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Feeling the stress from creating and keeping a budget? I know how you feel.

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Budgeting not only requires meticulous planning but the discipline to make it work too.

But if like me, you don’t like going broke before the month ends, budgeting is your friend!

In the next few paragraphs I’m going to show you how to use Dave Ramsey’s Zero-Based Budgeting Method. To plan your way to financial freedom.

The best part, unlike other complex systems, is that this one is easy to follow. You know exactly where your money is going before it comes in!


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Budgeting is simply you deciding how to spend your money. Whilst a budget, on the other hand, is the plan you’ve made. Budget and budgeting are what enables you to list out the things you want to spend your resources on so that you don’t lose track. 

Budgeting helps you see where your money is going. It is not a chain that prevents you from enjoying your money, think of it as a guide that lets you enjoy your money – without regrets.

To Learn More about Budget: Investopedia


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Zero-Based Budgeting refers to a budgeting style in which you start planning from Zero – that’s the simple definition. 

Now for the advanced one: Zero-based budgeting (ZBB) is a budgeting method in which all expenses must be justified and approved for each new period (this could be monthly, or yearly, but most times yearly).

Usually, when people wish to budget, they consider their current circumstances and then make plans. And if it works, they just stick with the plan for as long as they can. That’s to say they copy the plan of the previous year and use it for the current year and the year after that. They only adjust the numbers to suit their current income or some other financial ups and downs. They basically stick to the same plan all through.

 Zero-based budgeting on the other hand completely disregards the previous plans and starts from scratch (or should I say “Zero”)  each new year. It requires you making new plans each new season.

That means you have to go over everything to make sure that the assigned monies are justified. You build another budget from scratch.

Using Zero-based budgeting would help you cut off a lot of unnecessary expenses whilst focusing on what is most important at that moment.

To depict what Zero-based budgeting is, let’s run a quick comparison 


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This would help you understand the ZBB concept more

  1. Traditional budgeting requires that you keep pumping money into every and anything until there is a serious need to stop (or cut down…). While Zero-based Budgeting requires you channeling resources only to the things that have been justified to be useful to you.

For instance, when using the traditional budgeting approach, you might find yourself spending a lot of money on sneakers until someone points it out (on the 100th sneakers), but with Zero-based budgeting, you get the chance to critically think of the essence of another pair of sneakers, before even adding it to the budget.

  1. Traditional budgeting requires that you go through the budget to see which item needs more or fewer resources so that you can optimize efficiency and effectiveness. Whilst Zero-based Budgeting requires you to carefully pick only the necessary items so that all your resources go into the right things – fully optimized from the get-go.

In essence, whilst the Traditional budgeting approach focuses on the importance of activities amongst other activities, Zero-based budgeting focuses on the relevance of activities in the first place.


So, now you’re finally ready to adopt this awesome budgeting approach immediately you get your next paycheck, but just how do you go about it?

Well, to get it right, you must first answer these two very important questions:


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1. Are the current activities efficient and effective?

That’s to say, are the things you’re currently spending your money on worth it?

2. Should the current activities be eliminated, reduced or rechanneled? 

This is the time you have to decide on the things to cut off. Really, you might have to let go of the sneakers

If you can clearly answer these questions, then you are ready to start implementing ZBB. Follow this template below to set up your Zero Based Budget


To have an effective template, you would have to adopt a unique approach to ZBB – based on your needs – and the current state of affairs in your life. The following five steps can provide a baseline for that implementation.

  1. Begin: Nothing happens unless you start, and in this case, you will have to begin at ground “zero” just as the name implies. Craft a fresh budget without drawing any clue from the previous plans you’ve made, even if it’s the ZBB of the previous period.
  1. Assess: Sit down and consider all aspects of your personal finance. Look at the meal, clothing, housing, down to the fun things you spend your money on. You may not need that expensive dinner, especially when you’re trying to save up for the rent.
  1. Justify: With everything in front of you, the next step is to demarcate the useful from the less useful, i.e. decide the things to let go of. Identify extra baggage.
  1. Trim: The next step is to do the elimination. Cut off wasteful “extras”. Be like a gardener – who only permits the best, and useful things to stay. And if possible, automate and standardize the process, so you don’t have to waste time or make unnecessary mistakes. 
  1. Execute: After making your plans stick to it as though your life depends on it. 

If you can do this, you would be proud of yourself a few months from now. 

So, now that you know the basic steps, let me help you craft a Zero-based Budget for yourself


Photo of A Zero Based Budget

Remember, Zero-based budgeting is a little frugal, and you might not have room for unnecessary spending since every expense is accounted for.

To achieve this optimized plan, you’ll need to:

  1. Write down your monthly income: Get a sheet of paper or launch an Excel Spreadsheet, and then clearly state your income streams. Things like paychecks, small-business income, side hustles, child support, residual income, and anything that puts money in your wallet should be written under the same category
  2. Write down your monthly expenses: Things like rent, food, clothing, cable, data, and all other things that take money from you should be listed, don’t spare any. If it doesn’t make it to this list, it doesn’t get any shot at your money, okay?

Of course, there would be unexpected expenses, and that is why you will have to add a miscellaneous category to the list. Just make sure you don’t dip your hands into it to get a new PlayStation. If the money remains untouched till the end of the month, simply shift it to your savings, or use it to clear your debts. Hope that makes sense?

  1. Write down your seasonal expenses: Different seasons come with different “spirits”, and Festive seasons – Like Christmas and New Year – are notorious for coming with “expensive spirits” leading to huge expenses. Now, what you want to do is prepare for it, by setting a threshold for the amount you’re going to spend, and then saving up for it. This way, you know what it’s costing you to buy those trees, lights, wines, and gifts.
  2. Subtract your income from your expenses to equal zero: Now, you want everything to balance out. You don’t want to have your expenses swallowing up your income. And you also don’t want extra cash laying around without a purpose.

In Zero-based budgeting you account for every dollar. Consider throwing the extra money into your debt category, or savings. Whatever you choose, make sure that it helps you achieve your goals. 

  1. Track your spending throughout the month: The final step is to keep track of your income against expenses. By doing this, you can easily see when you are falling short, and quickly make amends

WHAT IF MY INCOME IS NOT REGULAR? – Zero-based budgeting for Irregular income

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Not having a consistent flow of income is not an excuse. If your income fluctuates monthly, you can still implement Zero-based budgeting but you will have to do it a little differently. You would have to create your budget based on what your “low earning month” looks like.

Also, you can budget even on a contract type of income. That is to say, you can’t go partying with the money, until after adding it to your budget. Classify your money as the income for X month, then start planning your expenses for that X month. Whatever you do, don’t cross the line, remember you may not be getting another contract for a while, and you don’t want to starve, do you?


Photo Of Money In A Wallet

Just so you clearly understand how crucial it is to adopt this approach of budgeting, let’s look at some traps Zero-based budgeting can help you avoid in real life

401 (K) Deferrals: Most people (and maybe even you) usually, at one point, decide to save up some money for retirement. And so, they decide how much will be diverted to their retirement plan, and how those retirement plan deferrals will be automatically invested when they begin a job, but then they rarely, if ever, make any adjustments. This approach to your finance can be quite costly.

  1. This is because your income changes with time, and so does your life in general. The plan for last year may not be suitable, and might even be detrimental to you this year. ZBB helps you re-evaluate how your funds are channeled based on your current income and lifestyle changes so that you better adapt and enjoy your life.
  2. Also, with ZBB, you get to objectively look at your retirement plan investments – as though everything was in cash – so that you can better allocate your resources. This is because, once you clarify this, you can easily reallocate the current funds and update future deferrals to fit with the original plan you had, rather than sticking to a decision made years ago, that isn’t suitable anymore.
  3. And, assuming the Roth (i.e. a type of Individual retirement account with tax-related benefits) option exists, you can easily adjust the ratio of funds that go into it as your income increases or, god-forbid, decreases)

 Automatic Dividend Reinvestment: Using a Zero-based budgeting approach to establish and implement an investment policy statement can also help you effectively determine where to re-invest your dividend proceeds (from an investment). 

There are a lot of technicalities in this area, but you should consider talking with your advisor to ensure that he/she is deliberate and thoughtful about how your dividends are used or reinvested – this would save you a lot of money. Also, see that you look into what and where the advisor is putting the money into. You want to make sure your money isn’t mindlessly “automated” away.

Medicare Part D/ Health Insurance: Most people (about 87% of Medicare customers) choose to proceed with the same Medicare Prescription Drug (Part D) each year without considering that it results in higher costs and less value over time. This same issue exists in the private insurance marketplace where a lot of people opt for expensive plans, whilst cheaper ones with the same coverage can be easily gotten if they just cared enough to search. You don’t want to be one of them.

The Zero-based budgeting approach – an approach which gives you the room to think – is what the insurance companies hope you don’t use. Why? Well, it is because they know that most consumers tend to continue mindlessly with whatever they first committed to. As a result, these companies usually roll-out attractively priced New plans to hook prospects after which they reduce the coverage and increase premiums in future years. This is exactly why you need to re-assess everything – periodically.


Photo of Zero Based Budgeting Application

You can rely on ZBB because:

  1. It helps you clearly define what is necessary and how important it is to your goals or lifestyle
  1. Unlike other budgeting styles, it is highly efficient since the budget isn’t based on some past trends, or needs, but rather the very necessities of the moment and future
  1. ZBB leads to a drastic reduction in wastage of resources like time, money, energy, etcetera.

But as with everything, it comes with some of its challenges.


  1. Drainage of time: Due to the nature of this budgeting approach, you will have to sit down and critically think about what is necessary or unnecessary, and also carry out the dreaded job of attaching numbers to your needs and goals.
  1. It can also lead to another conundrum: What if you can’t decide, or place a number on the things you need? Then you are stuck, right?
  1. Sometimes our vulnerability to biases and external influences come into play: we are terrible at picking what is best for us due to habits, external influences, and biases.
  1. You can also be faced with the ultimate challenge of predicting what the future would look like: would what you discarded, or added to the budget be important in the future? 

In the end, we are left with the possibility that even though it’s a very effective system, our errors and biases can skew it.

Next, let’s look at how adopting and following the Zero-Based Budgeting approach would be of benefit to you.


Photo of A Miniature House And Coins

Zero-based budgeting, unlike other budgeting approaches, focuses on doing the right things in the most cost-effective way possible. Zero-based budgeting is more about optimizing by trimming rather than optimizing by portioning.

You cut off the things you don’t need like those sneakers *grins*


  1. ZBB saves you a lot of money by cutting off unnecessary expenditures
  2. It helps you hit your financial goals quicker, as all your resources are pumped into the right things (or away from the unnecessary things)
  3. ZBB helps you become more accountable, as it imbibes in you the habit (or should I say culture) of cost awareness
  4. It would also help you become more objective oriented rather than being driven by your whims. Bye-bye sneakers.


Almost everything that has an advantage also has a disadvantage. And as you must have guessed, Zero-based Budgeting suffers from

1.      Rigidity: After laying out your plan, it becomes very hard to take fresh opportunities that would arise, and it will also become difficult to tackle unexpected problems since all the money has been assigned to other equally important needs. Think health issues or opportunities of a lifetime.

2.      Skill and Time: another glaringly obvious challenge would be skill and time required for ZBB. You ought to have a level of knowledge, skill, and ample time by your side to organize such a budget. A budget that would be all-encompassing and still perfect for the stipulated period. Only to do it all over again every time. Ouch!


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Zero-based budgeting is a budgeting approach that requires you to start from scratch to look at every “item” to determine whether it is worth spending your money on.

In a nutshell, all you have to do in zero-based budgeting is

  1. Clearly define your goal
  1. Clearly outline what are required to smash your goals
  1. Meticulously assign funds (and priorities) to ONLY the things you have justified as being necessary for hitting your goals
  1. Track your performance, and stick to the plan
  1. Repeat the entire process each new period (maybe monthly, or yearly – based on your objectives)

Hope this article (about Zero-Based Budgeting) was helpful. Cheers to financial progress.

Lily & The DollarCreed Team

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