Zero-based budgeting has gained popularity due to the rise in social media users sharing their spending habits.
Financial experts, including Mary Hines Droesch from Bank of America, advocate for zero-based budgeting, a strategy that involves creating a new monthly budget and allocating every dollar of income to savings and expenses to gain better control over spending.
To establish a zero-based budget, determine net monthly income, account for non-negotiable expenses, allocate remaining funds to various spending categories and objectives, and monitor spending regularly. Integrating savings goals into the budget is crucial for long-term financial planning, according to Adam Davis from Capital One.
Zero-based budgeting has become a popular spending trend because of the increase in social media users who share their spending patterns.
Zero-based budgeting has become a popular spending trend because to the increase in social media users who share their spending patterns. (Photo : by Tyler Franta / Unsplash)
Three financial experts have discussed how this idea may help you control your spending and get your finances in better order.
Zero-based budgeting is a strategy that, according to Mary Hines Droesch, head of consumer and small business products at Bank of America, entails creating a fresh budget each month and assigning every dollar of your take-home pay to your savings and spending.
Droesch suggests that zero-based budgeting can effectively manage spending by providing a clearer insight into one's financial allocations. "At the onset of each month, you allocate every dollar of your take-home pay to specific spending or savings categories," she explained. "This approach compels you to precisely track your expenditures, thereby preventing overextension."
To build a zero-based budget, follow these four steps:
Determine your net monthly income after taxes. You can see precisely how much you need to pay once you have this amount.
Compile your non-negotiable costs. "Monthly expenses include rent or mortgage, automobile and student loan payments, savings, utilities, food, transportation, and other costs. Subtract them from your income when you've added them all together, said Droesch.
Choose what other payments to make. According to Droesch, allocate the remaining percentage of your income to various spending categories and objectives until you have no money left over. Examples of these categories include savings, subscriptions, gym memberships, dining out, travel, and so on.
Monitor and make changes to your spending plan. Following a zero-based budget necessitates keeping an eye on your spending. For instance, Droesch said to make a note of any underestimating of your shopping costs and correct them for the next month.
Is Savings Included in This Budget?
According to experts, integrating savings into your financial plan is crucial. Zero-based budgeting, which assigns every dollar you earn a specific purpose, emphasizes the importance of incorporating savings goals. Adam Davis, Vice President and Head of Financial Health and Customer Liquidity for Retail Bank at Capital One, emphasized the significance of including savings in your budget to prepare for future needs, meet financial goals, and handle unexpected expenses.
According to him, you may automatically save a certain amount at the same time every month by using the recurring transfer tool offered by your bank.
