This is a way of budgeting in which your income minus your expenses is zero. That way, every single peso has a planned purpose, and won’t be spent unnecessarily.
Among all the popular budgeting methods, this is one of the hardest to do. Successfully following a strict budget like this requires a lot of discipline and willpower, especially when you’re tempted to spend on something that isn’t planned for.
Zero-based budgeting can be difficult at first, and you might have to give it a few tries before it really starts becoming effective. Still, if you’re looking for a way to maximize how you use your money (and you’re ready to put in the effort), this could be a good solution for you.
If you’re interested in trying this budgeting method out, just follow these 3 steps.
Step 1: Find out your total income
See how much money you receive every month from every source of income you have. That should include the salary from your day job, as well as any sidelines you might have.
The more accurate your figures are, the better you can make your budget. But if your supplementary income varies, you can just use an estimate.
Step 2: Calculate your total expenses
Start first with seeing how much you spend on the average per month. Aside from the usual expenses like groceries and shopping, add things like loan payments and other recurring bills too.
If you haven’t tried making a budget before, this can be a little hard. To make it easier, write down every single expense that you make in a month, no matter how small. You might be surprised at how much you end up spending on small things.
Step 3: Make them work together
This is the most important part. Now that you know how much money comes in and how much money goes out, you can create your budget. The way this is works is simple: your income minus your expenses should total zero pesos.
If the result is a positive number, meaning that you earn more than you spend, that’s great. Now, all you have to do is use the extra money properly.
When we say zero, that doesn’t mean that everything is meant for purchases. You should use some of the money for debt repayment, for building an emergency fund, and for investing, as well. What’s important is that you assign a role for the money, so that you can track it and use it efficiently.
If the result is a negative number, that means you’re spending more than you’re earning. This is a great time to look at your monthly spending and see how you can reduce it.
Start with the things that you can’t live without, like food, transportation and communication. Then see what isn’t essential and cut it out of your budget. Remember, the less you spend on purchasing things, the more you’ll have to spend on the things that might be much more useful for your future.
