Exploring Zero-Based Budgeting

Blog Mar 23, 2020

In the fall of 2016, I had a last-minute opportunity to go on a work conference trip to San Francisco! It was legit, a 3 day software conference at Twitter’s headquarters, where I got to nerd out with fellow software engineers from all over the world, all expenses paid! Or at least, it should have been all expenses paid…

After coming back from the trip, I filed a quick reimbursement claim to my employer and forgot about it. Over a year later, when I needed to file another reimbursement claim, I realized had never hit the “Submit” button from that conference claim, and it was now waaay past the required date for submission…

This is just one example (thankfully, the worst one) that explains my financial life before budgeting. Looking back in my transaction history, I’ve found unused internet subscription charges and avoidable fees. Don’t hear me wrong, I always covered all of my bills, and my bank account was growing. But I wasn’t saving as much as I could have; my financial ship was unorganized and leaky.

Thankfully, in the summer of 2017, Jake invited me to start working on Budgets with him. It was through building Budgets that I decided to take control of my finances, and that using a zero-based budget could help me gain more control and freedom with money.

So Derek, what is a zero-based budget?

So glad you asked. Zero-based budgeting is the concept that your income minus your expenses and investments should always equal zero. For each dollar you earn, you have a plan on how you are going to use it.

Income — (Expenses + Investments) = 0

Another way to look at it is that each dollar you earn is an employee working for you. When you build your budget, you’re the boss of your dollars, and each employee has a job to do.

Some of your dollars you’ll assign to working on your Rent or Mortgage. Other’s you assign to getting some tasty grub (and there’s lots of it in Austin!). You may need to assign some to killing student or credit-card debt. Some will be assigned to saving for the future, and others you may invest to make more dollars for you!

How do I start a zero-based budget?

Starting a zero-based budget is easy! First, you’ll want to write down your monthly income. Don’t worry about taxes just yet, just write down the number of dollars that you take home.

Next, start writing down all the major categories of expenses you have in a month. I know there may be a lot of them, so don’t worry if you forget some of them, I regularly adjust my spending categories as life changes. But do try to write down as many as you can think of. Budgeting is most effective when you are able to predict as many expenses as possible.

Finally, divvy out all of your dollars into the categories you just created, so that every dollar has a job.

To give you an idea, here’s what I have. I broke my budgets into groups to help me understand them better,

Income 4600

- Restaurants 200
- Coffee 35
- Groceries 150

- Savings for Traveling 150
- Fun Money 100
- Clothes 50
- Tech 50
- Bouldering Gym Membership 80
- Hot Dates 75

- Retirement 250
- General Savings 1280

- Nonprofits 400
- Church 700
- Other Gifts 50

- Rent 630
- Utilities 60

- Car Maintenance 100
- Car Insurance 50
- Gas 75
- Parking 24

- Phone Bill 70
- Spotify 11
- Amazon Prime 10

But Derek, That doesn’t sound very fun!

Some people think that a budget is designed to restrict you, but that’s only partially true. Having a budget also empowers you to spend without worry! When you assign every dollar a job, you know when you can spend money, and spend it freely without worrying. This may sound like a restraint but remember, you’re the boss of your budget. If you want to make changes, you have the ability to do that! But the goal is to always keep your expenses below or at your income. If your expenses grow larger than your income — that’ll put you on the fast-track to debt!

But Derek, can I still use a zero-based budget with an irregular income?

What if your income adjusts month to month? Just do the best you can. Three months ago, I quit my nine-to-five job to work on projects I’m passionate about (like Budgets!), and have been working freelance part-time. Income looks different for me every month, so I just do my best to predict my expenses and income, and always make sure I have a good padding of savings in the bank.

Ready to get started?

Shameless-plug. Are you ready to start spending money without worry? Sign-up for a Budgets account to start your budget in less than 60 seconds! We’ll walk you through the process of zero-based budgeting and get you on the right track to making great financial decisions.

Derek Wene

Derek Wene is a software engineer, outdoors enthusiast, money nerd, and pun master in Austin, TX. Contact him at derek@budgets.money

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