Zero Based Budget

When beginning to budget in order to reach financial goals, you’re encouraged to start with a zero based budget. But there’s a lot of confusion around zero based budgeting. One of the most common misconceptions, one that even I was guilty of, is that you are constantly bringing your account down to zero. I’m here to tell you that’s simply not the case!

Since starting a budget and sticking to it, our bank account no longer goes to a $0 balance. I keep our checking account with a small buffer in it in case we have any math errors, or all the bills and expenses over the course of our paycheck are taken out of our account all at once. And our savings accounts have plenty of money in them as well for our sinking funds and emergency fund.

Simply put, even though we follow a zero-based budgeting method, our bank accounts are not at a zero balance.

So What Is A Zero Based Budget?

As I mentioned earlier, a zero-based budget simply means that you give every penny that comes in your bank account a purpose. By giving your money a purpose, you are controlling your money, rather than letting your money control you.

So when your paycheck comes in, you account for any bills, savings, and spending money that will get you through until the next time you get paid.

When I started put our finances under a fine-tooth comb, I was zeroing out our monthly budget rather than our weekly paychecks. What I found was that as the month went on, it became hard to allocate smaller, necessary expenses throughout the month. When we had scheduled snowball payments at the beginning of the month, it became especially frustrating because I would allocate a larger payment based on no smaller expenses. We would end up dipping into our checking account buffer, and I would never replenish the buffer.

After repeatedly doing the same type of budgeting, I realized we had to make a change. So I switched to a per paycheck zero budgeting system. This makes it easier to account for smaller expenses throughout the month without dipping into our checking account buffer, and makes sure we still zero out our budget at the end of the month.

How I budgeted then is very similar to the You Need A Budget* method. Looking at your priorities and commitments between now and the next paycheck, and then zero it out. It simplifies your budget, making it easier to stay on track towards your financial goals.

How To Start a Zero Based Budget

To help you get started with your zero based budget, I created a free printable for you. It follows the exact same steps we started doing to help keep our debt payment optimized, yet allow room in our budget for extra expenses that came up throughout the month.

It has space at the top for a goal to reach during that specific pay period, as well as a notes section at the bottom to keep track of any reminders. I personally use the goal section to note how much money can go to debt during that paycheck.

I included multiple spaces under each headline in case you have multiple streams of income, or are paid once a month and need to have all your expenses come out of a single pay.

Our Zero Based Budget

Every time Hubs is paid, I allocate every penny of the paycheck to: savings for that pay period, bills that are due between this paycheck and the next, and then spending money needed {such as cash, fuel, etc} until the next paycheck.

For example, his pay is fairly consistent, but can vary a bit within the change from week to week, and weeks with a 5th paycheck are about $12 more than usual. Every time Hubs is paid, I take the change and set it aside in a separate savings account that is allocated to holding our debt payment.

I also deduct our savings we need to put aside for the week in order to meet our savings goals, and any bills that are due between the current paycheck and the next. I always budget bills on the high end rather than on the low end. This way, when the bill is higher, I’m not digging into other areas of our budget for the month.

As the week progresses, I revisit our weekly budget. Sometimes a bill is lower than I estimated, or I don’t spend our weekly budget on fuel. Or, as in the past, I have some small expenses come up that weren’t originally budgeted for. So for this particular week, I budgeted $76 for our landline & internet bill, but it was only $75.72. The remaining $0.28 went to debt.

As you can see in my example from above, any money that is left over is not allocated as “free money”. It still has a purpose, and it’s purpose is to be paid on debt. On this particular week, to zero our our budget, I had $134 left from the paycheck. That went straight into our debt payment for the week, along with the overage from our phone & internet bill, and what I didn’t spend in fuel for the week.

After our debts are paid off, the leftover money would still have a different purpose. Some examples include:

Savings
Sinking Funds
College Savings
Down Payments for a car or a house

Whether $0.20 or $200 is what’s leftover from your paycheck, it is given a purpose so your budget comes down to zero.

If you want to start your own zero based budget, but don’t want to go paper, I highly suggest You Need A Budget’s online budgeting software*! It does come at a cost of $84 per year, but in my opinion, it’s well worth it! If you’d like to try their method, you can get a free month of YNAB by signing up here*. What’s there to lose?