The Secret Sauce To A Successful Budget Is Ending Up With $0

We’ve reached that delicate time of year: the time when it’s a bit too soon to set a New Year’s resolution, but just right to start thinking about what our resolutions may be, thereby enabling us to procrastinate certain goals or perpetuate not-so-great habits. But when it comes to your personal finances, “new year, new me” is not a mantra you should be subscribing to. 

“It’s always important to start now with your money — you can’t afford to wait,” said Carmen Perez, personal finance expert and the blogger behind Make Real Cents, during Thursday’s R29 Twitch stream. “Sixty-three percent of Americans are living paycheck to paycheck. Your bank account may be like, ‘Hey, I need help right now.’ So build that habit, [because] chances are, if you can’t do it now, you probably won’t stick with it in the new year.” 

Once you’ve accepted that it’s time to take a more active approach to your personal finances, where exactly are you supposed to start? Speaking to R29 Entertainment Director and Twitch host Melissah Yang, Perez recommended going back to the basics with a pen, paper, and an old fashioned budget. “If you’re thinking about your money and you don’t have a goal or destination, it’s so easy to have the train come off the rails,” Perez said. “You need to sit down, spend time with your money, and understand what your current location is in order to get to that destination.”

The secret to doing this, according to Perez, is a zero-based budget. First, decide the period of time you’re going to budget for. For example, every two weeks, when you receive your paycheck. Then write the total amount of money you’re working with at the top of a sheet of paper or in your notebook. So if your paycheck is $2000, you’d write “$2000.” 

Next is figuring out how you spend your money. Perez suggested analyzing three months of bank statements and dividing everything into categories like rent/mortgage, insurance, car payments, food, internet, Grubhub, and anything else that makes sense. Just make sure you also include categories for your financial goals (i.e., investing, savings). Now, write your set categories down the length of your page and treat it like a shopping list, allocating funds from your total amount listed at the top into each group ($100 to groceries, $200 into your savings account, $50 for “fun” and so on) until you “run out” of money. The goal is to get to $0. “Zero-based budgeting gives you an audit of how you’ve been spending,” Perez said. “You’ll spend all your income on paper and now you know what to do for the rest of the month.”  

There are, of course, other ways to budget, but Perez prefers this method because it forces you to understand your money and spending in a deeper way and, hopefully, encourages you to develop better, long-lasting habits. And if you’re skeptical about your ability to stick to your written-out budget, Perez has some tips for you that can help control any impulse spending. 

One way is to use cash as much as possible—yes, really. Ditch the Apple Pay in favor of pulling money out of the bank and dividing it into envelopes for every expense (where applicable). So the next time you need to go grocery shopping, you’re taking just that $100 to the store (leave your debit and credit cards at home) to ensure that’s all you use. Alternatively, you can split your money into two separate checking accounts, one that’s forbills and one for “fun” money for things like trips and online shopping. (Again, make sure you also have a spot for your savings.)  

Perez knows that tackling your personal finances head on can be daunting, but emphasizes that it’s never too soon to start. In fact, the most common mistake she sees young people making is waiting until they’re older to start investing and, as a result, they end up losing out on so much potential savings. 

But at the same time, both Yang and Perez reassured viewers that it’s okay if they haven’t already gotten serious about their money. It may never be too early to care about your personal finances, but it’s also never too late to start.