Creating a zero-dollar budget from scratch is so simple and easy, you’re going to wonder why you haven’t done it sooner. A zero-dollar budget is a method of budgeting where your income minus your expenses equals zero. It is a great way to keep your finances in order and gives every dollar you earn a job to do. You will know where all your money is, what it's for, and how to spend it. This helps to stay on budget, not go into debt, and save money!
Here are five steps to get your budget started:
(Note: you can create a zero-dollar budget as a weekly, bi-weekly, or monthly budget. For the purpose of this blog post, I am using monthly for the examples.)
Step 1: Write Out All Your Fixed Bills for the Month
No matter how you use your budget, the first step is to list all of your fixed bills for the month. Fixed bills are expenses that stay the same every time they are due such as mortgage or car payment. I personally use a monthly calendar and write out each bill and how much it is on the due on what date.
I keep track of my bills in a digital planner such as this Digital Paycheck Budget Planner. If digital planning isn’t your thing, there’s also great printable budget planners such as this one in my Etsy shop.
Step 2: List Your Sinking Funds
Write out any sinking funds. A sinking fund is a type of savings fund that is created to pay for a large bill or debt in the future. You put small amounts away each paycheck so you don't have a big upfront cost at the time to pay. These are things such as a vacation, car maintenance, pet fund, Christmas, and birthdays. I personally have a separate bank account that I put my sinking funds money away into so that it is safe and I don’t touch it until I need it.
Step 3: List Your Variable Expenses
Write out a list of your variable expenses and create a budgeted amount for them. These are things like groceries and gas. These can also be things like eating out, personal spending money (or what I like to call "fun money") or anything else that is important to you. These expenses can change based on choices you make or life circumstances.
Step 4: Calculate Your Budgeted Amounts for the Month
Now add your bills, sinking funds, and variable expenses together and see what your total monthly expenses look like. If this number looks high, don't panic! It's just a starting point.
Next subtract this total from your monthly paycheck amount and voila: We have a new number — your surplus or deficit!
If you have a deficit, your bills and expenses are too high for what you are bringing home from your paycheck. In this circumstance, there a few things you can do. First, you can try to lower your bills. For example, you can call your internet provider and see if there are any cheaper plans available; you could call around to different types of insurance companies and see if one offers a better rate; etc. Next, you can try to budget your variable expenses cheaper. For example, you can try to lower your grocery budget by meal planning or not eating out as often; you could lower your “fun money” budget temporarily until you pay off some debt and free up more of your budget; etc. Lastly, you could start a side hustle or get a part-time job to bring in more money. I know everyones circumstances are different, so there are many options. I recommend talking to a financial advisor if needed!
If you have a surplus, you want to allocate that money according to your financial goals. If you have any debt, maybe you want to start by paying off your debt with the highest interest first. Maybe you want to create a savings for emergencies. The recommended amount that should be in an emergency fund is three months worth of expenses (in case something unexpected comes up). If possible, aim for six-to eight-months worth of expenses so that if something happens unexpectedly, like losing a job or taking time off work due to sickness or injury – there would still be money available for you to live off of and not go into debt. Maybe you also want to consider saving for retirement or even investing. The options are endless! You just need to figure out what your financial goals are and allocate that money accordingly.
Step 5: Balancing Your Budget
The last step is to balance your budget and make sure the end result is $0. Remember, the whole point of a zero-dollar budget is to give every dollar your earn a job to do so you know exactly where your money is going. Your paycheck minus your bills, sinking funds, variable expenses, debt, and savings should all be equal to $0 in the end.
A budget will help you learn how to manage your money better.
A zero-dollar budget will help you learn how to manage your money better. It can teach you the difference between needs and wants, show you how to save for the future and avoid debt. A zero-dollar budget also gives you a way of making sure that the money flowing into your life is being used for what's most important to you and is accounted for.
This process takes some time and effort, but it's worth it! You'll be so glad that you took this step when it comes time for a rainy day or retirement — or any other milestone in your life where having extra cash on hand would really come in handy.
If you’ve never tried to create a budget before, this might all seem a little overwhelming. But remember that it gets easier as you go along, and you’ll start seeing results almost immediately.
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