The Disadvantage of Zero Based Budgeting

For all it’s good points, there is one disadvantage of zero based budgeting. If you’re new to personal budgets, it’s a lot to take in. Creating a budget is a skill and, when you learn any life skill, there’s a learning curve.

It’s experience that really teaches you. Imagine you want to drive to somewhere you’ve never been before. You could study a map (a good idea!) but, until you’ve driven the route, it’s just theory. Drive the route a couple of times and you get familiar with the landmarks and turnings. It becomes second nature.

Budgets are the same. Once you’ve created a zero based budget and been up and running with it for a couple of months, it’s pretty straightforward. You come to understand how everything in your zero based budget fits together – and how to use it to achieve your financial goals and dreams.

But that’s down the road. How do we get there?

I want to give you an easier place to start, so you can make quick progress on day one. Creating a zero based budget may be the ‘perfect’ strategy but, when you’re just setting out, you don’t need perfection.

Tiny Steps: Navigating the Disadvantage of Zero Based Budgeting

Imagine you come round to the idea that you want to get a better grip on your finances. Maybe pay off some debt, or build some long-term savings, or save for a particular event like a holiday or wedding or house purchase.

I’ve come round to producing a monthly zero based budget, but it isn’t where I started. I took small steps.

I love going to a nice café that serves decent coffee. Anyway, when we moved to the small town where we live now, we were blessed with several good cafés within easy walking distance of our house.

I got into the habit of strolling round to one café or another every day for an early morning coffee. I was working from home (I still do), and it was nice to take along my planner to mull over my priorities for the day.

I also like cruise holidays. Not so much for travelling to exotic places. Just the idea of being in a big floating café, where I can enjoy the books I’ve taken along to read or study. I’m a contemplative person, introverted. One cruise, I took ‘Teach Yourself Sanskrit’. It was fun for a couple of weeks.

But these cruises cost a few thousand dollars. One day in the café I started thinking it through. If I wanted to do more cruises, how was I going to pay for them? Even if I bought them on credit - which I didn’t want to do - I’d have to repay the debt. Then it struck me.
If I didn’t go to a café every day I could save enough money, over the course of a year, to buy a two-week cruise holiday.

So, I put the plan into action, and I didn’t need a zero based budget to do it. I simply decided to go to a café only once a week for a goals-planning session. And I put the money I saved into a special ‘cruise’ savings account. The strategy worked, and I still do it.

Of course, I could go to the café every day and pay for cruise holidays – take money from another part of my budget, but I choose not to do that. Budgeting is about making decisions on your spending. You make conscious decisions about the money habits you want to follow.

Where to Start Your Personal Budgeting

If you’re going to start your personal budgeting with a small step, it’s still useful to look at the big picture.

Here’s a reminder of what zero based budgeting means. You decide in advance how you are going to spend your income (normally for the month ahead, but it could be for each pay check, or each payment you receive if you run a small business).

Income (take-home pay) $5,000
Spending $5,000
Net $0

You’d need to break down the spending into three major categories: necessities, desires, and savings (which includes paying your debts off early). The 50-30-20 split is a rule of thumb.

Necessities (50%): $2,500
Fun & Wants (30%) $1,500
Savings (20%) $1,000

This is just the overview. You’d need to budget sub-categories. For example, within necessities, you’d allocate budgets for housing costs (rent, mortgage, electricity) and food (eating to live, not expensive restaurants). Also, for minimum monthly payments on any debts.

So, that’s the big picture. It takes time and effort to work out how much to allocate to each budget category. That’s why it can seem daunting on day one of your personal budgeting journey. That’s the disadvantage of zero based budgeting we’re looking to avoid.

But let’s return to my personal example of the café visits and the cruise holidays. Both fall within the big ‘Fun & Wants’ category. I didn’t need to create a full-blown budget before deciding to stop my daily café visits. I just reallocated what I would have spent in the café and put it into my cruise fund.

Ideas for Small Personal Budgeting Steps

Here are a few ideas you could start on today. Just pick one of them. Action is the key. You can read all the theory, but the key to achieving your financial goals is to instil new money habits.

(All these steps are important for personal budgeting, but none of them take much time or effort. They avoid the disadvantage of zero based budgeting.)

Each morning, write down your spending from the previous day (this is a very powerful idea, because it makes you more aware of your money habits)
Look at your spending over the past month (each bank account or card). Make a list of automated payments, like direct debits.
Make a note of what each automated payment is for, and whether it is a necessity.
If it’s not a necessity, can you reduce it or cancel it for next month?
List your spending last month into necessities, ‘fun & wants’, and savings (including debt payments in excess of the monthly minimum)
Decide on any financial goals you’d love to achieve and note them down
Make a note of why you’d like to achieve these financial goals
Decide not to use a credit card to make any payments in the next week or month (or day)
Think back to a skill you’ve learned in your life. How did you start and how long did it take to ‘get good’.

Maybe you can come up with some other ideas. When you start personal budgeting, you’re not after perfection. You just need to take action. Don’t set yourself such a big challenge that you feel it’s ‘all too much’.

Navigate round the disadvantage of zero based budgeting. Just get started. Get a grip on your finances, and progress towards your dreams, step-by-step.