What is a Zero-Based Budget + How I Found $10k
Budgeting is about having a plan for your money, whether for bills, traveling, or saving. To put it into perspective, I identified where I SPENT my money versus where I PLAN to spend money.
What is a Zero-Based Budget
A zero-based budget is a budgeting method where a person takes their monthly household income minus every expense to make the difference equal to zero dollars.
This method doesn’t mean that a person needs to spend their entire income. Instead, it means giving every dollar a plan, whether that means spending it on bills, saving up for a trip, or using to invest in retirement.
Every dollar has a purpose!
For example, imagine a person with a monthly household income of $2,000. Below is a breakdown of their expenses: – Bills (i.e. rent, utilities, insurance): $1,000 – Groceries: $300 – Shopping: $100 – Dining: $100 – Vacation Fund: $200 – College Fund: $200 – Savings: $100
The total of their monthly expenses is $2,000. Subtract that amount from their income, and it equals zero!
Notice how expenses don’t necessarily mean bills. Instead, these expenses also include goals, such as saving up for a vacation and a college fund.
Why Do Budgets Fail?
With budgeting, it’s also essential to set realistic expectations. There should be a limit on how much a person spends in a particular category. However, when starting, the budget shouldn’t be too restrictive.
Why is a Zero-Based Budget The Best Method
50/30/20 Rule Budget This budgeting method is implemented by dividing up one’s income into three categories: 1) Needs, 2) Wants, and 3) Savings.
This method is also known as “proportional budgeting.” Proportional budgeting is assigning a percentage of one’s income to one of those categories. The most well-known proportion is 50% for needs, 30% for wants, and 20% for savings.
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