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How zero-based budgeting can finally help you save money

A women sits and relaxes in her bathtub

Ask anyone how they save money, and you'll get a different answer every time.

But if you're personally struggling to meet your New Year's resolution to save more money, you might be interested in trying the zero-based budgeting method.

The zero-based method differs from other budgeting tricks you might've previously tried, so buckle in to learn more.

Traditional budget woes

Traditional budgeting methods are helpful, but they aren't always the most useful. Their lack of flexibility is a downside. Let's face it, our finances change on a monthly basis.

Additionally, it's in our nature to ignore what our brains are telling us. We don't like paying the bills because it takes away from our paychecks. This then leads to a cycle of living paycheck to paycheck, which for many, is a recipe for unhealthy amounts of stress.

Zero-based budgeting eliminates that cycle. Isn't it time you reduce stress and gain full control over your money?

jars of money with labels
Get a hold of your finances by following a zero-based budget.

What is zero-based budgeting?

Zero-based budgeting is the idea that every dollar of your income has a specific job. This way, once all the bills are paid and you've set aside money in a savings account, there's nothing left over.

At this point, you might be asking yourself, "Why is having money left over a bad thing?" Well, it means that money is just sitting there without a purpose. Instead of letting it linger, you could be putting it to good use by paying off debt, beefing up your emergency savings account or Individual Retirement Account.

Additionally, Money Crashers pointed out that by following this budgeting method, you're living off money from the previous month [1]. So the money you're spending in March is from what you made in February.

How do I get started?

Switching to the zero-based budgeting method is a marathon, not a sprint, because you first need to track your expenses for about one to three months, The Simple Dollar recommended [2]. You can either track spending by logging onto your Central Bank checking account online, or use our Money Manager tool.

Next, you'll need to create common spending categories. These may include:

  • Recurring monthly expenses (rent, utilities, insurance).
  • Groceries.
  • Savings.
  • Credit cards.
  • Miscellaneous.

Now, pore over every transaction and assign it to a category. This will help you get a clearer idea of where your money is going. 

"By following this budgeting method, you're living off money from the previous month."

The final step is to assign each category a spending limit. When added up, the spending limits for every category needs to equal your monthly income. If not, this is the time to institute budget cuts if you're spending too much in certain categories, such as food or entertainment. By trimming your expenses, you'll be able to pay off debt faster and build up your savings accounts.

Additionally, you'll be able to decide what to do with money that might be left over after each category has a spending limit. For example, if you have an extra $500, increase your savings or eliminate lingering debt.

What else should I remember?

It'll take time to get used to a new budgeting method. But if you're going to follow the zero-based method, you need to stick with it. You might encounter a few bumps in the road, but that's why you'll be able to make adjustments later on.

One of the main goals behind zero-based budgeting is to help you identify problem areas in your spending habits. You might think your old budget works, but as it may turn out, it doesn't. If you're serious about saving money and taking control of your finances, consider following the zero-based budgeting method.

[1]. We Found the Best Way to Save Money: Zero-Based Budgeting

[2]. How and Why to Use a Zero-Sum Budget

The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its affiliates and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.