How To Zero Based Budget – How To Budget To Pay Off Debt


– In today’s video, I’m gonna teach you what
a zero based budget is. And then I’m gonna take
you inside of my computer, if you’re okay with that,
to show you how to make one. You know what I hate? I hate hearing people
talk trash about budgets. What, are you too good for a budget? Do you hate putting some
sort of structure around the one thing in life that stresses people out the most, their money? Are you afraid of dealing
with the annoyance of settling into a new
budget for a couple months until you get the hang of it? Aw, well then lets roll you
up into some bubble wrap so we can make sure that
your ego doesn’t get injured. Just because something is difficult, doesn’t mean we shouldn’t do it. If that was the case, then
why even learn how to drive? Shouldn’t we just Uber everywhere? Of course not! Because while it may be convenient, it’s still gonna cost us
more money in the long run. Look, I hear their points of view, but I’m not buying into it. Because I used a budget the
whole time I was paying off my $82,000 in debts. And I wouldn’t take it back. And I still do a budget and it’s not hard. I copy from the previous month, and paste it in the upcoming month. Oh, it’s so hard!
(child crying) and that you have to do some adjusting, when certain things come up,
like Christmas and stuff? Oh my goodness it is so hard! This budget goes by two different names. The Zero Sum Budget, and the Zero Based Budget. It’s essentially for people
who’s paycheck amounts are the same every single time. The high level explanation of it is: you take your total income for the month, and you distribute it
throughout your expenses. So that you have zero dollars left. Something you need to think about before you start this process is
know why you’re doing it. Are you in debt and you
wanna put more money towards your debts? This could also be for
someone who isn’t in debt, and just wants to get basic
structure around their finances. Still wants to do a budget. Like I do, even though I’m out of debt. The envelope system is
usually associated with the zero sum budget. But in my case, I don’t
like the envelope system. Not even a little bit. And I’ll tell you why in a future video. Here’s a couple tips to help you be successful at this method. Be realistic about your expenses. If you are not sure how
much one’s gonna cost, then over-estimate. Going into this process, I want you to be aware
that you are gonna mess up. It’s usually gonna take
between one and four months to kind of get aligned. Get your costs aligned
with your actual budget. When you’re creating your budget, think about upcoming holidays and events where you are gonna have to spend money. That way you won’t be in the
middle of the month and be like oh hey, I forgot it’s Christmas! yeah, don’t do that kind of thing. Once you start becoming comfortable
with the zero sum budget I want you to start planning
your budgets out two or three months ahead of time. That way it can help you
stay ahead of any potential expenses that you may
not think of right now, but you might think of leading
up to that actual budget. When you set up your initial budget, set aside a couple hours
to get it down on paper. Because you’ve never done it before, a lot of the work is
gonna be front loading. Creating your initial budget. And then as you get more used to it, all you do is copy the previous month, and paste it in the upcoming months. It’s super easy. That’s what I do now. Some things you’re gonna need
on hand when you go to create your initial budget are this: you’re gonna need your pay stubs. So know your income broken
down into 24 paychecks, or 26 paychecks, however
you get paid currently. Also bank and credit card statements. And these are easy to access online. That way you can get an
idea of what each cost is if you don’t know right off the bat. Get a list of your monthly expenses, broken down into the Tier
system that I talked about in a previous video. The link will be in the description, if you haven’t seen it yet. And then finally, a list
of all of your debts. The total balances, the minimum payments, and the interest rate for each. Before I walk you through
an example of this budget, I first want to point out, that if you’ve never done a budget before, I highly recommend setting
up your first budget the way that I’m gonna show you. That way you can get an
idea of how your expenses are gonna be broken down. Here’s the zero sum budget. Now before we dive too deep into it and start running scenarios, let me explain the layout
for you real quick. So up here, I’ve put a yearly salary. Had to pick something random
so that’s what we got. Minus, I took out about 33% for taxes and investments through work. And if we get paid 26 times a year, that’s a little over $1,500 per paycheck. And as you see, if you
get paid 26 times a year, you technically get two extra
paychecks within that year. But we don’t plan on
spending those paychecks till we actually get them. So for right now, it’s
kind of like a bonus. So when those months come,
awesome, we’ll deal with it then. So what you want to do is, each paycheck is going
to last you two weeks. It’s gotta last you two weeks. So down here I’ve kind of
split it up into two weeks. From there you can start
laying in your expenses. So the name of your expense, and how much it’s going
to cost you each month. As you can see, you’re gonna
have expenses of course, that you need to spend
money on every single week. So groceries obviously, you need to spend a particular amount of
money, every single week. You’ve got other bills, that aren’t gonna be
due until certain dates. Which I’ve greyed out right here. Those are the due dates
for each of these expenses. Just to kind of make it easier, make sure we can get
everything paid on time. Let’s run through a quick scenario. Now that you have all of this laid out, let’s see how it plays out. So, we’ve got to spend
$500 towards our rent, we’ve also got to
distribute the groceries, throughout the whole month, technically, so let’s just go ahead and
put that amount in now. That way it’s done with, out of the way. And then same thing with fuel. ‘Cause we need to spend money
on that every single week. And we know we’re gonna have the money. Those are very important
expenses to us as well. Now within that first week, we gotta pay $50 for our
gas, and water and trash. Cool. Perfect. Now what you’ll notice is that $769, is less than this $900
that we’ve got here. But it’s okay, because we’ve
got that full paycheck, for the first two weeks of the month. Not a big deal. We can actually go ahead, and lets start paying some
of the other bills as well. We’ve got $150 towards credit
card payment, gotta pay that. And then we’ve got our car loan. Definitely need to pay that
because we need to drive to work and we’ve got $50 for the internet. We all need the internet. Now there’s one more bill that
we have to pay for the month, because it’s due the second week. Okay so lets get that out of
the way, let’s start paying it. Oh snap. See what happened? We’re planning on spending more money, than we’re bringing in
for that first two weeks. So what are we gonna do? Okay well, there’s a couple options. We can either lower some of the groceries, lower some of the fuel, something within this area. But what I would recommend for you to do, is see if you can somehow, get a due date for any of your payments,
pushed out by maybe a week. So hey, lets call the loan company and say hey, can you push my car payment out, can I owe it like a week later, can you change that due date possibly? or the internet. Or health insurance. So that way we don’t go
over our budget here. Now there’s a couple different
methods to get around this, and I’ll explain that in later videos, but for now lets just try to
get the due dates changed. Now this is a cool thing
about this method is, we’re doing this before
the month even starts. Before we’re actually having
the money come into our pockets that way we can plan
for this kind of thing. We can see ahead of time, hey
we’re gonna have issues here, we better do something to try to fix this, because we don’t wanna get
to the moment and be like oh, snap, we can’t pay
our health insurance ’cause it’s due today, now
we’re gonna get a late charge. Call the companies, explain
to them your situation, and let them know. “I’m just trying to get things
set up on my personal budget, that way I can pay you,
because I want to pay you. So we called the health insurance company, they said perfectly fine,
we totally understand. they moved your due date back by a week. Awesome. Now what do we do? Because we have some
extra money left over. So we’ve got $238 ’cause
so far you’ve spent $1,300. So with that $238, you can kind of do what you want at this point. You can go ahead and say hey let’s pay off the
whole cell phone bill, let’s kinda put it in another area. But what I would suggest is, if you’ve got a chance to
move that due date out, why don’t you just, take
that money you would have been putting towards
your health insurance, and just put it towards a little fund. A fund for your health insurance, that you won’t spend
until the following week, but, we’ll just plan on putting
it into the side account, that way we don’t spend
it on anything else, it’s there, we don’t
have to worry about it, it makes life a lot less stressful. Now it’s time to plan
for the second paycheck. What we first want to plan
on spending the money towards any other bills we have due that week. So we gotta make up for the
rest of this health insurance, we’ve got $62 there. Electric’s gonna be due, not a big deal, we got that covered. And then we’ve also got our car insurance, and then student loans, gotta
pay those stupid student loans I hate those things. And then, one hundred bones. We’ll call these, these are bones. These aren’t dollars, these are bones. Alright, that was weird. I don’t know why I did
that, but $100 towards your cell phone bill. Well look at that. We’ve got everything
planned out for the month. Lots of green stuff going on here. That’s what I like to see. Down here, I’ve got a little cell that tells us if we have
more money within our budget. To spend. Which we do, we have $477 at this point. Because we’ve only spent
$2,600 of the $3,077 that we’re allotted every single month. So what are we gonna do? Well, lets kind of plan
on living the same way that we’ve been living. How about that? Let’s see what happens. So, we still wanna go out to eat, so let’s see if we can get by with going out to these restaurants. Oh yeah, and that really expensive cable? Which, cable’s a rip off by the way, and then we also wanna, we
wanna do a little vacation. Let’s, let’s take a weekend
away, just to kinda party it up. And then let’s buy some Netflix. And ooh, we gotta buy those clothes. We need those clothes. Now, we’re over our budget. (sighs) Oh, shoot. What are we gonna do? Well, we gotta start cutting things out. And by the way, if you have debt, I would
highly recommend not spending all of this money towards
the tier four items. Which is all the wants. So, in my world, sorry, not sorry. Getting rid of it. Let’s put that $477 to work, and get rid of some of these
stupid debts that we have. That would be my choice for you. We could also put it
towards different funds. So if you have holidays coming up. Birthdays, that you know
that you’re gonna be spending money on, start
planning for that now. So lets just say we’ve
got Christmas coming up at the end of the year, what is, what is that word? Holiday. And we wanna plan on
putting aside $50 a month. So we’ll plan on doing that
in week three of every month. Lets get that green, there we go. And that way, by the end of
the year, you’ve got $600? 500, $600 set aside for Christmas. You don’t have to worry about that. You can use that extra money
towards that kind of thing. But don’t use it towards
stupid useless funds like oh, I’ve gotta go on vacation
because I have all this debt” oh I wanna save towards this new car. Why are you saving towards a new car when you have a car loan? Don’t do that. That’s not smart. What I would do, is I would
put my money towards the loan, with the highest interest rate. Let’s get rid of that stupid thing. And it’s usually, credit cards. Not student loans, it’s
usually credit cards. $400. Get out of here credit cards, I hate you. 19, 20% interest? Get the heck out of here. I don’t want that any more. and you shouldn’t either. Now one thing that’s associated
with this zero sum budget, is something called the envelope system. And, I’ve got something to say
about this envelope system. I hope, did I spell that right? Yeah, I did. The envelope system. I don’t like the envelope system. And I’m gonna go into
that in a future video, but it’s outdated, it doesn’t make sense, I’ve got a better idea to help you, and get past this envelope system. I think it’s stupid honestly. I think it’s stupid nowadays. It didn’t used to be
stupid, it was a good idea, back in the day. But guess what? Technology, advancements,
why would you ride a bike across the country when
you can get there quicker in a plane. You know what I mean? It’s one of those deals. Doesn’t make sense. So, don’t worry about the
envelope system right now, we will talk about that in a future video. Now long term, you’ll
most likely wanna use some sort of budgeting software. That’s what I highly recommend. It makes everything so much easier, but definitely for your first time, use a spread sheet to figure things out. Stay tuned because I’ll be
reviewing some budgeting software that you might want to use. Depending one when you’re
watching this video, if I’ve already reviewed that software, the links will be down
in the descriptions. Check it out. If you liked this spreadsheet
and you want access to it then leave a comment down
below, letting me know, so. That rhymes! And then I’ll set it up so you
can download it for yourself. Thank you so much for taking
some time out of your busy day to check out this video. I hope you found some value in it. Please like, comment and subscribe, because I love you more than, water! And I drink a lot of water. So, I love you a lot! Alright, I’ll talk to
you next time, adios.

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