A zero-based budget encourages you to spend every penny of your monthly income. That does not mean you have to spend all your money on online shopping sessions. The idea behind zero-based budgeting is that you give every dollar a goal. How does this method work?
And perhaps more importantly, how will it help you save more this year?
What is a zero-budget?
Zero-based budgeting is a method that some use to manage their finances and save more. Here you put a budget where your income minus your expenses should be equal to zero.
Like we said, it does not mean you have to spend all your money on this method. In your budget, you include not only your fixed costs, groceries and clothes, but also the amount you want to save, any installments on your debt or the amount you want to invest each month. In other words: for every euro that comes in, you set a goal.
Many people do not even want to think about working on a budget because ‘they want to continue to enjoy life’. Still, there are plenty of reasons to be a fan of budgeting. While the activity itself may not be the most fun thing you want to do in your life, it is the beautiful walk, your own house or the other dream. And it’s your budget that gets you there.
Additionally, a zero-based budget and enjoy no opposing concepts. They can go well together. Of course, you want to save money by budgeting, but that does not mean that you can not fit in your budget for the things that make you happy.
Example zero-based budget
We are making an example of a zero-based budget with an income of 2,500 euros.
- Rent or mortgage: 550 €
- Groceries: € 300
- Gas, water and light: € 75
- Car: € 200
- Hospitality: € 150
- Insurance: € 150
- Subscriptions: 50 €
- Leisure: € 200
- Clothes: € 100
- Care: 50 €
- Interior: € 50
- Household expenses: € 100
- Payment of student debt: € 75
- Holiday piggy bank: € 100
- Investment: € 100
- Savings: € 250
Amount left: € 0
In the example, we assumed that you would make a budget alone, but of course you can also do that with your partner.
The great thing about a zero-based budget is that you decide for yourself what cost items you have and how much you want to spend on them. For example, one person will not spend 50 euros a month on care, but will spend more on ordering take-away at his favorite restaurant. This person will therefore make a larger pot for catering.
With a zero-based budget, you not only have an overview of your finances. The more time you spend on this method, the more you can adjust the cost items. Maybe you can save on your subscriptions, or you can make your house more sustainable to save on your energy costs. You can transfer the remaining money to the cost item ‘savings’.
How do you start with a zero-based budget?
You can not create a zero-based budget with scruples. So you really have to sit down one afternoon to see where your money has gone in recent months. Whether you do this with pen and paper, or make a well-organized Excel file, is entirely up to you.
Once you find out how much you’ve spent on certain categories in the last few months, you can create a realistic budget. Then comes the real hard work: sticking to your budget.
You will need to keep track of what you spend and how much you have left in each category during the month. If you have given yourself a clothing budget of 100 euros, then you know that you should not buy anything more if you are almost there.
The heavy work of your hands
Keeping a zero-based budget costs you time, energy and effort. But in return, you get control of your finances, fewer money worries, more peace of mind and a growing savings account. Does it seem like nothing to you to keep track of your expenses? Then you can always consider downloading a budget app that takes a lot of the heavy lifting from your hands.
This way, there are no more excuses and you will really have to work on your finances. Your future I want to thank you!
Tessa Ham is an editor at WorkJuice.nl and writes about careers and money for Metro.
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