'Hardcore' Zero-Based Budgeting – Tracking Every Penny!
So far we’ve covered a simple Annual Budget which broadly works out costs throughout the year to leave you with a lumpsum to spend each month, then we tackled a Monthly Budget which breaks down that lump of unallocated cash to give us a decently accurate guide for how much we have to spend through each category of daily life and showing where we can rein in spending in certain areas if you realise its unaffordable.
Today I’m going to go through Zero-Based budgeting, which I consider a pretty hardcore money management system, requiring time & effort to keep up, yet can be so rewarding to get right.
Zero-Based Budgeting is similar to a monthly budget where you take your income, subtract planned expenses like Rent, Food, Bills, etc with the goal of getting to Zero.
But 99% of us won't get 'Zero' with our standard expenses.
We'll either have some left over or be over spending each month (if so, check out my Monthly Budget for tips to rein in those pennies or my Recipe List for Ideas on how to meal plan, as food is one of the easiest places to cut back on spending for me).
With 'left over' cash in your budget, even if its a couple of pounds, instead of just letting the change roll over to next month, this method encourages you to plan how you are going to use every last penny, with any spare change left in your budget going towards paying back debt, into a specific savings pot or invested, so once you finish your budgeting plan, your income left to allocate is Zero. Hence the name: Zero-Based Budgeting.
Once you finish making your budget, its not going to work very well if you don’t check it through the month as you are spending. Be sure to check in weekly or even daily to see if you are under or over your category limit!
The example above represents a very simplified monthly budget, with limits applied to each category and their totals at the end of the month. There are 3 things we can ‘fix’ here using this system:
1. The rent figure was a rounded-up version of the actual amount rather than an accurate figure. Use old statements to find the actual figures to give more spending power to other categories which fluctuate easily like food.
2. If this budget had been checked on weekly, then we would have noticed the food bill was being overspent. If you shop weekly, divide your food limit by the number of weeks in the month to get a number each shop should be around (e.g. 300 / 4 = £75), if you go over one week, try to go under the week after to balance it out.
3. Food might have overspent, but Bills came to less than the category limit. Use the saved amount to cover the overspend in food and then adjust your budget categories for next month to get more accurate limits.
Is Zero-Based Budgeting for you?
For us, having something close to a Zero-Based Budget system is definitely one of the things which helps our financials stay flexible with our unpredictable income as small business owners. We don’t check it everyday, and don’t even consistently remake our budgets every month, but we’ve taken many of the idea’s which work for us, from this, to suit our needs. So depending on the month we go from being laid back to hardcore!
What budget tracking systems do you use? Are you laid back with your money or a hardcore tracker?
As a licenced bookkeeper in training with years of experience in managing corporate events, I’m pretty good with budgets! If you need any help with managing your personal or business budget or want help with reducing your bills, contact me for a free 30-minute consultation here.