Zero-Based budgeting is the perfect method for our family; I can say this now with such confidence. I have now mastered the art of creating our budget successfully based on this method.
At first, I have shared H E R E that the experience was pretty scary. Imagine that you are allocating every single penny a name until it goes down to nil! But it is true that when you know better, you certainly do better! I armed myself with more knowledge to combat my apprehensions. I made sure that I executed these knowledge on a day-to-day basis; otherwise, it’s only going to go down the drain.
I have multiple attempts at budgeting in the past several years but they all failed. I can see a lot of strategies employed by some financial gurus out there: 70-20-10, 70-30, and the like. I will tell you upfront that percentage-based budgeting is not suited for our family. I am not comfortable being restricted with percentages as my family’s needs and priorities are unique.
In saying this, zero-based budgeting perfectly fits the bill as I can just freely assign every single dollar a job and go from there.
What is Zero-Based Budgeting?
Zero-Based budgeting is a spending plan and strategy which is calculated as income- expenses = zero. When you create your budget, you make sure that every single money you have has a job. The most important bit here is that your income will match that of your expenses so you come up with a zero.
I often see people following the income-savings= expenses method. This is NOT how zero-based budgeting works. Please note that “savings” and all other categories on your budget is considered as expenses. I can understand why people see it this way as savings is not being spent. However, you do not alienate savings because within this method, there are only 2 categories: income and expenses. Whether you spend your savings or not is never a point of contention.
Simple. Your ultimate goal is to make it a zero.
- Determine your income.
Knowing how much money is coming in for the month is your baseline. It will give you a clear idea on how much money you can spend once you have tracked your income. This may be in a form of paycheck, side hustles and gigs, online business, government aid or what have you. Start with your smallest income estimate so you do not blow up your budget.
- List down your expenses.
You create a plan for spending your money before the budget month comes. Make sure that your 4 walls of budgeting are secured: food, transportation, shelter, and utilities. These are your basic essentials that you can’t live without.
- List down your future or seasonal expenses, too.
Once you have a clear and firm understanding of your expenses, you will also be able to identify your future expenses; those that you know that you will have to spend for but it doesn’t come up on a monthly or regular basis. It can be quarterly, bimonthly, every six months, or annually. These seasonal expenses are important as it can be such a big toll on your budget. You need to ensure that you have all of these covered so you will have less headache. You can device a plan and forecast how you’re able to allocate your funds for these future expenses. Events and special occasions are perfect example for this. Your budget doesn’t have to get ruined by spending money on gifts for people you love or spending for anything fun. You may want to see how I prepare for mine: Sinking Funds, My Saving Grace.
- Subtract your income from your expenses to equal zero.
I must warn you that this is the tricky bit! It takes a lot of trial and error to get the zero you aim for. There’s going to be a lot of adjustments to be done: you will need to bring some numbers up or down until you reach a 0. The biggest issue to hurdle is when you spend more than you make. But that’s fine. Once you are aware of your numbers, you will be able to cut back on your expenses: eating out, food and groceries, and shopping for clothes and other variable expenses that are deemed only as “wants.” If this doesn’t help, then it is about time for you to think of other means to increase your cash flow.
- Track your spending.
Keeping track of your expenses is a game-changer. This process will enable you to determine if your spending is aligned with the spending plan you devised before the budget month started. You will be able to tell yourself if you are winning with money. It is important that you know there’s only two things: you are able to successfully control your money or it is your money that controls you. Tracking your spending is being intentional with your money for you to achieve your goals. This needs to be seriously done.
Benefits of Zero-Based Budgeting Method
Knowing your financial position will give you peace of mind. This is the ultimate reason why zero-based budgeting method changed my life forever. It made it easier for me to achieve my money goals with such clarity.
Prior to this journey, life was filled with obscurity and uncertainty. Taking this path enabled me to exactly know what my priorities are, where to cut back on my spending, and I have also learned to reward myself without feeling any guilt. It did not restrict me of my freedom at all; it is entirely a liberating experience; I am at a liberty to spend my money where it matters.
Zero-based budget ultimately shows that you are the Manager of your own money- you are in-charge! Own it and make it work. Winning with money is in your hands!