What is Zero-Based Budgeting?

If it isn’t obvious to you yet, budgeting is my jam. I can spend hours poring over expenses and spreadsheets, helping people look for ways to best allocate their money and meet their financial goals. I love it when people have a realization of how they can use their money more effectively. Those little ‘aha!’ moments keep me going. I’m passionate about this because I believe it’s crucial to your ability to manage money. Budgeting just makes everything easier and more organized. In my coaching practice, I help people get organized and on a path to winning with money. And it’s a blast.

I coach people to use a zero-based budget. I think it’s the best method, but I recognize that it’s just one of many paths to success that are also viable and helpful. I want you to make a budget and I want you to win with money. Above all, I want you to make the best decisions with your money. To help with this, I’m going to describe some of the best money-management methods out there, starting with zero-based budgeting. As I go through these, think about how they might help your life and finances.

What is Zero-Based Budgeting?

Zero-based budgeting is an accounting method in which all expenses must be justified for each new period. This type of budgeting starts from scratch, or a “zero base”, and causes you to decide if you really have a need for all your expenses. It’s typically used in organizations, but you can apply it to your finances as well.

The other key component of this type of budget is that you spend all your money on paper. You allocate everything down to the last cent to make sure you are spending intentionally.

Let’s look at these two pieces in greater detail.

1. You start from scratch, and nothing is safe.

With a zero-based budget, your job is to put your goals first by getting rid of or cutting the expenses you don’t need. Every time you sit down to write your budget, you assess what you need to keep or let go of in order to win with money. Could you meet your goals a lot faster if you stop eating out, or switch to biking instead of driving, for instance? What if you downgraded to a cheaper apartment and groceries at your local supermarket, instead of shopping at Whole Foods? These are the questions you’d ask yourself when building your zero-based budget. It’s not to make your life miserable; it’s to give you more options when prioritizing the things you truly want.

Why this matters

The benefit to this is that it gets you to re-evaluate your values on a regular basis. It gives you the opportunity to address any frivolous spending and to ask yourself if the things you are spending money on are really investments in yourself and the life you want to live. By starting from scratch every time, it gives you the opportunity to put yourself first. It won’t matter what kind of budget you had before this new one – you get to start fresh and do better.

2. Your budget must equal zero

When you make a zero-based budget, you plan to use all your money. You don’t have to plan to spend it all (in fact, I don’t recommend this), but you at least need to allocate every cent. For instance, if you bring home $2,500 after taxes during a pay period, you need to plan out how you will use all $2,500 dollars. You need to know what you’ll be spending on food, transportation, gas, utilities, etc., and have your plan in place to save or use the rest.

You’re being very intentional with your money.

Why this matters.

Making a zero-based budget is your opportunity to be proactive with your money. Even if you give away most of your money to bills, you still get to make the plan of how you will do this. It puts you in the drivers seat, giving you some control over your financial situation. You get to make your money work for you, instead of being disorganized and at its mercy.

Additionally, this is another way to make sure you are using your money efficiently and effectively in service of your goals. If you don’t have a plan for your money, you’ll be much more likely to waste it and wind up in a bad spot financially. The last thing you need when you are working to accomplish your goals is to have your money slip through the cracks. Hell, that’s the last thing you ever need.

Final thoughts

Zero-based budgeting is an incredibly powerful system. Given that it forces you to confront your values AND your habits, I’d say it’s the best system for personal change/long-term growth. But, of course, I’m biased. I’m happy to talk more about your situation and see if we can work together. More than anything, I’d encourage you to find the system that works best for you. Your overall success is what matters most.

Let me know what you think of zero-based budgeting. Did I miss anything? Are there other systems that work better?

Best of luck and happy budgeting!

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