Why a zero-based budget works

I know, you don’t like the word budget. I don’t like it either, I hate the notion of constraint… the idea of having limits placed on me, of being stuck with this plan. That’s how I got in trouble too. But you know what? Something changed, I love, love love my budget. That sounds a bit strange right? I hate the word budget and everything it stands for yet I totally geek out when I finish up another month with my budgeting software (YNAB) and get to look at the charts and the improvement from previous months. I once said this to someone “If I could have sex with my budget, I would, that is how awesome it is”. Yeah, I have really stupid moments. Let’s get back on track and to the point of the title of this post!

Why a zero-based budget works, but first; what is a zero-based budget? It’s a slightly different approach to budgeting. Instead of writing down your expenses and just hoping your income covers it all. (Or just letting the income come and not even thinking about it) you start with the income you know you will earn for the coming month… then divide it on paper across your various expenses until there is nothing left of your income, $0, thus the term zero-based budget. This doesn’t just mean bills, it also means deciding how much you will save, how much you will get to spend on clothes and how much money you can blow on whatever you want.

While knowing that you have amount X to spend on something may feel constraining, it is adaptive. See if you want more in the shoes category or hey, the underwear category (what! I can’t be the only one that has that as a category!) you can mess around and spend less money in other areas and more where you want, as long as the end result is Income-Expenses = $0.

This is also a great way to save faster, because you’re not just setting money aside AFTER all the bills are paid. Your savings becomes part of the things you do normally, it’s not an afterthought at the end of the month, thus… you save on purpose, on time and you will save more than by just winging it. This is also why zero-based budgeting works. See, I’ve always written out my expenses and planned out paycheque by paycheque what I would have to spend but I never planned anything for what was left so inevitably I wasted it all and saved not a dime until age 25 while I have been working since 17. By making ALL your expenses, not just the boring ones you have every month, part of your budget you have a better idea of where you money is going, of where you can spend a little more.

To get started with a zero-based budget you can use any method you prefer. Excel, budgeting software such as YNAB, pen and paper or even a Word document with a few simple lines and numbers. My first few attempts at it were miserable but I soon figured out how to make it work for me without making myself feel guilty and while also hitting my savings and debt goals. So how about it?

It’s not constraining, it is absolutely freeing! Have you tried zero-based budgeting? DO you prefer something else or is it all just semantics to you?