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5 min read

The pros and cons of zero-based budgeting

Finance & Money August 03, 2022 By Budget Insurance

Struggling to save money, pay your debt or budget properly? A zero-based budget could solve your problems. Now, let’s learn how it works.

 

Budgeting is the key to managing your money, but if you struggle to track your funds, zero-based budgeting could be a game-changer.

 

How to do zero-based budgeting

 

  • Every rand you earn has a purpose, so create different categories, including debt payments, savings and expenses.
  • Include money for takeaways, outings, travelling, etc. Do this until all your money is allocated to something.
  • At the end of this process, there should be no money left not earmarked for a specific purpose. If there is, you could allocate more to something important, like paying off debt.

 

Advantages of zero-based budgeting

 

  • You’ll always have a clear view of your finances, so you’re less likely to overspend.
  • You’re also less likely to take on more debt for emergencies.
  • You can customise the budget to fit your needs, which means your allocations can be tweaked. Review your finances monthly and move your money around to suit your needs. For example, you may be able to save R100 this month, but more the following month.
  • It can help you to reach your financial goals more easily because you budget with specific objectives in mind, such as saving more or paying off as much debt as possible.

 

Disadvantages of zero-based budgeting

 

  • If your income is unpredictable, it can be difficult to follow this budgeting style.
  • Zero-based budgeting has a present, not future-focused, view of your money. So while it makes it easier to reach current goals, it may be harder to prioritise future ones.
  • It takes a lot of time, effort and budgeting skills to implement zero-based budgeting.
  • It can be difficult to follow this process if you have a family or partner because your finances may be too inconsistent.

 

Is zero-based budgeting for you?

 

Now that you know how this system works, you can make an informed decision about zero-based budgeting. If you receive your monthly income on a regular basis, you could give this budgeting method a try to see if it works for you.

 

If you’re a freelancer or contract worker, chat to a financial adviser before choosing a budgeting method.

 

Find more finance tips in these blog articles:

 

 

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