The zero-based budget is good for make every penny work
No matter how much you take home at the end of the month, the best way to increase your financial potential is to have no money to sit idly by. That is, for every penny you will find a place to serve you. A zero-based budget is suitable for this.
This “employment” means more than transferring the current amount to your investment account. A zero-based budget is the best way to plan and financially accomplish the things that matter to you. Be it a new apartment or a dream vacation.
What is a zero-based budget?
A zero-based budget is based on the principle that you tell the location of each penny in advance. Based on this, at the end of the period, you will know exactly where 100% of your income went.
It’s similar to a traditional budget, but there’s a big difference between the two. Namely, with a traditional budget, you have the option to have unused money in your account completely idle, waiting for later use. With a zero-based budget, you use these amounts to either increase your savings or decrease your debts with it. The emphasis is on efficiency. On the one hand, you will achieve your goals sooner, and on the other hand, you will use your money even more consciously.
How is a zero-based budget made?
Determine your expenses
Start by making a list of categories for your regular expenses. These include:
- apartment
- meal
- kids
- pets
- transport
- loan repayment
- savings
- communication (internet, telephone, etc.)
- subscriptions
- health – related expenditure
- presents
Then decide how much you want or can realistically spend in a given direction. You can use your bank statement for this, the point is to have a lifelike design.
Summarize your earnings
Then determine your earnings. It is important to consider only the level that is absolutely certain. What is promised, don’t count on it here yet (then only when it arrives).
If your earnings show a significant difference from month to month, plan your budget after you receive the money. This way, you can avoid spending money that may never arrive.
Plan your budget so that the end result is 0
After collecting the two sides, subtract all your expenses from the total revenue. Design so that the end result is complete balance. This is rarely successful at first.
Then two cases usually occur:
- Expense is higher than revenue: If your expenses here are higher than revenue, redesign your expenses, carve something out.
- Revenue is higher than expenditure: In this case, also make room for the remaining amount. It is best to assign it to one of your long-term goals. If you don’t, and the amount remains, you’re much more likely to be scattered to some small insignificance instead of putting it at your service.
Plan until 0 is the end result. You can also use this planner to make the calculation easier:
How do you use a zero-based budget?
Once you’re done with your planning, it’s best to start managing your budget on a zero-based budget right away. Keep track of your expenses at regular intervals (at least weekly, or even daily). If you don’t look at it for too long, it can be very stressful to sort out your expenses, not to mention that you won’t be able to keep the boundaries set by yourself if you aren’t aware of them.
You may slip out of a selected frame by one of the categories. Then you can do two things:
- you have reduced this expenditure to the required level
- you increase the amount you can spend on this (of course at the expense of another category)
Keep in mind that a zero-based budget, like any other budget, is not static at all. You will need to make changes if necessary. Such cases may be, for example:
- your income changes
- expenses change (even temporarily): this can be a period of starting school, but Christmas can also require more money
Then it is worth allocating more money for these, or even planning for an earlier month.
Is the zero budget for you?
The advantages of a zero-based budget
By using a zero-based budget, you have the opportunity to achieve your bigger goals faster and more focused. Because you measure everything, you will be using your money completely consciously.
Because you have to keep track of each of your expenses, it encourages you to face your impulse purchases as well. If you “break in” the mall, and buy everything, this budget will show it clearly.
Plus, keep in mind that what can be measured can be improved. Since 100% of your income and expenses are measured, there is room for improvement.
Disadvantages of a zero-based budget
A zero-based budget requires more attention and care than other methods, after all, you have to take care of every penny. This can be time consuming and can be downright frustrating at times.
In the case of unexpected expenses, as there is no idle money, you will need to redesign your budget and reduce the budget for a category (e.g. the part intended for entertainment) or take money out of some savings. Such an unexpected release can be either a suddenly ruined device or a cure for your pet.
Other budget systems in addition to the zero-based budget
Envelope method
In the case of the envelope method, you actually physically see your money and divide your expenses between each envelope (category). The advantage is that you can’t exceed your limit with impulse purchases, as you can always only spend what’s in that particular envelope. The downside is that it works best when using actual cash.
50/30/20 method
Using the 50/30/20 method: 50% of your income goes to needs, 30% to personal wants, and 20% to savings.
No budget method
This is already more experienced. You automate everything you can (by constant transfer, direct debit) and you are free to move only the part that remains after that. The name no budget can be a little misleading, after all, you plan your spending, just because of the automatisms, you don’t pay attention to it all the time.
Questions:
- What method do you use to manage your own finances?
- How do you think you could incorporate this method into your habits?
- What do you see as possible weak points and how could you correct them?
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