How to Set a Zero Budget
So far, we’ve covered the settings for two budgeting methods that focus on broad categories and change your allocation to each: 50/20/30 budget and 60/40 budget .
While they each offer space to optimize your spending and savings, they can still put people off in a variety of financial situations. You may be living in an area with a high cost of living and cannot keep your housing and basic necessities costs at 50-60%. Or maybe you live paycheck to paycheck and still can’t spend a significant portion of your paycheck on savings.
To learn more about solving the problem of debt, watch the video below:
This is where a zero budget can help. Your goal is to ensure that your income and expenses are exactly matched each month so that you don’t have any extra dollars left over.
This does not mean that you spend everything – it just means that you give every dollar for the job. Knowing that all your money goes into different categories with intent can help you stay on track to achieve your goals, whether you’re working on a limited income or more comfortable with it.
It also does not mean that you bring your bank account to zero every month. You can use some of your emergency savings to keep $ 100-200 in reserve in your checking account; or you may find that how your due dates match with your invoices ensures that your balance isn’t too low. Do what works for you in this regard – the most important thing is that your money is distributed accurately, and not that it flows from your account on any particular schedule.
Let’s see this budget in action, shall we? Using the same example we used for the previous two budgeting methods, this hypothetical person makes $ 50,000 a year before federal taxes and does not pay state income taxes. They do not make any pre-tax deductions in 401 (k) or any other account. Their health insurance premiums are covered by their employer.
See how simple this composition is. The most important number is the number at the bottom: the money left over after all expenses (including debt payments and savings goals). As you can see here, we are over budget and are missing $ 39 per month. Time to adjust.
As in the previous examples, you call your ISP and get a rate cut, and you decide to save less on prescriptions and copays since you usually didn’t spend all of that amount every month.
Quite normal! We have $ 16 left. But while it is tempting to see this small surplus at the bottom of the table, we need to achieve exactly $ 0.
This money could be funneled back into the “medical expenses” line right away, with a plan to convert it into savings if you don’t spend it within a month. Or, you can plan to set aside those $ 16 savings for storage. I’m going to ask our Hypothetical Man to stick it on to our monthly debt payment.
TA-dah! This magic zero. Nice to see how everything is done and dust-free, isn’t it?
Of course, this “final” budget is not final at all. Your spending can fluctuate from one month to the next, requiring you to adjust how much money you put into savings or what money you withdraw from them. Or, you can reorganize your categories as your needs change.
Everything is fine. The most important thing to remember when you’re running a zero budget is to give every dollar a job and make sure it works for you.