What’s Zero-Based Budgeting and How Can It Work for You?

(MoneyHippo.com) – While budgeting money might sound restrictive, it could be the answer you need to straighten or keep a handle on your finances. Zero-based budgeting categorizes a person’s income into expense pockets to cover their obligations and accounts for every dollar.

Start by writing down your net income and every expense you pay. Include items that occur monthly, quarterly, yearly, and occasionally. Don’t forget savings. Write down the amounts you need to set aside each month for every obligation, organizing each dollar until you have none left — zero. You’ll allocate funds on a spreadsheet each time you get paid, accumulating money into those subaccounts and subtracting from the line items as you pay bills.

The most significant advantage of this plan is it leaves no surprises. With zero-based budgeting, you set aside cash for everything that does or could come up in your life — including emergencies. This kind of planning can keep you out of debt by eliminating the need to spend beyond your means.

Tracking at this level also gives you a detailed view of where you stand financially. You can either increase your income to plan for more expenses or reduce or eliminate some completely. It’s also easy to move money around to customize the budget in a way that works for you.

Although this process might take some time to implement and track, knowing you have every obligation covered could reduce financial stress and give you peace of mind.