- 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.