All of us are looking for new ways to start budgeting that are effective and will deliver reasonable financial solutions. But the fact is that there are some old and tried methods like, zero-based budgeting, of financial security and successful saving that we should look into if we want to have a good and secure financial future.
The method we are going to explain in detail today is Zero-based budgeting, an age-old process of financial saving and security that is always effective in providing sufficient savings to the firm believers.
Zero-based budgeting has been around for a while. Still, it got national attention in 1969 when Jimmy Carter developed the Fiscal Budget of the year 1969 through the process of zero-based budgeting and found it to be highly successful in yielding financial growth for the entire country.
Zero-based budgeting, since then, has grown in popularity, and that has given rise to a strong belief that the budget works. Even though most of the younger generation does not know about the concept, let us bring it back into the hype so that you can use it to grow your financial assets.
Zero- Based Budgeting- Definition:
The concept focuses on making sure that every section of your life is evaluated for its financial needs. And once all of these needs have been addressed, only then will you spare money for the leisurely activities.
When you are planning your budget for the coming month, you will look into the expenses that you have coming up, and they will be your priority. Then you will move to all the debts that you have to pay back so that you do not have to worry about financial limitations in your future.
The next aspect of growth will be to make sure that you are putting money into saving for the future. You will see that you are not leaving much money for financial leisure throughout the month. But you do have a much more secure financial future.
Example of Zero-based budgeting:
The instance of zero-based budgeting in real life is simple enough. You got your salary today; now you are budgeting your expenses, here are the various steps you will take:
- List all the costs that you have in the coming month, such as school fees, utility bills, any subscription charges, and all other similar monthly expenses. Now put the money aside to address these needs.
- Take out money for transportation expenses and grocery or food-related expenses.
- Take out money for all the debts that you owe so that you are progressing towards lowering debts.
- Take out money to put into financial savings account or trust so that you are saving for your future.
- Put the money in your emergency funds so that you have the financial strength to go through medical emergencies.
- Now the money you have should be invested in plans such as your education or education for your children.
The remaining money:
You will notice that by the time you have ticked all the boxes, you do not have much money left. That is the point of the budgeting technique. Rather than keeping money to ‘spend’ in the month, assign the funds to every aspect of your life. That way, you are using your earnings to strengthen your financial future.
There are significant positive impacts that come into a person’s life with zero-based budgeting. These aspects are as follows:
- The real effect of zero-based budgeting can only be seen after implementation for easily a year or two. It is the epitome of a trickle-down economy where you save bit by bit from developing financial freedom in the long run.
- It is a time-consuming method of saving in a personal manner because it involves investing a particular time into planning the way you will spend your money. And staying within your plan will mean changing the lifestyle to cautious spending in a grave manner.
- The process favors the influential saving culture that means there is little money for investing in the future or present lifestyle. That is why the budgeting style is seen as a negative idea because you are mainly committing to the most minimalistic style possible and cutting out any fun from your life.
- Zero-based budgeting is faulted for its variation from traditional budgeting in social circles. The zero-based budgeting system is different from conventional budgeting because it does not presume that any expense is written in stone.
- The main idea is that every month, you will reevaluate every expense that you have and ask, which is a higher priority. As the priority changes, so will the way you present and spend your budget.
That is why the budget will be developed with an open mind and a perspective. It focuses on cutting down the expenses and not really on what has been done so far from the early days.
The Myths on Zero-based budgeting:
While we are going through the process of understanding the zero-based budgeting lifestyle, here are a few myths about the zero-based budgeting technique that deserves to be busted. So here are the myths and the counteracts.
You will build your budget from zero:
The concept is that it asks the person to make a new budget from scratch and so it means debunking your budget every month to make sure that every budget you develop each month is working for that month.
The fact is that the process is misinterpreted. That means as the modern times are changing, so are current needs. Do you need cable in the age of free content? Maybe no?! So should you pay for a cable connection?
Or do you feel that you need a TV when you are watching everything online? If the answer is no, think before giving two years of installments to a buy a wall-mounted UHD TV!
The examples can be numerous in this aspect. The main point is, changing times require an evolving mindset. As long as you stay on your feet in terms of your budgeting, you should be able to grow your financial strength and remain durable through various stages of life.
Zero-based budgeting Technique works with extreme saving:
The myth is pretty common in people who are scared of zero-based budgeting. The belief is that if you are going for zero-based budgeting, then you are only leaving a minimal amount for your monthly expenses, and you will be hand to mouth for the full month.
It may occur from time to time, as any responsible spending culture does require sacrifices. But the fact is that zero-based budgeting focuses on the idea that the financial savings you make are to promote growth and hope in your life.
So the savings from zero budget should go into career enhancements, paying down the mortgage and long term financial goals that will ensure a healthier financial future for you and your family.
It will bind your life, and you will not be able to live:
Another myth that is common in those who fear the zero-based budgeting. The reason is that when a person implements zero-based budgeting techniques, they will refuse to splurge on pricey hangouts and pricey retail therapy sessions.
That gives the assumption that zero-based budgeting is a process that will make you weak in terms of social life. You will not be able to afford all the good things in life. We will not argue against the myth at all. It is 100% true that the budgeting technique works vehemently against the splurging and capitalist culture of consumerism to ensure a better future for yourself.
You will learn what you genuinely want and what are the things you can comfortably live without any discomfort? Effectively living within your means to ensure that you are getting the best out of your income is undoubtedly what zero-based budgeting is guilty of achieving for so many families.
So this is or overview of the zero-based budgeting concept and how you can execute that in a real-life scenario. It is surprising how little information people have on the idea in the modern-day and age. People seem to believe it to be an antiquated or impractical system that is extremely ineffective.
Truth Be Told!
But the truth is that the fear of zero-based budgeting mostly comes from the fear of fighting a materialistic lifestyle. People tend to avoid getting into a system where they will be asked to give up take-out, retail therapy, and seriously consider cutting cable.
They would have a hard time committing to live, but zero-based budgeting is so effective that the US government adopted it as a viable way to balance the budget in 1969!
If you are committed to a healthy future that will allow you to strengthen your life and have the financial stability that will serve you well. And the technique is a great way to ensure that.
My EasyFi has a substantial ‘zero-based budgeting’ section that you can explore and learn further how to turn your income into an empowered powerhouse of financial strength.
We are here to help you every step of the way.