Zero Based Budgeting: Adopt the principle of 'Zero-Based Budgeting', keep track of every rupee, you will never go into debt..

Zero-Based Budgeting: Does it happen to you that everything is fine for a few days as soon as you get your monthly salary, but by the end of the month your purse is empty? You can't understand where the money went? If yes, then you are not alone. Most of us fail to keep track of money somewhere. 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 for different expenses and savings at the beginning of the month, until you have nothing left to distribute (i.e. the balance becomes zero).

The formula is simple:

Income - Expenses - Savings/Investments = 0

This means that you have to account for every single rupee of your income and where it will go. Nothing is left 'leftover' or 'extra'.

How is it different from a normal 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. However, 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 it is.

What are the benefits of zero-based budgeting?

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

Control over expenses: When every rupee has to be accounted for, unnecessary expenses automatically get reduced. You spend wisely.
Prioritise 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, or paying off debt).

Freedom from debt: With less 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 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, subscriptions (Netflix, Amazon Prime, etc.).

Savings & Investments: Emergency Fund, PPF, Mutual Fund SIP, Insurance Premium, Retirement Savings.

Debt Payments: Credit card bills, personal loan EMI (you can keep this in essential expenses as well).

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/traveling: ₹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 are on a budget. If you overspend in one category, you may need to cut back in 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 a record 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).

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