The first thing you will need to do before asking what is ZBB, is to decide what you want to achieve from your budget. A zero-based budget is a way of budgeting where all expenses have to be approved and justified for the new budget year. Your financial goals will guide what is ZBB and what is not. By setting a budget that meets your goals, you’ll learn how to live well within your means so that you can save for future years without straining your limited resources. Here are some basics on what is ZBB and how it can benefit you and your family.
Zero-Based Budgeting means that the expenses you incur in any one year cannot exceed your income. If you do not have surplus funds at the end of the year, you have to make cutbacks and allocate money for necessities. This also takes into account any investments you make, as they usually increase your disposable income.
One advantage of a zero-based budget is that it gives you a sense of accomplishment at the end of the year. Knowing how much you saved or how much you spent last month will give you a sense of achievement. Also, you will be able to see if your objectives are achievable. This makes a budget a great tool to use before making financial decisions, as you will be able to see if they are feasible or not. You can then adjust your budget based on your goals, whether they are more long term or short term.
How does Zero-Based Budgeting work? For starters, you can either create a monthly budget using a spreadsheet or an equivalent program. The spreadsheet will determine the costs and expenses for every aspect of your life, including your food, rent, vehicle, cable TV, Internet and so on. Once you have this information, you can plug in your figures for the last month and determine if your goals are attainable.
If your goals are unattainable, the best thing to do is to make some adjustments to your current expenses last month. For example, if your expenses last month were lower than your expenses this month, then you should take your cutbacks in order to save money this month. Or, if your expenses are higher than your income this month, then you should do whatever you can to reduce your expenses. There is no right or wrong answers, only realistic answers based on your budgeting and expenses as of the current month.
The next step involves setting realistic goals for yourself. What is ZBB? Your goals will dictate the level of commitment you show. If your goals are too high, you might be giving up too soon. If your goals are too low, you might be settling for a lifestyle you don’t really want.
Now that you have goals and adjusted your expenses, the next step is to determine what you will need to accomplish your goals. To do this, you will first need to make sure you are keeping track of your expenses, either with written records or using a spreadsheet program. If you do not have either, then you will need to get a notebook or journal so that you will keep track of everything you spend money on each month. It is probably best to do this a few months in advance so that when you need to add up your expenses for the next month, you already have an idea what your goals are.
Now that you know your goals and your monthly expenses, the only remaining step is to set a budget. To do this, you will simply need to get a simple calendar and label it monthly. Then write down everything you spend money on for one month and stick it in your wallet. Every time you purchase something, write it down in your wallet. As you see yourself crossing the line each month, you will start to realize just what you need to do to achieve your goals. From there, you will be amazed at just how much extra cash you can accumulate and how easy it is to pay off your debt.