Updated: Mar 21
A zero-based budget is a financial planning strategy in which you account for every dollar you earn and spend, so that your income minus expenses equals zero. It’s a good way to strategize your savings towards specific goals, and given yourself realistic spending targets.
Here's a step-by-step guide to making a zero-based budget:
Determine your income: Start by figuring out how much money you bring in each month from all sources of income.
Track your expenses: Make a list of all your monthly expenses, including fixed expenses like rent/mortgage payments, utilities, car payments, insurance, and variable expenses such as groceries, eating out, entertainment, and miscellaneous expenses.
Categorize your expenses: Group your expenses into categories, such as housing, transportation, food, entertainment, and miscellaneous.
Assign dollar amounts: Assign dollar amounts to each category, based on how much you typically spend in each category each month.
Prioritize your spending: Determine which expenses are necessary and which are discretionary. Prioritize your spending to ensure you have enough money to cover your necessary expenses first.
Allocate your income: Allocate your income to each category, ensuring that your income minus expenses equals zero. This means you'll need to adjust your spending in certain categories to make sure you're not overspending.
Track your spending: Track your spending each month to ensure you're sticking to your budget. Make adjustments as necessary.
Remember, a zero-based budget is all about being intentional with your money and making the most of every dollar you earn. With a little effort, you can find clarity with your money situation. At NFP, I provide a budget template to help you get started, as budgeting can be a challenging process to start. As always, we are here to help.