How to Manage Your Finances Better with Zero-Base Budgeting

Zero-base budgeting can be a great way to get out of debt—or start your debt snowball. It’s a simple rule-of-thumb that’s a lot easier to follow than it sounds. If you’re curious how zero-base budgeting works or how you can get started, here are a few easy ways you can implement this financial strategy today.

What is zero-base budgeting, and how can I use it?

Zero-base budgeting is the act of balancing your income against your expenses and ensuring that every dollar that comes in goes out, leaving your accounts with a $0 balance.

Zero-base budgets are great for those who want to see tangible results for their financial goals. If you’re looking to get out of debt, ensuring that every extra dollar that comes in goes toward reducing your debt load is one of the best ways to make that happen.

The same goes for other financial goals, like saving for a large purchase, investing, putting money towards retirement, etc. Every deposit has a purpose and gets you closer to achieving any financial goal you set.

Tips for making zero-based budgeting work for you

Think that zero-based budgeting sounds right for you? Here’s how to do it:

Set a financial goal and a plan for achieving it

While you can use zero-base budgets for anything, it’s easier to start when you have a financial goal you want to achieve and a plan for how you’ll reach it. If you’re looking to get rid of debt, know how much you owe and use a debt repayment calculator to figure out what it will take to reach that goal.

If you’re planning to save for something like retirement or a large purchase, calculate how much money you’ll need and a date you’d like to achieve your goal by, then work out what it will take every month to make it happen.

Collect your expenses, both regular and one-off or seasonal

Next, write down all the instances where money leaves your checking account. You’ll need to consider your recurring bills such as utilities, rent/mortgage, insurance, groceries, etc. In addition, you’ll also need to account for one-off or seasonal bills such as taxes, car registration

and inspection, annual fees, and so on.

Finally, add what you calculated to put toward your financial goal as well as emergency savings. Don’t skip regularly adding to your emergency savings account so that you’ll be protected should an unexpected expense come up that could overdraft your accounts.

Collect all the ways you earn money and how much you typically receive

To do this right, you must take time to think about all the ways you expect to earn money this year. In addition to the income from your job, consider those birthday checks from Grandma, tax refunds, interest accrued, etc. It may be difficult to figure out exact numbers, so be conservative with your estimates. It’s better to end up with more money than expected than less.

Create a budget that deducts every deposit until your checking account hits $0

Finally, start deducting your costs in the order of priority from your income until you’ve spent everything. If you end up with money left over, but more of it towards savings or your financial goals. If you come up short, you’ll need to either cut costs or add more income streams.

Open a $0 fee checking account

Just in case you haven’t done this, you’ll need to run your finances through a checking account that has no minimum balance requirements. With a zero-based budget, you won’t have much money sitting around in your checking for long, so make sure you aren’t on the hook for any unnecessary fees or penalties.

The bottom line

It’s always good to set goals and have aspirations, but it’s more important to focus on the reality of the situation. Zero-base budgeting is a simple but valuable tool that helps you make the right decisions and allows you to focus on the things you can control to achieve any financial goal you want to reach.