With zero-based budget, you are giving every penny you earn a job. Zero-based budgeting is where all your income equals your expenses. In other words, your income minus your expenses equals zero. To put it into context: if you are earning Sh100, 000 a month then everything you spend including what you save and invest should add up to exactly Sh100, 000.
A zero-based budget lets you know where exactly you spend your money and this saves you from any looming disaster like when you find out you have no money and you have no clue where all your money went.
The key here is to balance out your income and expenditure. However, it is common to find that your income and expenses don’t balance out. What such a scenario means is that you need to do something so that you can bring some numbers up and others down until you achieve a perfect balance. It might take you time, maybe three months, to be able to achieve a zero but if you are dedicated, it is quite possible.
An easy point to begin if your expenses are on the high side is to trim up your budget so that your expenses fall as close to your income as possible. Next, you can consider cutting back on expenses by, say, taking advantage of discounts, using coupons, buying generic and opting for more home cooking instead of buying food.
If your income is low and you need to bring in more money to balance out your expenses then you can start a side hustle. Find something you can do that will give you that extra cash come month end so that your budget remains balanced. You can consider renting out your services by offering consultations or starting a business. A little bit desperate but also worth the shot – you can also consider selling a few things around the house that you don’t need to make some quick cash.
The importance of a zero-based budget is that it ensures you are intentional with your money. With this plan, you are capable of following your spending throughout the month and that allows you to make progress and actually see yourself achieving your goals.
Having a detailed spending plan is one of the surest ways to achieve your financial goals irrespective of your position in the course of the journey. You need a budget to save, pay off a loan or to put away some money for retirement, it doesn’t matter what you need to achieve, a zero-based budget will ensure it all falls into place, perfectly.
Since you are the boss of your budget, with a zero-based budget you get to direct every penny exactly where to go each month. While it might sound limiting, budgeting actually accords you the freedom to spend your money and make your money even go further without having to feel scared and be extra cautious that you risk ending up overspending and broke.
If you fill out everything in your budget and you are still left with some Sh1, 000, then you aren’t done with your budget. You must give that remaining Sh1, 000 a job, give it a name. If you don’t give that Sh1, 000 to something like adding it to your savings or as an extra payment for your loan, you will spend it on inconsequential and you’ll end up wondering where your extra cash went.
You see, that’s the deal with zero-based budgeting - every shilling must have a name!
If you are always ending up with some extra money after spreading your income across the items in your budget, then you are saving less or paying less on your debts!
What are you most likely very wrong about?