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What's a Zero-Based Budget?

We’ve talked about why a budget is important, so now it’s time to discuss zero-based budgets. A zero-based budget is simply a budget where every dollar has a job - there is minimal or no money that doesn’t have a role. Many companies use an annual zero-based budget known as a balance sheet. This helps companies track income and expenses so they know what can and cannot be afforded. With personal finance, a zero-based budget accomplishes the same goal.

For example, let’s say you create a budget for the month of October, and you know you will be receiving two paychecks for a total of $2,000. With a zero-based budget, there is no dollar of that $2,000 that does not have a job. You might say okay “This month I am going to budget $150 for groceries, $100 for electric bill, $200 to give to a charity, $300 to go into an emergency fund…” and so on for each area of life that you spend or save money.

The benefit of a zero-based budget is you are in control of every dollar and telling it what it will do for you -there is no bit of money that you are not in control of! You might say one month that you want to save as much money as possible for an emergency fund, and so you squeeze every dollar to go towards that fund. A month later you might know that three of your friends have birthdays that month and you would like to get them a little special gift, and so you designate a bit more money for gifts. That means you will be spending a little less on going out to eat. Whatever it is, you are in control of where your money goes!

And to help you be in control, we have created a FREE ZERO-BASED BUDGET TEMPLATE for Excel and Google Sheets that we would like to give you! Just enter your email at the bottom of our site.

Once you receive your free zero-based budget, you can follow these few quick tips for getting the most out of it.

Tips to Maximize Your Zero-Based Budget

  • Create the budget for your new month at the end of the previous month

  • Break down your savings account dollars as well, give each one a name. Our template will help you to do this.

  • If you create an “other” or “miscellaneous” line item, keep the dollar amount in that as low as possible.

  • Once a week set aside 20 minutes to use the checkbook register in our template to keep track of each transaction and what category it goes into. For example, if you went grocery shopping that week and spent $50, enter that into the register and then put $50 in the spent category for groceries.

  • Move any savings or unspent dollars from the month before into a savings account

David Evans