Introduction
Managing finances can be a daunting task, especially when expenses seem to outweigh income at the end of the month. But this does not have to be the case. A zero-based budgeting approach is the best solution to help individuals gain control over their spending habits. This method requires every dollar earned or spent to be accounted for creating opportunities to reach your goals. In this article, we will explain why zero-based budgeting is important and how it can help you get control of your money and achieve your financial goals.
Why is a Zero-Based Budget Important?
1. It Forces Accountability Over Your Money and Promotes Transparency
A zero-based budget is important because it forces accountability over how you are choosing to spend every single dollar. Have tried in the past to write down how much you are going to spend in certain categories for a month? If the budget you are creating is only a loose collection of how much you plan to spend you haven’t weighted it against your income and assigned every dollar of income a job. Further, the dollars of income that are not assigned to a job are likely to walk away, or at minimum, they’ll be directed toward the wrong target. When you have assigned a job to every dollar of income, you have forced yourself to put those dollars where you have pre-determined they should go.
A zero-based budget accounts for every dollar and forces accountability.
2. It is Important Because it Maximizes Every Dollar You Spend & Earn
A zero-based budget is important because it maximizes every dollar you spend and earn through advanced planning and disciplined execution. A zero-based budget accounts for all income and assigns it a job. Assign all income to a job, so that you are maximizing its potential.
Many people like to have a “buffer” in their budget for emergencies. They feel if they assign every dollar of income to an expense category they won’t have any money left for unexpected wants or needs. We encourage you to plan for emergencies by budgeting specifically for an emergency fund. Aiming generically for a few leftover dollars at the end of the month as a buffer is admitting that you don’t have control over where every dollar is being spent. A zero-based budget is important because it forces those dollars to be assigned to a job and maximizes their value.
3. It Creates Better Spending Decisions and a Clear Way to Focus on Your Priorities
Why a zero-based budget is important is, at its core, rooted in how you prioritize your money. A zero-based budget puts all the cards on the table and reveals your hand. There is nowhere to hide. For instance, if you are following a zero-based budget faithfully you will soon see if you are overspending on groceries or another category. Once you have that knowledge you only have a couple of choices: Keep overspending or adjust your habits to meet your goals. A zero-based budget is important because it shines a light on your spending decisions and creates opportunities for you to make choices that align with your goals.
4. A Zero-Based Budget Helps Remove Anxiety Around Money
Following a zero-based budget is important because it removes the unknowns and replaces them with knowns. Most people experience anxiety around money because they don’t really know where their money is going or if they’ll have enough when they need it. What if I told you that you could know with almost certainty that when your car breaks down, you’ll have enough money to pay for the repairs in cash? Or that if your home’s roof springs a leak, you can handle the new roof without using credit? A well-planned and executed zero-based budget allows you to know where your money is, where it is going, and how much you need to save.
A zero-based budget is important because it brings certainty out of the unknown. It brings clarity out of confusion. However, even the best-planned zero-based budget is no match for a spender that cannot control their impulses.
