What Is Zero-Based Budgeting? Know Its Nuts And Bolts Here

Kelsey Bowersox
May 14, 2023
What is Zero Based Budgeting
What is Zero Based Budgeting

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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.

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 Pocket SmithQuicken can walk you through the process from start to finish, and even help you set goals!

For more budgeting help, as well as tips for saving and managing your money, subscribe to Penny Calling Penny’s newsletter! We have weekly tips and tricks to help you on the path to financial freedom.

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