Can’t Find the Money to Save or Pay Off Debt? Try My Twist on Zero-Based Budgeting
When my clients first start budgeting, I find that they often make a big mistake: they don’t include savings or paying off debt as an item.
They plan for the expenses they know they will have, like rent and necessities. Then they assume they will use the leftover money for other purposes, but that is a side issue. At the end of the month, they have no money left to reallocate.
As a money coach, I am a huge proponent of the zero-based budgeting method, or what I like to call the “spend-all strategy.” By following this method, I was able to pay off $72,000 in student loans in less than a year. Since then, I have taught this method to thousands of clients who want to eliminate their debt and grow their savings.
I like that zero-based budgeting teaches you that you have to spend money is not bad as long as you have a smart framework in place. This budgeting method may feel awkward at first, but it can change your relationship with money forever. I know it did for me.
“My clients are surprised when I tell them that the goal of budgeting is to spend all their money, because they think a budget means they can’t spend any money at all.”
What is zero-based budgeting?
The zero-based budgeting model requires you to assign a task to every dollar you receive each month, leaving no money left over.
I found it difficult to unlearn the old saving strategy because my father had taught me that it is good to have some extra money after you have covered your necessary expenses.
So I put my own spin on zero-based budgeting and created the “spend-all strategy.”
What is the ‘spend it all’ strategy?
I call my version of zero-based budgeting the “spend-it-all strategy” because I’ve found that it helps me explain that spending in and of itself isn’t bad.
My clients are surprised when I tell them that the goal of budgeting is to spend all their money, because they think that budgeting means that they can’t spend any money at all.
But the spend-all strategy is about purposefully prioritizing your financial goals and taking control of how you manage your money. It reinforces the idea that the point of budgeting is to live your life — not to hoard money.
How to use the spend-all strategy
Implementing a spend-all strategy starts with changing your mindset. Instead of seeing leftover cash as a windfall, embrace the idea that every dollar has a purpose.
Proactively allocate every dollar of your income to a specific expense or financial goal. Here’s what it might look like:
Let’s say you budget $2,500 per month for basic necessities like rent, groceries, and gas. If you make $3,000 per month, you need to figure out what to do with the remaining $500. If it’s not allocated to a goal, you could deposit $100 into a high-yield savings account that you use to build your emergency fund. Now you’ve “spent” the $100 in a way that helps you reach your financial goals. You do the same for the remaining $400.
You can track your income and expenses with pencil and paper or spreadsheets, but I highly recommend a budgeting app that is compatible with zero-based budgeting, such as EveryDollar or Monarch. A budgeting app makes it easier to track every dollar because you can make quick adjustments from your phone with less chance of mistakes or errors.
I use Monarch because it manages my budget and tracks my net worth. One of the benefits of Monarch is that you can share your budget with your family and financial coach without sharing your password.
Make a plan for the money you allocate at the beginning of the month but don’t end up spending. For example, if you budget $100 for entertainment but only spend $70, you can put the extra $30 toward one of your goals, like paying off credit card debt. By planning ahead for how you’re going to use the extra money, you’re still following the “spend it all” strategy.
It’s not about denying yourself anything
Allocating all of your income doesn’t mean you have to give up what you love or what you should spend your money on. Instead, it helps you control your spending without sacrificing fun purchases by giving every dollar a purpose.
For example, instead of spending $100 at Target on impulse, budget $100 for non-essential groceries. This will give you money to splash, which can help you stay within your budget without feeling deprived.
What to Consider When Creating an All-Expenses Strategy
When you’re ready to try the “spend it all” strategy, here’s what I want you to remember.
No budget is perfect
I don’t expect anyone’s budget to be 100% accurate, including mine — and I’m a money coach. But if you approach budgeting with an all-or-nothing mentality, you’ll likely feel like you’re failing with this method.
Instead, I tell my clients that following this budgeting method is a win even 80% of the time, and that an unexpected bill or unplanned purchase is okay if you follow this strategy. As long as you understand where your money is going, you can make changes to your budget as needed.
Don’t confuse activity with performance
When new members join my online community, they often become obsessed with the value of tracking every penny. But focusing solely on tracking spending is like checking off a to-do list, rather than changing your money habits. Instead, tracking your budget should be the first step in identifying spending habits that you can change if necessary.
Keeping track of every penny is usually only useful when you’re just starting out
People who achieve financial freedom don’t waste time tracking every penny. They think ahead. You may need to track your spending for the first three months to better understand your money habits, but over time you’ll get a sense of your spending and how to plan for the future.
