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Zero-based budgeting
Zero-based budgeting (sometimes called zero-balance budgeting) has one rule: give every dollar you have a job until nothing is left to assign. Income minus everything you've assigned equals zero.
"Zero" doesn't mean spending everything. Savings, a vacation fund and an emergency fund are jobs too. It means no money is sitting around without a purpose, where it tends to disappear.
How it works
- Start with the money you have today. Not next month's paycheck: what's in your accounts right now.
- Assign it to categories (groceries, mortgage, car repairs, vacation) until Left to assign reaches zero. Essentials first, then savings and everything else.
- Spend from the categories. Each purchase comes out of its category, so you always know what's left for groceries this month.
- When income arrives, assign it too.
- When life happens, move money. Dinner out ran over? Take it from a category that has some to spare. The budget is a plan you adjust, not a test you pass or fail.
Why it works
- Decisions are made once, calmly. You decide what groceries get on the first of the month, not in the checkout line.
- Irregular bills stop being surprises. Setting aside a little each month for property taxes or gifts means the big bill is already paid for when it comes. (See sinking funds.)
- You see trade-offs. Moving money into Dining out means taking it from somewhere else, and you choose where.
- It works on any income. Big or small, regular or not, you budget what you actually have.
How Pensum does it
At the top of each month, Pensum shows your income, what carried in from last month, and what you've assigned. The difference is Left to assign. When it reads Fully assigned, every dollar has a job. Read more in Left to assign.
Next steps
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