“Zero-Based Budgeting: The Trick to Saving as Much Money as Possible”

Mastering Personal Finances: The Zero-Based Budgeting Method

In today’s economic crisis, many individuals struggle to make ends meet and seek methods to improve their finances by saving as much as possible.
While some dream of living off their investments, others simply aim to save for unexpected expenses, sometimes feeling guilty about treating themselves to a small luxury or gift.

When it comes to personal finance, there is no one-size-fits-all solution.
Each person must find the technique that best suits their needs.
One popular method gaining traction online for those facing economic difficulties is zero-based budgeting.
But what exactly is it, and how can you implement it? Here is a quick guide to help you save more effectively.

Understanding Zero-Based Budgeting: A Key Strategy for Maximizing Savings

Managing expenses often involves setting a weekly or monthly budget that is frequently not adhered to.
This is because, as experts explain, the budget priorities were often unclear and ambiguous.
Many believe that budgeting is simply about cutting expenses, but it is more than that.
A budget is a tool to effectively manage money and achieve financial goals.

The zero-based budgeting method, commonly used in the business world, requires justifying every expense from scratch for each new budgeting period.
This approach treats recurring expenses as new, evaluating their necessity and the required amount each time.
Every dollar is assigned a specific purpose, whether it is for savings or bill payments.
Let’s delve into how to apply this method in five straightforward steps.

Step 1: Calculate Your Income

To create your zero-based budget, you will need a notebook or a simple sheet of paper to list all your regular income sources.
Avoid including potential additional income or unstable secondary jobs, as these amounts may not materialize within the budget period.

For instance, exclude bonuses, occasional gigs like tutoring or pet-sitting, birthday gifts, or loan repayments from friends since these sums may not be received within the monthly budget timeframe.

Step 2: Note Down Fixed Expenses

List out your fixed expenses, such as rent, utility bills, internet, subscriptions (gym, cinema, Netflix), and childcare costs.
Separate any fixed non-monthly expenses like car insurance, creating a dedicated section for them.

Step 3: Track Variable Expenses

After allocating budget amounts for priority expenses, record your variable expenses—costs that fluctuate, like groceries, transportation (if you lack a yearly or monthly pass), and social events like dinners, lunches, drinks, cinema outings, and museum visits.
These activities are not fixed but involve spending time with friends and family.

Forecasting variable expenses accurately is challenging since their costs can vary unexpectedly.
For example, monthly grocery expenses may rise if hosting friends for dinner or when surprising a loved one with a gift.
Try to make the most realistic estimate possible.

Step 4: Set Aside Funds for Future Expenses

For regular yet non-monthly expenses, like biannual bills, create a separate allocation box and establish an amortization fund.
Calculate the number of payments to be made (and when) until the bill’s due date.
For instance, if a semiannual bill amounts to 600 euros, save 100 euros per month to have the total sum available when due, without depleting your monthly income.
Some experts even recommend creating a separate bank account for amortization funds.

Step 5: Save for Investment

Leave a section in your budget for savings.
If, after meeting all financial obligations and settling previous debts, there is surplus money, channel it into a savings account or fund.

Dealing with Unexpected Expenses within the Zero-Based Budget

One common question is how to handle unforeseen expenses.
It is advisable to track every expense to understand where you overspent and adjust your budget estimates for the following month, or engage in financial decluttering by removing unnecessary expenses.

Consider adding a small “unforeseen expenses” category to your budget where you set aside a small sum to cover unexpected costs.
These methods not only help manage finances effectively but also shed light on spending patterns, aiding individuals in better understanding and handling their money.