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A zero-based budget is something a lot of people look at doing. This doesn’t mean you have to spend every penny, but each one needs a job.

As you look into the ways of budgeting, you may come across the term “zero-based budgeting.” This involves giving every dollar from your paycheck a job. It doesn’t mean that you have to spend every single penny on things. This is not the same as living paycheck to paycheck.

What is zero-based budgeting?

The idea of this type of budgeting is simple. You’ll use every single penny from your paycheck. The aim is that each month, the entire paycheck has been used for certain needs. This doesn’t mean you’re spending the entire thing.

You’ll need to know how much you get each month to start with this. Add up your paycheck, any government money you get, any side hustles you have, and even any child support or alimony you can rely on. I would only include money you can rely on rather than the money that you should get, but that comes from having an ex who isn’t the greatest with his money.

From here, you make sure each penny is used. Some of this is going to be on your debts, your rent, and your other regular bills. Other parts of the income will be going to your savings.

Make sure you have a plan for the money

The benefit of zero-based budgeting is that you don’t end up in more debt. The focus is on spending money on your needs and wants while saving for the future. Each penny has a job rather than just sitting in your checking account with the promise that you’ll put it in savings later or that it’s just there for emergencies.

If you’re going to have that money for emergencies, then make sure it’s put into your emergency account. If it’s there to save for furniture, have a savings account for that need. If you need it there as one bill can fluctuate, that’s fine. I know there are some bills that aren’t the exact same amount each time. My electricity bill can fluctuate $20 throughout the year depending on the season.

The aim is to have a plan for the money. If you don’t have a plan, you run the risk of spending it instead of putting it in savings like you want.

Have a plan for your savings in your budget

You will have a budget for your regular outgoings and to clear your debt. You need a plan for savings as well. I know a lot of people will tell you to clear off your debt and then save, but I do believe you need to put some money into savings right away. After all, you need an emergency fund should something happen like your car breaking down or the boiler breaking or if you need car parts replacements. However, you can also use this Skruvat discount code or Skruvat rabattkode here if you’re buying car parts online.

The savings can become part of your zero-based budget. In fact, it should be part of that.

Start with your regular outgoings and your debt repayments. What money from your income do you have left? Now give all of that a job.

Let’s say you have $100 left (just for easy math). You could put $20 into a sinking funds savings account and $50 into your emergency fund account. Now you have $30 left. That $30 could be extra toward your debt, or you could decide that is what you can spend this month on yourself. If you have a lot of debt, I’d suggest the former first. Why pay extra interest if you don’t need to?

Now your paycheck is at zero, but the money hasn’t just been spent on nothing. You’ve allocated some of it to savings.

MORE: When is debt consolidation a good idea?

What do you struggle with when it comes to money? Have you tried zero-based budgeting? Share your thoughts in the comments below.

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