The COVID-19 outbreak may have you rethinking how to manage your spending and income.
Creating and sticking to a budget is essential, but there is more than one approach you can take. Zero-based budgeting is one option if you want to be able to account for every rand you have coming in and going out each month. South Africa’s Finance Minister is promoting this option in the South African Budget going forward.
The idea behind this budgeting method is to give every rand a job. A zero-based budget can help you avoid wasting money when your finances are upended. A zero-based budget means that you are assigning every rand you have coming in each month to a specific purpose. Once you figure out what you need to allocate to cover expenses, savings and debt repayment, you should have zero money left over for the month.
Firstly, you know exactly where every rand is going each month, so there is no guessing about how much money you may have leftover or whether there will be a shortfall in your budget.
Secondly, zero-based budgeting can help you avoid unnecessary or wasteful spending. If your income is reduced temporarily because of COVID-19, making every rand count matters.
There are three basic steps to making a zero-based budget,
- Calculate your monthly income
- Calculate your monthly expenses (these are the essential basic cost of living expenses)
- Allocate each rand of income a job
When you budget down to zero, there is no room for money to slip through the cracks, which allows you to know exactly where your money is being spent. Zero-based budgeting gives you flexibility during COVID-19 if your income is not consistent or your expenses are shifting from month to month. Because you start your budget fresh each month, you can add or remove categories as needed and increase or decrease how much money you assign to your categories, based on your income.