Zero-based budgeting is an accounting and budgeting technique. It was developed in the 1960s by a guy named Pete Pyhrr, account manager at Texas Instruments. (Yep, the calculator people!) Zero-based budgeting helps you assign your money to savings, debt, and expenses. You can leave the categories the same, change them every month, or change them up based on upcoming events.
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How to Start
You need to know how much money you’re bringing in, first of all. Then, you need to know what your expenses are. You can track them for a few months or you can look back at your bank and credit card statements. Print them out and use different colored highlighters to track your spending.
Okay, So Give Me An Example!
| Monthly Income: $4,000.00 | ||
| Rent/Mortgage | $1,575 | |
| Gas Utility | $88 | |
| Water | $25 | |
| Electric | $120 | |
| Gas for Vehicle | $80 | |
| Car Payment | $450 | |
| Student Loan Payment | $250 | |
| Groceries | $300 | |
| Insurance | $275 | |
| Credit Card Payments | $500 | |
| Entertainment | $100 | |
| Amazon Gift Card Balance | $100 | |
| Savings | $137 | |
| Amount Left: $0.00 |
Is There an Easier Way?
This way is actually super easy! There are actually computer software programs that can help, as well as apps for your phone or tablet! Some of the apps let you change stuff around…say your water bill doubled due to a leaky toilet…. I like to always put money onto an amazon gift card balance for those last-minute moments when you forget a birthday or break your favorite shoes.
What Are the Benefits of Zero-Based Budgeting?
- You know what money is coming in
- You know how much is going out and where it is going out to
- You can customize it according to your needs
What Are the Cons or Downfalls of Zero-Based Budgeting?
- Buying something unexpected can throw off your whole budget
- Set-up and adjustments can be time-consuming
- Zero-based budgeting with income that varies month-to-month can be tricky
How Can I Incorporate Zero Based Budgeting Into My Business?
You can actually incorporate zero-based budgeting in stages. You need to identify and come up with descriptions for each category, often called decision packages. Next, you would evaluate the decision packages to make sure they align with the overall goal of the company. Next, you need to prioritize the packages or groups from most important to least important. Finally, you would allocate resources/amount of money to each section.
Zero-based Budgeting for Beginners
Zero-based budgeting can be a great strategy for people who are new to budgeting. Apps like YNAB can walk you through the process from start to finish, and even help you set goals!
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