It’s surprising to see how many people ask what a Zero Based Budget is. Very Simply put, it is when every dollar of income is given a job or a name. Just vision a huge bucket where your take home pay and any other generated income is dumped into that bucket. Attached to the large bucket are hoses that filter down to a multiple of smaller buckets that represent all your expense categories. Those categories will include all your monthly expenses, all your debt; both secured and unsecured, periodic expenses, savings, and investments. A zero base budget will empty out the big bucket and fill up all the smaller buckets with nothing remaining. If the smaller buckets aren’t able to get filled by the larger one, then a negative monthly cash flow results. When this happens, two things might occur. Either money is moved from a reserve savings to finish filling the smaller buckets or money is borrowed (Debt) to top them off. To avoid this from happening, we need to decide how we are going to redistribute the funds from the larger bucket so we have just enough to fill the smaller buckets. When the big bucket is empty and the smaller ones are full, then a zero based budget will result.

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