According to the Zero-based budget, Your income when subtracted by your expenditure should be zero. The zero-based budget method takes you toward using every penny of your income. Many people confuse it with doing unnecessary shopping. The main idea is to make use of every penny. It is also called a Zero-sum-budget.
What Is a Zero-Based Budget?
A zero-based budget helps you to divide your monthly income into expenses, savings, and debts payments. The goal is to use your monthly income resourcefully. Let’s take an example: Suppose your monthly income is $3000, your zero budgeting can be like:
You can also use apps like Goodbudget for building your zero budget plan.
How to start?
Know your income
Calculate your paychecks, benefits, and other income sources. This way you can find out how much money you are earning per month.
Track your expenses
Track your expenses for 2-3 months to understand your expenditure habits. You can find out where you can cut off your expense and where you have to spend more.
Divide your expenses into categories
Make the different categories according to your needs to allocate your expenses including emergency needs, debts, travel, etc. You can divide your money as the maximum part to meet your needs, the second largest part for your wants, and the smallest part for debts and savings.
Advantages of Zero-based Budgeting
This kind of budgeting helps you to track how much you are spending and where you are spending. This will help you to manage your expenditures effectively.
Catherine Hawley, a financial planner in Monterey, California said, “If you haven’t tracked where your income is going or if you feel like you don’t have control of your money or spending, then I think that is a really good method.”
This budgeting method is customizable and best for beginners.
Disadvantages of Zero Based Budgeting
This method is time-consuming and requires a close analysis of your income and expenditure. Hawley said, “I think one thing that can be problematic with it is that there are a lot of variable expenses and if you don’t account for your irregular expenses, the zero budget is going to potentially not leave you with enough money on average.”
The variables include a wedding ceremony, holiday shopping, etc. If you set aside money for these expenses, you will find it easy to meet them when they arrive.
Another problem is with the people with irregular income, like freelancers or hourly workers. You can’t make a single budget and follow it every month.
Is Zero Based Budget good for you?
Now, you have all the information about the Zero-based budget and you know its procedure. It’s time to think if it’s good for you or not. It’s better to try it once and then decide. If you find this worth it, you can carry on, else try some other budgeting method.
Budgeting is important, no matter what method you adopt. Budgeting helps you to manage your money and make it useful. The Zero budget method is best for newcomers but it will suit you or not depending on your type of income and expense.