16. Zero-Based Budgeting: What It Is and Why It Works
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Today I want to talk about zero based budgeting. What is it, why it works, and my favorite tool to help you get started.
Hey there! If we haven’t met before, I’m Lindsey and I LOVE budgeting! I’m here to help you see money as a tool to help you live your greatest life and also learn to love budgeting!
Let’s go ahead and dive in.
What is Zero-Based Budgeting?
At its core, zero-based budgeting is the practice of giving every dollar, and only the dollars you actually have, a job.
If you’ve been in my world for any amount of time, you may be familiar with this phrase. I actually mentioned it just a few episodes ago when I was talking about YNAB’s original four rules. (That was Episode 14, if you’d like to go take a listen.)
What this means is that instead of just looking back at what you spent last month, you look at the money you have in your bank account right now and decide exactly what it needs to do before you are paid again. So, if you have $100, you have $100 to work with. Or if you have $1,000, you have $1,000 to budget. You give every one of those $100 or $1,000 until you get down to zero. Nothing more, and nothing less.
Another way to think about this is by asking yourself: "What are the absolute necessities—like rent, groceries, and utilities—that must be covered before I get paid again?". This could also be money for gas to get yourself to work and a few groceries to keep yourself fed.
Then, once those are handled, if you still have money left, you can keep assigning it, until you are down to zero. Hence the term: zero-based budgeting!
Why It Works
Eliminates Mental Accounting: This is where you take a peek at your bank account, see $1,000 in there and think, surely I can spend $20 on lunch today. But if you forgot about the rent that needs to be paid on Friday and your cell phone bill that comes out in a few days, maybe you really don’t have that $20 available for lunch. It’s just too much to try and keep all of this in our head! Using a zero-based budget tool, will solve this problem for you.
Embraces Your True Expenses: Life is full of expenses that feel unexpected but that are actually something we can begin to prepare for. These are irregular costs like car repairs, vet bills, or holiday shopping. You KNOW they will come up eventually, but you don’t know when or how much they will cost. By setting aside a little each month for these sinking funds, you turn a potential financial disaster into a non-event because the money is already there waiting for you.
Total Flexibility and Clarity: One of the biggest myths is that a budget is restrictive. In reality, zero-based budgeting allows you to make changes as needed. If you overspend on groceries by $20, you simply shift $20 from another category. You are in control and can make real-time adjustments as your life changes. Because, life WILL change and having a tool that you can help you easily adapt is key.
My Favorite Tool: YNAB or You Need A Budget
If you’re liking the idea of a zero-based budget, but you aren’t sure how to get started, my favorite tool is the money app called YNAB or You Need a Budget. YNAB lets you easily assign money to categories so you can know with a quick glance, if you have that $20 to spend on lunch today or not. Again, it’s entirely too much to try and keep track of in your head! But with YNAB, you don’t have to!
Ok, there you have it in a nutshell!
What is zero-based budgeting: it’s where you assign a job to every dollar you have, and only the dollars you have.
Why is this method so effective: because it gets it out of your brain and into a place where you can quickly and easily see if you have money available in the category you’re looking to spend it in. This, in turn, helps you prepare for those unexpected, but real, expenses, and gives you complete clarity over how much you have and what it is allocated for.
And finally, my favorite tool to help you with this is YNAB, or You Need A Budget.
Thanks so much for joining me today. If you are ready for the next step, I have a free Beginner’s Budget Guide that will teach you the four numbers you must know before you fully dive into budgeting. You can grab that for free at www.theexuberantelephant.com/guide.
Remember, your biggest, wildest dreams are within reach. I’ll talk to you next time!
RESOURCES MENTIONED IN THIS EPISODE:
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❇️ Join The Empowered Money Circle on Skool! ❇️
🟪 BLOG
➡️ Try YNAB for FREE for 34 days (affiliate link)
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DISCLOSURES
By using the affiliate links above, I may earn a small commission if you decide to purchase anything. Thank you for your support :-)
YNAB Disclosure: I am a YNAB Certified Coach, which means that I have been trained to coach people on using YNAB software and the YNAB budgeting method. I have met select requirements of You Need a Budget LLC in order to receive this certification, which means that I have the ability to competently coach YNAB to others. I am not an employee of YNAB, and all non-YNAB related opinions and recommendations are my own. My views do not reflect the views of YNAB and its employees or affiliates.
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