What is Zero-Based Budgeting?

If you have looked up budgeting strategies online, you have likely come across the term, “Zero- Based Budgeting”. It is a budgeting strategy popularized by Dave Ramsey and it is simple to understand. After you subtract your expenses from your income you should be left with $0 every month.

The idea is to give you total control of your money and assign every dollar a purpose. If you are getting started on your journey to financial freedom this can be a great strategy for you. I will explain how it works with a monthly income of $2,000 as an example.

• $800 goes to rent
• $80 goes to utilities
• $400 goes to savings
• $200 goes to retirement
• $200 goes to groceries
• $120 goes to fun
• $200 goes to loans

If some of your payments are fluid, you can adjust numbers every month to suit the strategy. You can also build a template in Excel to assist with calculations or use an app like YNAB. Before you get started with this strategy, I recommend a couple of things. First, you should track your spending the previous couple of months so you can understand what your most common spending categories are.

Secondly, some of your expenses are fluid so you may ask yourself how to do you put a number on those categories? It is best to overestimate and be cautious. That way if your utility bill is lower than you anticipated you can transfer some of that excess money to savings for example.

A zero-based budgeting can be what you need to help you get started reaching your goals. It will help you identify your problem spending areas and provide you structure. Once you analyze yourself and understand how you are spending, you will be able to make meaningful changes in your life.