I notice one big mistake my clients often make when creating their first budget: they don’t include savings or debt payoffs as budget items.
They plan for the expenses that are sure to come up, like rent and basic necessities, and then they plan to use the money left over for other purposes, but that’s an afterthought. At the end of the month, they have no money left to reallocate.
As a money coach, I’m a big advocate of zero-based budgeting, or what I call the “spend it all” strategy. Following this method helped me pay off $72,000 in student loan debt in less than a year, and since then I’ve taught it to thousands of clients who want to eliminate debt and increase their savings.
I love that zero-based budgeting teaches us that spending isn’t a bad thing as long as you create a smart framework for it. This method of budgeting may feel strange at first, but it has the potential to change your relationship with money forever. It did for me.
“My clients are surprised when I point out that the purpose of budgeting is to spend all their money, because they think that budgeting means they’re not allowed to spend money.”
What is Zero-Based Budgeting?
The zero-based budgeting model requires you to assign a task to every dollar you receive each month so that you never have any money left over.
My dad taught me that it’s good to have money left over after buying the necessities, so unlearning my old savings strategies was hard for me.
So I put my own twist on zero-based budgeting and came up with the “all-in spending strategy.”
What is a full-spend strategy?
I call my version of zero-based budgeting the “all-spending strategy” because I find it helps illustrate that spending, in and of itself, is not a bad thing.
My clients are surprised when I point out that the purpose of budgeting is to spend all of their money, because they think that budgeting prevents them from spending anything at all.
But a spending strategy is about intentionally prioritizing your financial goals and taking control of how you manage your money. It reinforces the idea that the purpose of budgeting is not to hoard money, but to live life.
How to get started with a full-spend strategy
Implementing a spending strategy starts with a mindset shift. Instead of viewing any money you have left over as a windfall, embrace the idea that all money has a purpose.
Actively allocate every penny of your income towards a specific expense or financial goal.
Let’s say you budget $2,500 per month for necessities like rent, groceries, and gas. If your monthly income is $3,000, you need to figure out what to do with the remaining $500. If you haven’t allocated it to a goal, you could put $100 into a high-yield savings account that you use to build your emergency fund. Now you’ve “spent” $100 in a way that will help you reach your financial goal. Do the same with the remaining $400.
While you can track your income and expenses with pencil and paper or a spreadsheet, we highly recommend a budgeting app that supports zero-based budgeting, such as EveryDollar or Monarch. A budgeting app makes it more convenient to keep track of every dollar by allowing you to make quick adjustments from your smartphone, reducing the chance of oversights or mistakes.
I use Monarch because it helps me manage my budget and track my net worth. One of the benefits of Monarch is that I can share my budget with family members or a financial coach without sharing passwords.
Make a plan for any money you allocate at the beginning of the month that you don’t end up spending. For example, if you budgeted $100 for entertainment but only spent $70, you could put the remaining $30 toward a goal, like paying off credit card debt. Planning ahead for how you’ll spend your extra money can help you stick to a spending strategy.
Instead of sacrificing yourself
Living off your entire income doesn’t mean giving up the things you love and need to spend money on. Instead, setting goals for every dollar helps you take control of your spending without sacrificing the purchases you enjoy.
For example, instead of impulse spending $100 at Target, you can budget $100 for non-essential purchases, which will free up some extra cash and help you stay within your budget without feeling frustrated.
Things to keep in mind when building a full-spend strategy
If you’re ready to try the full-spending strategy, remember the following:
There is no perfect budget
I’m a money coach and I don’t believe anyone’s budget is 100% accurate, including my own, but if you approach a zero budget with an all-or-nothing mentality, you’ll feel like you’re failing this method.
Instead, I tell my clients that if they can follow this budgeting method 80% of the time, they will be successful, and as long as they follow this strategy, it’s okay if there are unexpected bills or unplanned purchases. As long as they know where their money is going, they can change their budget if necessary.
Don’t confuse activities with results
New members of my online community often fixate on the importance of tracking every penny of their spending. But focusing solely on tracking your spending is like checking things off a to-do list rather than changing your financial habits. Instead, tracking your budget should be the first step to identifying spending habits that you can change as needed.
Tracking every penny is usually only useful when you’re just starting out
People who achieve financial freedom don’t waste time tracking every penny of spending. They’re ahead of the curve. You may need to track your spending for the first three months to get a better understanding of your money habits, but over time you’ll get a sense of your spending and how to plan for the future.
