Today we’re going to talk about something that’s super-duper popular: the zero-based budget.
The idea was made popular, especially in christian circles, by Dave Ramsey. The whole concept is that every dollar is accounted for, and that income – expenses = zero.
Why is the zero based budget concept so helpful?
Firstly, the zero based budget is helpful because it’s like putting labels on cabinets and drawers. Everything has a home and a place so when something goes wrong you can instantly tell where it went awry.
Secondly, it’s a snapshot of the month and then really the year if you are on salary. It’s very clear where your money is going or for some, should be going.
Thirdly, if you do it the Dave Ramsey way… which actually comes with suggested percentages for expenses… you can tell when you’re off track and need to lower the amount allocated to a particular area or shift things around.
What are the snags of zero based budgeting?
It requires constant monitoring aka it’s extra work. Expenses shift from month to month or year to year or seasonally, and if you’re not careful, the money you allocated for energy bills in the summer is not going to cut it in the winter. Set amounts don’t work, which is probably why the Dave Ramsey-style budget has a range for percentages.
If you are shortsighted like me, I cannot track a month or a year of expenses. I really need to break down that budget into biweekly or weekly allocations or I cannot keep them.
If you do freelance work, I have no idea how you would do zero based when both income and expenses fluctuate. It’s just impossible.
However, even attempting to do it for just one month will make you more aware of your financial state: what you know, what you do not know and what must be worked on. Maybe you’ll find out you spend too much or too little on personal care items or electricity.
Little by little, trying different financial methods can lead to more clarity about finances and maybe– who knows? You’ll find a method that works for you.