HOW TO ADOPT A ZERO-BASED BUDGET | Karen Calcano

  1. What the Heck is a Zero-Based Budget (ZBB)

  2. The Huge Benefits of ZBB

  3. How to Personalize your ZBB

  4. Cash Flow: The Fun Part of Budgeting

  5. Take Home Points



What the Heck is a Zero-Based Budget?


You already know that I swear by zero-based budgeting. But what is it, really?

Zero-based budgeting is a system where you start from scratch each month, budgeting for every penny of income. This means that you assign every dollar that comes into your bank accounts a purpose.


Since starting zero-based budgeting I've realized that budgeting does not have to be restrictive, tedious, or impossible to maintain.

Having a money plan actually helps me to be flexible, stay on track, and spend in alignment with what expenses bring me the most joy.


Similar to Dave Ramsey's envelope system which is a way to track exactly how much money you have in each budget category for the month by keeping your cash tucked away in envelopes. At the end of the month, you can see how much cash is left by taking a quick peek at your envelopes. How easy is that?

Digital zero-based budgeting is exactly like the cash envelope system developed by Dave Ramsey, except that the envelopes are digital instead of physical, & the money stays in your bank account and just is earmarked in categories but not physically separated like with the envelope system.



The HUGE Benefits of Zero-Based Budgeting



Spending with Intention

One of the biggest benefits of zero-based budgeting is that it forces you to be intentional with your money. You can't just assume that you'll have enough money left over at the end of the month to cover your expenses - you need to plan for them. This also helps you stay accountable since you can easily track your progress throughout the month.


Reduces Overspending

If you’re constantly going overboard in a certain category (hello, food!), this budgeting system forces you to take money away from other categories to make up for the deficit. This will force you to stop overspending!


Prioritizes Saving

For me, the greatest thing about that is that instead of saving money at the end of the month (or towards the end of your pay period) AFTER your bills are paid and you have spent money, zero-based budgeting forces you to save at the beginning of the month( right when you get paid) BEFORE your expenses hit.

Prioritizing saving has been a game-changer for me and it just so happens to be a tried and true, proven saving strategy for millionaires.


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Tracking your Money for Better Financial Decision Making

There are a lot of benefits to using this system. For one, it will become more difficult to overspend because you're always working with a plan. And secondly, you're able to see where every penny goes, so you can make adjustments as needed.


Your Personalized Zero-Based Budget


If you're thinking of making the switch to zero-based budgeting, there are apps for that. YNAB is a great way to do it. YNAB is software that helps you create and stick to your budget. It's simple to use and really effective in helping you stay on track.


The site claims that users usually save $600 in their first 2 months and more than $6,000 for the year! Personally, I've saved a heck of a lot more than that since I started using it.


To get started with YNAB, create an account and link your bank accounts. You'll then be prompted to create a budget for the month. From there, you'll want to "give every dollar a job." This means that you should assign every dollar of your income a specific purpose. YNAB offers a ton of helpful suggestions, like splitting your budget into needs and wants, or budgeting for recurring and one-time expenses.


The great thing about YNAB is that it's totally customizable to fit your needs. You can change your budget as often as you need to, which is important when you're trying to adapt to a new system.

If you're feeling overwhelmed by the thought of creating a zero-based budget from scratch, YNAB is a great way to get started. The software will walk you through the process and offer helpful tips and suggestions & also has TONS of educational materials & short video tutorials to support you.


Cash Flow: The Fun Part of Budgeting

Once you know your monthly net income AKA Monthly Cash Flow ( money that's leftover after taking all your monthly expenses out) then you have a very clear picture of where your money is going. Then the question becomes: How can you maximize goal-driven, savings with what is left?

This immediately puts you in the driver's seat to make any changes you feel are needed to be in alignment with the life you want to live.


Now here is where it starts to get fun.

If you have money left over after all of your expenses are taken care of- now you get to allot that money in any way you wish.


Got credit card debt? Want to buy a car in cash? Pay off your student loans faster? Buy a couch? Save for a vacation?


These are some of the places you can allot your extra money to that I have used in the past.


For me, there was an order of importance that I used to allot that extra cash and give every dollar a job in order to maximize my savings rate. Here is the order:

  1. Emergency Savings

  2. Retirement

  3. High-Interest Debt

  4. Sinking Funds: Vacations, yearly or bi-annual expenses like car insurance, pet insurance, Christmas gifts, new car, and student loan payments are some of the ways I’ve utilized sinking funds to slowly save for things.

Depending on interest rates, income, and other variables, your order may differ. After all, personal finance is well, PERSONAL.


Take-Home Points

Zero-based budgeting is a great way to get a clear picture of where your money is going and take control of your finances. It's simple to use and really effective in helping you stay on track. YNAB is a great way to get started for free and the software will walk you through the process of setting up & maintaining your zero-based budget.


Give it a try and see how awesomely efficient you can be with your money!

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This blog post provides personal finance educational information & is not intended to provide legal, financial, or tax advice. All of the content of this blog post is my opinion not that of my employer, affiliates, or business partners.

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