To get started, you’ll need a spreadsheet and a bit of time. The process of creating a zero-based budget isn’t complicated, but it does require some careful mathematical calculations to account for certain contingencies.
Now that you’re looking to buy a home or plan an epic trip, you’ve reached the age where you want to be in control of your finances and future.
Maybe you want to retire early, say at 55 or even 45, rather than in your sixties. Maybe you want all of the above! To achieve these not-so-rare goals, you need to set a budget and create a zero-based budget is one of the simplest budgets to set up.
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How to Calculate Your Break-Even Point
A zero-based budget is a way of planning your monthly income so that you could allocate it into designated spending categories until you have no money left. By creating a budget, you end up with a list of things that are important to you so you know where to spend your money wisely.
When it comes to personal money management, zero-based budgeting is a popular method because it requires you to be intentional about your spending habits. Many people believe that this type of budget comes the simplest way to hold yourself accountable for your finances.
A zero-based budget isn’t just about tracking numbers and spending. It’s the first step to ensuring you have the funding you need to have a business that can thrive.
The examples below can give you a step-by-step manual on how to make your own zero-based budget.
Screenshot of zero-based budget
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Your after-tax monthly income is the amount of money available to you. Of that total, we’ll be using $4,000 for illustrative purposes. This can be anything different than what’s stated above, and that’s perfectly OK. You can always update your income in the spreadsheet as your circumstances change. For example, you might get a pay raise as inflation rates rise.
Looking for a reliable way to track your income? Our spreadsheet’s created by an Excel expert, and it shows your income in real-time.
In the example above, you can see that an amount of $4,000 has been typed into cell C3.
Table
Since your monthly expenses are mandatory, they include all non-discretionary spending such as rent, internet, utilities, and insurance. If there are special circumstances where it’s required to purchase these items, you’re also going to have to pay them.
As long as you have a monthly budget, everything should be manageable. You can also divide costs that occur annually over the course of a year and include these expenses in your monthly budgets.
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It can be hard to keep track of everything that you spend. For example, the website may give you a list of affordable apartment rentals, but you’ll need to start tracking other expenses and adjust your budget to maximize your spending.
In order to finish this step, complete the table with the total amount of monthly expenditures.
Some expenses are mandatory, like rent and taxes. We’ll take those out and add them automatically in one easy step.
List Variable Expenses
Variable expenses are all non-discretionary spending. This means any of your spending that you have some control over. Of course, things like food must be mandatory, but you can control how much you spend on food. These expenses usually vary month over month or they may happen once every couple of months. Insert your list of variable expenses in one or two rows below your mandatory expenses.
Screenshot of variable expenses, either as a table or graph
If you’re new to monitoring your expenses, it can feel like a daunting task. You’ll need to decide on category names for your variable costs and establish some spending targets, which can range from eight categories to twenty or more depending on the size of the business. Try to keep the number of categories between ten and fifteen, so that you have fewer categories to assign later.
Don’t worry about getting started. With our easy-to-use budget tool, you can set up your first month for free. As time goes on, you’ll know where your money is going and adjust the targets each month to get more out of them.
There are other ways to obtain top-of- the-line content for your business besides hiring an outside writer. In this step, you’ll calculate the total amount spent each month on variable expenses using the SUM function.
Screenshot of variable expenses with formula showing
- Subtract Expenses From Income to Equal Zero
One way to find out where you stand is to create a budget. We need one more column on the spreadsheet, and by adding it we can subtract your budgeted total expenses from your budgeted income. This is where the Budget Balance gets its name—the Budget Balance needs to equal zero.
Income minus expenses
If your budget balance is positive, this means that you have extra money to assign to one of your categories. This is where you get to choose how the money works for you. Imagine spending this extra cash on dining out or saving it towards a down payment on a home? If you’re trying to save long-term, remember that having a strong balance will give every dollar its own job so that it can be spent on something meaningful for you.
Take a screenshot of your income minus expenses, split it into specific weeks or months and then use the formula to find out how MUCH money you’ll make each week.
If your budget is in a negative balance, it means you’ll be spending more than you earn. If this continues, you can go into debt if you don’t change your income or spend it carefully.
- Manage budgets, track expenses
Knowing your monthly expenses is necessary in order to properly manage a life or business budget. Use software like WeGoPro to keep track of what you spend on coffee, restaurants, and subscriptions!
If you’re a card-carrying member of the credit-card-using community, one of the easiest ways to track your monthly expenses is to download your bank account statement in Excel or QuickBooks, and then prioritize each category based on zero-based budgeting. Alternatively, there are several smartphone apps available to help you track and categorize your expenses.
By tracking how much you spend in each budget category, you’ll be able to identify areas in your budget that aren’t being utilized as well as areas where you may be spending more than expected. In both cases, adjustments are simple with the help of our app’s monthly automation feature.
Once your spending balance is zero, you should have a clear understanding of how much money you have and how you need to spend it.
You have a budget for everything. But if it’s not being maintained, you’re not always making the best use of your money. That’s why it’s crucial to create a new budget each month and make sure you stick to it.
This can be done by updating on a monthly basis. For example, if you have decided to spend 50% of your budget on rent and now it’s 45%. This would tell you that there’s some missing dollars in the pipeline that need to be reallocated elsewhere.
Every month, you don’t have to invent the wheel and recreate your spreadsheet. Copy and rename the old tab, adjust the variable expense amounts if necessary, and get back to work.
Keep up with your bills and expenses with less hassle by using a budget software.
Developing a budget is an important first step in getting your finances back on track and living a happy life. With our easy-to-implement budgeting programs, you’ll quickly develop clarity of what matters most in your life — spending time with your friends, traveling, or retiring early.
As economic uncertainty continues to rise, a zero-based budget is a great remedy. It will stop you from wondering where your money is going and start work towards the goals you want to achieve.
