There are many spending plan strategies and methods. The zero-based spending plan method is the one I use and teach. Don’t let the zero scare you, it’s not the temperature, it’s to get your spending plan to equal $0. Allow me to explain.

What is a Zero-Based Spending Plan

A zero-based spending plan is a type of spending plan where, you allocate every dollar of your income to your expenses, debt payments, and savings.  I like to explain it as telling all your income where to go and what to do.  The zero-based spending plan gives every dollar you take home a specific function and leaves you with no unused cash at the end of the period…$0.

Spending Plan Categories

You do this by assigning income to your spending plan expense categories until every dollar is accounted for.  The categories of food, housing, utilities, and transportation are pretty much decided for you as you go about living your life.  Some uncommon categories would include additional bills, occasional expenses, personal money, and miscellaneous expenses. 

A Zero-Based Spending Plan is Detailed

The zero-based spending plan method forces you to create detailed and well-developed spending categories.  When you are planning to spend or allocate all of your income, there is no room for error. This is why I coach clients to track spending, in some way, before they create the actual spending plan.  Your past spending will create your spending plan categories.  And all of this may take more time upfront, but in the end, it gets easier and less time-consuming, and well worth the effort. 

Getting to $0

Any leftover money should go where you want it to go such as savings, retirement, emergency fund.  I like this method because it gives you the flexibility to put money into categories that are priorities. Unlike other methods that tell you a specific percentage you should spend in a category.  Additionally, you could use the envelope method in this way as well.  No money leftover means every dollar is spent or saved with a specific purpose. It doesn’t mean that you’ll be spending recklessly.

Each spending plan period, start with your income and work to zero.  Additionally, you have a chance to change and adjust your spending plan and expenses.  You can design this spending plan to fit your specific income, needs, and wants. 

Final Thoughts

Your financial future is reflected in your spending plan, as it designates where you want to go.  I believe following a spending plan is essential to getting your financial life in order and a starting place for your spending and saving.  Financial success is essentially a matter of choice, not a matter of chance.  And a spending plan is where you make and implement your choice.  Whether the zero-sum budget, the envelope method, or some other spending plan, the objective is to take control of your finances and begin to manage money better.