Two Rules for Zero-Based Budgeting

Rules for Zero-Based BudgetingMost people do not have a problem when creating their budget. In most cases, people can get their income minus expenses to equal zero dollars if they put a little effort into limiting their planned spending for the month. A problem arises for people when they execute their budget during the month. Some people think their budget is their check register, and they wonder how they can make ends meet during the month when they don’t get paid on the first day of the month. There are two rules for zero-based budgeting: You need to have a written plan each month, and you need to be able to cash flow each month. When you follow these two rules, it makes living on a budget ridiculously easy.

Have a Written Plan Each Month

Most people who budget understand that they need a written plan each month. You can’t execute your budget unless you have a budget. Makes sense, right? For the 200 million Americans who do not have a budget each month, they don’t get the first rule at all.

For those who create a zero-based budget each month, you understand why you need a budget. However, I see many times where people want to start their December budget on November 15th because that is when they will have the money for their December expenses. Others want to budget on a weekly basis because they get paid every Friday. Now granted, it is possible to budget either of these ways, but the reason for budgeting on a monthly cycle starting on the first of the month is because your expenses cycle once a month in most cases.

In your budget, you are giving every dollar a job to do for that month. However, your budget is cycling around your expenses and not your income. Don’t focus on the income side of your budget. Focus on the expense side. People focus on the income side because most people are living paycheck-to-paycheck and must wait until their next paycheck gets deposited into their account before they can spend money. Their focus is always on their income. Even when their income increases, they still focus on it because they increase their expenses with their income. They continue to live paycheck-to-paycheck because they focus on their income and not on their expenses. When you focus on your expenses, you don’t care when your income comes in because you know you are living within your means or even well below your means, and you are able to cash flow each month without an issue.

Have Enough to Cashflow From Month to Month

The first rule of zero-based budgeting is hard for people because they fail at the second rule. They fail at the second rule, as stated above because they focus on their income.

It doesn’t matter if you get paid once a month, bi-monthly, bi-weekly, or every Friday, or if your income is irregular. You have to have enough in your bank account in order to cash flow from month to month. In order to get to that point, you need to stop living paycheck to paycheck so that you can build up a buffer in your bank account. On average, this buffer in your bank account should be equal to ½ of your monthly budget. That’s average. For some people it will be more than that, and for others it will be less, depending on when they get paid, when certain bills are due, and what percentage of their take home pay they spend each month. This buffer should not include the $1,000 in your starter emergency fund.

You build this buffer by not spending all your income each month. Over the course of a few months, you should be able to get to the point of having enough money in your bank account to cashflow each month. If you cannot get to this point, you are spending too much of your income, and you will have a hard time paying off your debt.

Your Budget is not an Account Register

When building a house, the blueprints are not the house. They are the plan for the house. A budget is not your bank account. It’s the monthly plan for your money. Don’t confuse the two. Do not think your budget determines how much money is in your bank account. People who think their budget is an account register are the ones who get the second rule wrong. When you get the second rule wrong, you quit budgeting because you can’t make it work.


Once you have the second rule of zero-based budgeting down, the first rule will not be an issue for you. It comes down to this: If you are budgeting and still living paycheck to paycheck, you are doing it wrong. Have your monthly budget and put yourself into a position to cashflow it each month.


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