What is zero based budgeting (and how does zero based budgeting work?)
Ask anyone how they save money, and you'll get a wide variety of answers.
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 can be helpful, but they aren't always the most useful. Their lack of flexibility can be problematic since our finances often change on a monthly basis. Additionally, it's in our nature to ignore what our brains are telling us. For instance, we don't like paying 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 can eliminate that cycle.
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 or spend it unwisely, you ‘re better off putting it to good use by paying off debt, beefing up your emergency savings account or Individual Retirement Account.
Additionally, Money Crashers points out that by following this budgeting method, you're living off money from the previous month . 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 one to three months, The Simple Dollar recommends . A great way to track spending is 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).
- Credit cards.
You’ll then assign each transaction 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."
Finally, assign each category a spending limit. When added up, the spending limit for each 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. You’ll also be able to decide what to do with money that might be left over. For example, if you have an extra $500, you might 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 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 method works, but again, it might not be the most useful for you. If you're serious about saving money and taking control of your finances, consider following the zero-based budgeting method.
. We Found the Best Way to Save Money: Zero-Based Budgeting
. 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.