier to fix a low estimate than it is to fix an issue created by an over-estimate.
You will also need to know what expenses you have coming out too. Don’t make the mistake that I make a lot of the time and forget an expense. Make sure you go through your bank statement to find any expenses you might easily miss.
Once you’ve got these both written down, you’re ready to move on.
To make doing your zero based budget easier, I highly recommend you use a zero based budget spreadsheet like THIS one (Etsy). It’s what I use and it makes things incredibly easy.
Another great option, if you don’t want to deal with too many spreadsheets is to sign up for a Tiller money account HERE (Tiller Money). Tiller Money will auto import your expenses and spending into a spreadsheet for you to help you keep track. They even give you the first 30 days free so you can make sure it will work for your family.
To create your zero based budget, start with the your income. From there, budget your most important expenses first making sure you subtract the budgeted money from your income each time.
Continue through your expenses – subtracting each from your income – until you have no income left.
As you reach the end of your income one of two things will happen; You will either have more expenses than income or you will have more income than expenses.
What to Do When You Have More Expenses than Income
If you have more expenses than income, you have a problem. Obviously, you can’t pay bills if you don’t have money.
If you’re in this situation, you are officially living paycheck to paycheck.
I could spend hours giving you tips to stop living paycheck to paycheck, but that would make this post very, very long.
If this is you right now, don’t give up. A zero based budgeting system will really help you get things under control.
How Should I Budget Extra Income?
This is where a zero based budget really shines and it’s why it is my favorite budgeting system.
When you are using a zero based budget and you have extra money, you still budget it.
Yes. I said you budget your extra money.
But; you don’t budget it to a wasteful expense. Instead, you budget it to your savings account.
I know, you may be thinking that you’ll save it without it being on the budget, but let’s be real. That isn’t always what happens. Instead, you look at it as having extra money and it gets spent.
Instad, budget it. Put it on your budget labeled as savings. Add it lavelede under a goal your family has; or a dream.
But give it a purpose so it isn’t wasted. And so you can complete your zero based budget.