Zero-based budgeting is a budgeting method where you allocate every penny of monthly income towards specific expenses or savings. When done correctly, your income minus your expenses and savings should equal zero.
This budgeting method is one of the most rigorous. However, it improves budgeting flexibility, enhances personal financial management, and reduces financial anxiety. With that in mind, this article will dive into five reasons to consider the zero-based budgeting method.
1. Allows for budgeting flexibility
Not all expenses remain the same from month to month. For example, utilities and fuel for your car can fluctuate. Zero-based budgeting offers flexibility for these expenses by letting you track expenses in real time and change them each month. For instance, if your utility bill goes up, you can budget less for another expense to prepare. Or, if utilities drop, you could put more of that money towards discretionary items, such as shopping.
2. Can help you better manage your finances
Unlike some other budgeting methods, zero-based budgeting shows you all of your expenses in one place. Knowing where every dollar is going helps improve your personal financial management by keeping you updated on your spending.
This budgeting method also forces you to allocate all of your income to something, whether that’s expenses or savings. This leaves little ambiguity around your money, helping you manage your finances better.
3. Helps you cut unnecessary expenses
Zero-based budgeting can illuminate areas where you might spend more than you thought previously or find expenses you forgot about entirely. You can then cut these and put money back into your pocket. For example, after making your budget, you might discover a subscription service you forgot you had. Cutting that saves you money every month.
Another example might be dining out. Those lunches and dinners out can add up, and your zero-based budget will show you how much they’re costing you. From there, you can make decisions about cutting back.
4. Aids with saving for financial goals
Zero-based budgeting focuses on expenses. This helps you create and save for financial goals. Like with expenses, you can create individual line items for each savings goal. You can then allocate a specific amount or percentage to each goal and build towards that goal slowly and steadily. Writing down these savings amounts keeps you more accountable than keeping track mentally, too.
5. Reduces financial stress
It’s easy to know where every dollar goes in a zero-based budget since you break out savings and expenses by specific category. This reduces stress and anxiety around money — you’re certain of whether you’re living within your means.
Even if your expenses exceed your income, you know this for sure when it’s written down in front of you. There are no unknowns. So, you’re more able to make a plan to stop overspending from happening.
Consider using a zero-based budget
Zero-based budgeting is flexible and enhances personal financial management. It also helps you cut unnecessary expenses, which helps you set and move toward savings goals. Finally, creating a zero-based budget reduces your financial stress by creating transparency in your spending. With all this in mind, set aside time to make a zero-based budget. It takes more work than other budgeting methods, but the benefits are clear.