In zero-based budgeting, your income minus your expenditures should equal zero.
Let’s say your income is R13,000 a month, you divide all R13,000 up among your expenses, debt payments, and Financial goals until you’re left with R0.
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What Is zero-based budgeting?
Is a method of monthly budgeting in which every Rand you make – no more no less – is spent in accordance with your goals and expenses. It allows you to tell your money where exactly to go so that you can pin point exactly what you spent on.
You can repeat expense categories and amounts every month or mix them up. If you come in under budget in a certain category at the end of the month, add the remaining amount to next month’s budget or move it to another category, such as your emergency fund.
Read: How to Budget Like a Pro
How to make a zero-based budget
Before you start making your zero-based budget, log in to your bank account, and download your bank statements. They come in handy when you’re wondering how much you normally make or spend.
List your monthly income
Total your salary, benefits, and other sources of monthly income to find out how much money you have to work with.
Write it all down and add it up! That’s your total monthly income. That’s what you’ve got to work with this month.
List your expenses
Identify all of your priorities and expenses, including your needs and wants, debt, emergency fund, and other savings goals.
Categorize your expenses
Identify all of your priorities and expenses, including your needs and wants, debt, emergency fund, and other savings goals.
Here are some categories you may want to include in your zero-based budget:
Mandatory expenses
- Rent/mortgage
- Utilities
- Groceries
- Transportation
- Insurance
- Medical expenses
- Funeral cover
Optional expenses
- Dining out
- Subscriptions
- Fun money
Debt payments
- Overdraft
- Credit cards
- Student loans
- Personal loans
- Medical debt
- Clothing account
Savings goals
- Emergency fund
- Sinking fund
- Holiday Fund
- Down payment on a house
- New car
- New furniture
- House renovations
Subtract your income from your expenses to equal zero
When you subtract all those expenses from your income, it should equal zero. If you don’t hit zero at your first pass, is okay. No one gets it right the first time.
If you subtract your planned expenses and end up with a negative number. This means you’re spending more than you make. This is what you can do, lower your planned spending amounts where you’re able, or cut your spending.
You can also up your income by starting a side hustle, selling stuff, or finding some other way to make extra money.
Read: 20 Side hustle ideas
Track your expenses
Knowing what you typically spend — and on what — creates a framework you can use going forward. You’ll spot areas in which you can cut back and in which you want to allocate more.
When you make R500 from your side hustle, add that to the side hustle income. And when you pay the rent, subtract that expense from the rent category. When you fill-up the gas tank, subtract that from the gas budget/transportation.
This is how you stay on top of your spending. This is how you keep from overspending
Make a new budget
Create a new zero-based budget every single month. In order to stay on top of your spending.
Advantages and disadvantages of zero-based budgeting
Advantages
- Gives you the ability to cut down on expenses that don’t align with your goals
- Keeps you aware of how much money flows in and out. This can prevent you from spending what you don’t have.
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Disadvantages
- If you do your zero-based budget manually, inputting all those transactions each week can be time-consuming.
Can you make a zero-based budget with an irregular income?
Yes! If you have an irregular income you can still use zero-based budgeting. It’ll just look a little different for you.
An irregular income means you don't make the same amount of money every paycheck.
Budget using the money that is currently in your bank account. If it’s not enough to cover all your expenses at once, rank them in order of importance and put the money toward the expenses you need to cover now.
If you don’t always know how much money you’ll have to allocate, consider using the previous month’s income for the current month’s budget.
Read: How can I make my money last until payday?
Alternative budgeting methods
Zero-based budgeting isn’t your only option. There are other types of budgets that you might find more useful, depending on your preferences.
50/30/20 Budgeting
The 50/30/20 budget recommends spending 50% of your income on necessities like housing, food, and transportation, 30% on wants, and 20% on savings and paying off debt.
Cash envelope budget
Is a way to track exactly how much money you have in each budget category for the month by keeping your cash tucked away in an envelope. This is where you subtract your expenses from your income and then put each expense amount into its own envelope.
Once the envelope for a particular expense is depleted, you can no longer spend anymore. At the end of the month, you can see how much is left by taking a quick peek.
Reverse budget (Pay yourself first)
Is simply paying yourself first and allocating your remaining funds to your expenses ( first your fixed expenses and then followed by your discretionary expenses. As long as you meet your monthly goal and pay your bills without exceeding your income, you can do whatever you want with the money you have left over—there’s no need to budget it.
Who Is Zero-Based Budgeting Right For?
Zero-based budgeting is best for those who want — or perhaps need — greater control over their spending and savings. This budgeting method requires one to manage every rand they spend, it can benefit those who tend to lose sight of their finances during the month.
Now that you know what the zero-based budgeting system is all about, you’re ready to give it a shot. If it doesn’t work for you, try another budgeting method. And if your financial situation is complex, you might benefit from speaking to a financial planner.
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