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A zero-based budget is a budget where every single dollar is accounted for. You divide up your income into specific categories until you end up with nothing left (“zero”). This is a common strategy for businesses, but it’s not just for the professional world. You can adopt this strategy with your personal budget.
What are the benefits of this type of budgeting?
Organization:
Do you hate mess? Do you feel better when everything is in its proper place? Then, this is likely the budget for you. You’ll create categories for all of your expenses for the month, leaving nothing up to guesswork. Everything will be neat and tidy.
You can organize your zero-based budget via spreadsheet software on your computer. Or you can download one of the top budgeting apps and create one there. For this budgeting style, you should choose apps like You Need a Budget or Buckets Budgeting.
Mindfulness:
Zero-based budgets force you to be more mindful of your spending. Since you have to account for every single dollar of your income, you have to think hard about the purchases you’re planning on making. You’ll want to give those dollars a practical purpose instead of wasting them on impulse buys and forgettable expenses that you don’t need.
Emergency Savings:
With a zero-based budget, you might find that you have a significant amount of money left over after covering your essentials, like mortgage payments and utility bills. You’ll have to find a practical place to put those leftovers.
One of the best places to put those leftovers is an emergency fund. An emergency fund is a crucial safety net that you will want to set up for yourself — if you don’t already have one yet.
With an emergency fund, you can pay off an urgent or unplanned expense the moment that it falls into your lap. Using these savings will guarantee that the money sitting in your checking account goes untouched, which means you won’t disrupt your budgetary plans for the month. You’ll still be able to pay for your groceries, bills and other essentials as normal. There will be no need to panic whatsoever.
Without an emergency fund, you might panic over how you can cover an urgent expense that you didn’t account for in your budget. Using the money in your checking account could cause a complete ripple effect of financial consequences, making you pay bills late, rack up late fees and put your account into overdraft.
As a solution, you could look into an alternative payment method to handle that expense so that you don’t upend your financial stability. You could use a credit card (or divide the expense amongst multiple cards) to resolve the problem quickly. Or you could try to apply for a cash loan online, as long as you meet the qualifications to apply. One of the biggest benefits of cash loans online is that you can apply very quickly. You could fill out the entire application and submit it in under ten minutes. That feature is incredibly appealing when you’re dealing with an emergency.
Debt Repayments:
Another practical category for your leftover income is “debt repayment.” You can put those funds toward a credit card debt repayment plan to finally bring those balances down — and potentially bring your consumer credit score up. Or you can use it to tackle the student loans that have followed you since your college years. Basically, these leftovers can help you manage your outstanding debts faster than usual.
Do these benefits make this budget seem like the right fit for you? Then, it’s time to follow this strategy. Start your zero-based budget now!