How To Create A Zero-Based Budget
One of the hardest things for me has always been to create a sustainable budget for myself.
I always found budgets restrictive, and I couldn't help but tweak them so much that they weren't even realistic anymore.
When I found out about the principles of zero-based budgeting, I decided to give it a try. The way it changed my vision of budgeting… it's one of the tools that has helped me pay down more than half of my debt so far. It's a system that can help you gain total control of your finances and transform the way you see and use your money.
First of all, what is a zero-based budget?
Basically, a zero-based budget (or zero-sum, as some like to call it) is a budget in which you give every dollar a specific job.
This means that when you subtract your expenses from your income at the end of the month, you have $0 left. But no worries—that doesn't mean you have nothing left. You're the one giving every dollar a purpose, which means you're in total control of where your money is going. So, you might decide to spend $X on new clothes, but you also get to set aside $X for your next vacation. It's up to you.
But how can you do that exactly?
The beauty of a zero-based budget is that it fits perfectly with your personal financial situation. Doing it is not that hard—here are the 3 steps I took to create mine:
#1 Track Your Income
The first step is to know how much money you make each month. List all of your income streams and add up the total amount you receive in a month. Be mindful of inconsistent sources of income, like investments, side hustles, or bonuses, to name just a few.
#2 List all of your expenses
The second step is to make a list of your usual monthly expenses, like rent, food, and transportation. Don't forget to add the amount of your sinking fund if you have one (read more about sinking funds here). It is also important to include debt payments, investments, and the non-essential expenses you make (yes, that includes your daily coffee!).
#3 Get to 0
Now, remember that the goal is to get to $0. So, depending on your situation, the next step will either be to subtract your expenses from your income, or vice versa. This will give you a clear picture of what you need to do next. If you realize the total of your expenses is greater than your income, you might want to look at what is causing that and fix it—whether by cutting expenses or making more money. If, on the other hand, you realize you have money left after covering all of your expenses, you need to adjust and make sure the extra money doesn't go down the drain. This could mean allocating more money towards your savings, debt, or investments—it's totally up to you.
After that, the only thing left to do is track your expenses and adjust your budget if needed. It takes some getting used to at first, but once your system is in place, it's a breeze to manage. It's really one of the most important tools I use to know where my money is going, which has helped me pay down debt and save for upcoming expenses. I created my Notion Template just for that, and still use it to this day—but you can start this exercise any way you want. Write it down on paper, in Notion, or Google Sheets… you can even use an app if that's easier for you!
Creating a zero-based budget is a simple way to take control of your money. By doing this, you can make sure every dollar is working for you. It's worth trying if it can help you be on your way to saving more and spending smarter!
