A couple of years ago, my husband and I started using a zero-based budget.
Zero-based budget is this: Income minus expenses equals zero. You spend what you earn, down to the penny, every single month. (Savings and debt repayment are the same as spending in this case.)
Basically, a zero-based budget involves using last month’s money to pay this month’s bills. At the end of the month, you ‘zero out’ your money. Every dollar goes somewhere — to bills, to purchases, to savings, to debt repayment.
As someone who spent a long time — decades — living in poverty, a zero-based budget is the most indulgent, luxe thing I’ve ever done on a regular basis. It’s the most wonderful feeling to be able to sit down and, all at once, pay everything for the month.
I think maybe you have to come from poverty to really, truly appreciate the glory of a zero-based budget. My husband’s on board with it, but he doesn’t understand the pure joy sitting down and paying all of those bills all at once gives me.
Before Starting With a Zero-Based Budget, You Need to Know Your Income and Outgo
If you have one or two regularly 9–5 jobs contributing to your family income, then you might know exactly what you have coming in on a monthly basis.
In my family, we have money coming in from seven or eight income streams. Sometimes it gets dumped on us in a big windfall — like when I sell a book or launch a course. Or it drips in a few dollars at a time — like when we sell something on Etsy. Or it’s variable, like my blog income. Some of it, like my husband’s paycheck, is very steady. He’s a craps dealer, though, and his tips are very variable.
The end result is that when we started using a zero-based budget, we literally had no idea how much money we were earning every month. And worse — because our normal was to just pay bills as they came due, or spend money when it felt necessary (or desirable), we didn’t really know what we were spending in a month either.
We thought we were spending $3500 a month for our family of seven (including grandparents) and my business expenses. In reality, when we sat down and figure it out, we were spending almost exactly $5000.
Our income at that time, three years ago, was about $4600 before taxes.
No wonder we always felt poor, even though on paper we shouldn’t have.
Not knowing what you’re earning and what you’re spending will not work if you want to shift to a zero-based budget.
And let’s be honest. It’s not great for life in general.
Spend some time looking over your bank statement and figure out what’s coming in and what’s going out.
Starting a Zero-Based Budget Requires Some Upfront Money
You’ll need the amount of your outgo up front. When we started using a zero-based budget, we needed $5000.
That’s a lot of money.
We were able to start all at once using a larger, one-time income I earned from selling a course in 2017. When we moved to PA this winter, we depleted our savings and for the first time derailed our zero-based budget. We were able to get back on track when I received a payment for my book.
If you don’t ever get paid in one big chunk (instead of monthly installments like a 9–5 job), you can start with a partial zero-based budget and add to it. Save up enough to pay your rent or mortgage with last month’s income, for instance. Or maybe buy your groceries. Or pay a credit card bill. Then just keep adding to it.
When you do get a windfall, add it to your zero-based income fund to pay some of next month’s bills. A tax return can be a good way to get started.
Let Your Income Build Up
One of the coolest parts of a zero-based budget is that you get to watch your coffers build. If you’re used to spending pretty much everything you earn, as you earn it, this might be a new experience for you.
It was for me.
One way to make sure that you actually save your money this month for next month’s bills and don’t leave yourself in the lurch is to have a savings account. Transfer all of your income into it, then at the start of the next month, transfer over what you need to for the upcoming month into your checking account.
Zeroing Out at the End of the Month is Important
Even if you can’t jump right into paying all of this month’s outgo with last month’s income — it’s important to make sure that all of your money has a home at the end of the month.
Our habit, before we started our zero-based budget, was to just spend. When a bill was due, when we wanted to go to a movie, when we needed a birthday gift — if the money was in the bank, we spent it. The result was that we were constantly robbing Peter to pay Paul, without even being aware of it.
If you have money left over, it needs a home. Your savings account or debt repayment are the usual places. You might put some into savings for specific occasional bills or purchases. A Christmas fund, for instance, or a savings for your car registration once a year so that doesn’t sneak up on you.
Shaunta Grimes is a writer and teacher. She is an out-of-place Nevadan living in Northwestern PA with her husband, three superstar kids, two dementia patients, a good friend, Alfred the cat, and a yellow rescue dog named Maybelline Scout. She’s on Twitter @shauntagrimes and is the original Ninja Writer.