Zero-Based Budgeting: Does it happen to you too that as soon as the monthly salary comes, everything is fine for a few days, but by the end of the month, your purse becomes empty? You cannot understand where the money went? If yes, then you are not alone. Most of us fail somewhere in keeping account of money. But if you want to rein in your expenses, get out of debt and dream of becoming rich by saving, then there is a method that can help you a lot - Zero-Based Budgeting (ZBB).

What is this zero-based budgeting?

As the name suggests, zero-based budgeting means starting your budget from 'zero'. In this, you divide your entire income at the beginning of the month for different expenses and savings, until you have nothing left to distribute (i.e. the balance becomes zero).

Its formula is simple:

Income - Expenses - Savings/Investments = 0

Meaning, you have to give an account of every rupee of your income as to where it will go. Nothing is left 'leftover' or 'extra'.

How is it different from a regular budget?

How do we usually make a budget? We look at our previous month's expenses, estimate how much we will spend this month and save the rest. But this is not the case with ZBB. Every month, you think afresh about how much you need to spend on what. You justify every expense, no matter how small.

What are the benefits of zero-based budgeting?

Total awareness: You know where your money is going. There are no hidden expenses.

Control over expenses: When every rupee is accounted for, unnecessary expenses automatically reduce. You spend wisely.

Prioritisation of savings and investments: You decide in advance how much you want to save and set it aside, rather than saving 'whatever is left'.

Help with financial goals: You can allocate money separately for your goals (like buying a car, down payment on a house, paying off debts)

Freedom from debt: With reduced wasteful expenses and increased savings, you can easily plan to repay your debt.

How to start zero-based budgeting? (Step-by-Step Guide)

Write down your income: Add up how much money you get from where in a month (salary, freelancing, rent, etc.). This is your total monthly income.

List all expenses: Now make a list of all your possible monthly expenses. Divide them into categories:

Needs: Rent/EMI, ration, electricity-water bill, phone/internet bill, children's school fees, loan installments, transport.

Wants: Eating out, traveling, shopping, entertainment, subscription (Netflix, Amazon Prime, etc.).

Savings & Investments: Emergency fund, PPF, mutual fund SIP, insurance premium, retirement savings.

Debt Payments: Credit card bills, personal loan EMIs (you can also keep this in essential expenses).

Make every rupee work: Now divide your total income into all these categories. Write in front of each category how much you will spend on it or how much you will save. For example:

Income: ₹50,000

Rent: ₹15,000

Ration: ₹8,000

Bills: ₹3,000

Transport: ₹2,000

Shopping/travelling: ₹5,000

SIP: ₹10,000

Emergency fund: ₹5,000

Debt EMI: ₹2,000

Total allocated: ₹50,000

Savings: ₹0 (that's the goal!)

Track and adjust

Track your expenses throughout the month. See if you're sticking to your budget. If you're overspending in one category, you may need to cut back on another. Review your budget every month and adjust as needed.

Is it difficult?

ZBB may seem a little difficult in the beginning because it requires keeping track of everything. It also takes a little more time. But after a month or two of practice, it becomes easy. You can use a diary-pen, Excel sheet or many budgeting apps (like Walnut, Splitwise, YNAB - You Need A Budget).

Do try zero-based budgeting

Zero-based budgeting is not just a way to make a budget, but it is a way to change your thinking about your money. It makes you the owner of your expenses and helps you reach your financial goals faster. If you really want to improve your finances and want to get rid of debt and adopt the path of savings, then definitely give ZBB a try.