Why You Need a Buffer When Zero Based Budgeting

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We hear it all the time in the personal finance field, zero based budgeting. It’s an incredibly powerful tool and I know for me, it has been the tool to help me pay off $100k in student loans in 3 years.

If you don’t know what a zero based budget is, it basically means that your budget equals zero by the end of your budgeting period. Basically all money that has come in, then goes out by the end of that budgeting period.

I’m not saying you spend all your money by the end, but that you have sent your money to start working for you based on your goals. My long term goal is to reach financial freedom and my goal right now to get there is to pay off my student loans. This means that at the end of my budgeting period, I do monthly, all my extra money goes to my debt.

It takes some time to incorporate and I know a lot of people are scared to use this model of budgeting, which I totally get. I was nervous to since it means all my money I earned goes somewhere else by the end of my month.

I’ve been utilizing a zero based budget for 4 years now, and I made a mistake this month. I wasn’t anticipating my old student loan provider would pull a payment since my loans were paid in full by Earnest once I refinanced (Use my referral link to refinance and get $200!). However, out went $621 on a zero balance loan and caused me to overdraft.

I acknowledged the mistake and immediately started creating a plan so this doesn’t happen again. You see, I am in a unique situation where I live at my parent’s house while I pay off my debt. My bills are minimal because of this. I also kept a $500 buffer in my checking account and assumed it would be enough since my bills are so low.

However, the perfect storm brewed up in early September (checking account at exactly $500 since I’m a teacher and had used my entire summer sinking fund by then and a payment withdrawn on a zero balance student loan I wasn’t anticipating) causing my entire system to fall apart.

There are two ways you can prepare yourself for these types of things to happen. You can have a buffer in the account you use to pay all of your bills, like I have used. I would suggest having at least 1 pay period of expenses saved up, which is what I didn’t do.

Or, you can get to a position of living on last months income. I give so much credit to people that do this! I think it’s because I’m so angry at my debt for preventing me from reaching my goals sooner that I can’t let money just sit in my account. I need to send that to debt ASAP.

Basically what you would do is that you would save enough in your account that you eventually are at a point that you are living on the previous months income. It’s an incredible concept and tool, but I’m just not someone that has been able to implement this strategy.

Figure out what works for you, and get that zero based budget into action. I promise, it will change your financial life if done correctly. I’m happy to help you with this, just shoot me an email 🙂 How has zero based budgeting helped your financial life? I’d love to hear about it in the comments!