Why Should I Use a Zero-Based Budget?
Posted on November 25, 2019 by Johanna Underwood, One of Thousands of Money and Finance Coaches on Noomii.
What's the difference between a dream and a goal? A specific, measurable plan with a clear deadline that you are going to accomplish it by.
Why Zero-Based Budgeting Works
What is a dream that you have? Maybe it’s a trip you’d like to take “one day” or a home improvement projected that you haven’t gotten around to yet. Many people even have a “bucket list” of dreams they want to achieve by a specific deadline (typically, death).
What about a goal? Do you have a specific date in mind for paying off all of those debts? Perhaps it is a plan that you have in place for the holidays (like Thanksgiving, just past).
What’s the difference between them? What makes one thing a dream and the other a goal?
A plan. A specific, measurable plan with a clear deadline that you are going to accomplish it by. Sound familiar? That’s what a budget is meant to be, too!
Why do I need a budget?
If you’ve ever had a dream that never came true, then you should understand why a budget is important. Without a budget, the ideas that we have about how we want to use our money are just that – ideas. They’re dreams. Wishes. A budget moves your financial desires into a concrete plan, where you can see EXACTLY how much money you have coming in and going out and how much is left over for you to chase those other dreams – like paying off those credit cards that are still hanging on with parasite intensity!
Just as you wouldn’t take a road trip without a map (unless you WANT to spend 6 hours driving in circles through the countryside and end up hopelessly lost), you shouldn’t go into a month without a budget for your money. This is your opportunity to give every dollar and penny of your income a job. Want to be a millionaire one day (or at least be debt-free and comfortably retired)? A monthly budget is your BEST chance of getting there. No joke.
What is a Zero-Based Budget?
Several different ways exist for budgeting your money, but the most successful option is the zero-based budget. This means that every cent that comes into your accounts or your hands is documented and assigned a job.
If you have $500 left over after calculating all your bills, you still have to tell that money where to go – even if it is going towards debt payment or building up that emergency fund.
This is your plan, your roadmap, and you need to know exactly where you want each dollar to go.
Why Does This Work?
According to Dave Ramsey’s team when they surveyed couples using the zero-based budgeting method, they pay off 19% more debt and save 18% more money just through the use of this simple tool.
Why? Because it shifts our mindset and therefore our behaviors with our money. If you know there’s $500 “extra” dollars sitting in your account, you will believe it is okay to spend extra on eating out this week, even though you already spent that budget line.
But when you have to take money from the line that says “emergency fund” in order to cover that extra meal you ate out, it HURTS. You have a physical reaction and you will remember next time that your extra expense is slowing down your ability to reach your money goals.
How Do I Get Started?
Dave Ramsey and his team offer some great resources for getting started with a zero-based budget. My favorite is the EveryDollar App, which offers its basic features for FREE! This is the version I use and I love it. If you want to connect the app with your bank so you don’t have to enter the transactions individually, you can upgrade to the PLUS version – it makes budgeting just a little bit easier for you (If you purchase a year subscription to Financial Peace University, the PLUS version of the app is included).
You can create your EveryDollar account here: shorturl.at/btFL0
They have also created a Getting Started article for you, which you can find here: shorturl.at/yACX6
If you prefer a physical form to the digital version, that is totally fine! Send me an email requesting it and I can give you a very basic budget form – a more simplified version of the one that I use with my coaching clients.
However you choose to budget, I hope that this newsletter gives you a few more reasons to make this a consistent habit in your life! You won’t regret it!
