Four Rules of Zero Base Budgeting
I love making my monthly budget!
But I get it, most people hate budgeting and I used to too. That is until I discovered the technique known as Zero Base Budgeting. The goal of Zero Base Budgeting or ZBB is simple. You start with nothing, you end with nothing and in between you get to spend everything. Sounds like fun right?
I can hear you already, “wait isn’t that irresponsible?” No, ZBB is actually the most responsible, cleanest and most logical way of managing money I have found. And believed me, I’ve tried everything.
But in order to make ZBB work you have to follow a few simple rules.
Rule # 1 – Spend every penny on paper, on purpose before the month begins. Or as the title of this post suggests, give every dollar a name. That way, as the money comes in there is never any conflict as to where it needs to go.
Rule #2 – Escrow funds for monthly expenses. A lot of the things we pay for, rent, car payments, etc are due in lump sums once a month. But most of us get paid every two weeks. Rather than have to come up with a large sum of money all out of one pay cheque, divide those payments in two and set half the money aside. Then when the bill is due you already have money in your escrow account. You can do this on paper but I find I lack the discipline to leave money alone in my chequing account. I set up a separate savings account that I transfer the escrow funds into every payday. I transfer it back out again on the day the bill is due.
Rule #3 – Make savings a line item. If you want to save $100 a month for your retirement or some other future goal but you never seem to have anything left at the end of the month it’s likely because you’re not being deliberate enough. Put it in the budget and stick to it. This is the old “pay yourself first” adage but it’s not really. First or last is irrelevant, you’re paying yourself just like you would any other bill.
Rule #4 – There is no such thing as extra money. If a budgeted item costs less than expected, or you end up bringing in more than anticipated that is awesome! But be careful not to let it side track you from the ultimate goal. There are always items in your life that you could throw more money at if given the chance; paying down debt and saving for the future are two. You could also treat yourself to a night out or some other small luxury. But the goal here is to have a plan, stick to it and start over at zero at the beginning of the next month.
In my experience ZBB prevents overspending and promotes both saving and debt repayment.
Does anyone else have experience with ZBB?
What did you find?
What are some other techniques people use for budgeting?