What is a Zero Based Budget?

Would you like to know a highly effective way of budgeting your money?

 

Although I have always budgeted, it was only a few short years ago that I heard the term zero-based budget.

A zero-based budget can be a highly effective way to manage income for even the most budget adverse individual.  

Building a zero-based budget is simply a matter of having a starting point and subtracting until you get to zero. 

 

This is my view of a zero-based budget.

 

Every single dollar of income is like a mini-employee.  Every single dollar has a job to do.  My job is to act as a direct supervisor and make sure every mini-employee is doing its job.

Can you imagine the chaos that would ensue on a job site if the supervisor expected a job to get done and decided to let every employee decide for themselves how and when and if they would work?

The same kind of chaos will ensue if you think your hard-earned dollars are going to magically get your bills paid and put food on the table without any direction from you.

 

How do you build a zero-based budget?

 

The starting point of every zero-based budget is the beginning dollar amount with which you have to work with. 

 

I intentionally did not say take home pay, even though that is the starting point the majority of the time.  

However, a zero-based budget can work with any kind of income, be it a monetary gift or Christmas bonus.

 

Next, make a list of everything you plan to do with the money. 

 

Paying bills is always the first thing that comes to mind when you say budget.

Have you ever thought of using a budget to help plan for an upcoming birthday or wedding gift?

Would you like to begin saving for Christmas or a summer vacation?

Adding them to your list of payables is a great way to get started.

Your list should include either the actual or anticipated dollar amount.

 

Finally, apply the basic concept of subtraction to your zero-based budget.

 

Start with your beginning dollar amount and subtract the items in your list.

If you are in the negative, something has to go.

If you have a positive number, then that means you have leftover money and you need to assign it a job to do.

Where would that extra money serve you best?

 

This process should be repeated with every single dollar that comes into your possession.  

 

The magic of a zero-based budget is that it allows you to spend your money on paper before a dime ever leaves your account.  By seeing where your money is going before it’s actually gone can allow you to correct mistakes before they happen.

Which is a highly effective way of learning to budget.

 

(Disclaimer:  I am not a financial planner, accountant or any kind of financial professional.  My goal is to simply pass on a simple money management tool that others can easily implement.  Everyone’s situation is different and this may not work for every situation)

 

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