What Is Zero Budgeting?

Zero budgeting, also more commonly known as zero base budgeting or ZBB, is an accounting method used by some companies. Even individuals who are doing home budgets can benefit from this particular method. Simply put, this type of budgeting requires every single expense to be accounted for. There are no estimates based on prior years or months. You are to work out the budget on paper or via computer first, and track everything down to the last cent. Although this type of budgeting is more time consuming it also gives you more control over your money.

The first part of creating a zero based budget is to document your income. In other words, write down how much your company earns or how much your household earns. You can use a spreadsheet for easy calculating or do a rough draft on paper. It is more convenient to put down your net income as opposed to your gross, so you don't have to subtract taxes and other automatic deductions. If you own your own business or are a freelancer, you will need to calculate your taxes and subtract them yourself to get your net income.

After noting your income, write down each and every expense. To be extra thorough, track your spending on a notepad, even the little things like a pack of gum at the gas station. After about a month of this you will have a clear picture of where every penny is going. Or, you can use rough estimates and set aside a certain amount of money to account for these little purchases. Take your time on this part, and try to think of every single expense you have. The easy ones to come up with are things like rent, utilities and groceries. However even savings and personal spending count as expenses.

Many companies choose to implement zero budgeting if they want to keep a very close eye on their finances. It is optimum for home businesses, new businesses and small businesses. Or, those that are in financial trouble. And, it works great for individuals and families. After a few months of handling your money this way, you may find that money is being wasted unnecessarily and could be used in a more beneficial way. Tracking every last expense ensures that no money is wasted. With some practice, you'll become a pro at the art of zero based budgeting.

 


 

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