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I used to be the type of person who would never check my bank account balance.
Once a fortnight I’d see that my pay had been deposited and then I’d hope for the best, tapping my card away willy-nilly and holding my breath as the EFTPOS machine decided whether to approve the transaction or not.
Then, I reached my mid-twenties. I left my waitressing job. I graduated from university. I began a career in media. My friends started buying cars and overseas trips, and a few of them even bought houses. I knew I was behind my peers and avoiding my bank balance was getting me nowhere.
Thus, the foray into teaching myself financial literacy began.
I’ve since devoured money podcasts, and read article after article on investing and budgeting. I’ve discovered the savings you can find on cashback platforms like Cashrewards and have slowly begun to implement financial literacy techniques into my own life. While I now check my bank account every day (yay, progress), I know I still have ways to go.
My recent focus has been on figuring out a budgeting technique that fits into my lifestyle, trying to stick to it, and seeing where I can improve my financial literacy further.
For this month’s exercise, I’ve attempted zero-based budgeting.
What is zero-based budgeting?
Zero-based budgeting is a method that sees every dollar of your pay used in some way. You divide your money up into needs, wants, short and long-term savings goals and any debt repayments.
The term comes from the goal that each month, your income minus your spending will equal zero. The aim is to re-create a budget from scratch for each period, or month depending on your needs.
Financial advisor, Amanda Thompson tells Refinery29 Australia that each expense must be justified before being approved for addition to the budget. This is unlike a traditional budget that automatically carries over from the prior month.
This means that you start each period with a blank slate and allocate expenses based on the needs and priorities for that month.
How do you implement it?
Thompson suggests working from the bottom up. “You start with the most essential expenses such as housing and utilities, and add additional expenses as needed after prioritising their value and importance.”
By the end of the budgeting session, your income minus expenses should come to zero.
The financial advisor notes that this technique is more often used by businesses than individuals, however, its popularity as a tool for individuals has increased.
The technique requires monthly reviews, encouraging individuals to evaluate their spending more regularly. Something early-twenties me would’ve baulked at.
Thompson says that it may be worth giving zero-based budgeting a try if you have a specific savings target in mind.
“You can set a savings goal and allocate expenses with the remaining surplus.”
This ensures that whatever you are aiming to keep aside for the month will be prioritised and planned for within your budget.
How did it go?
On my monthly payday last month, I sat down and spent around 30 minutes going through my budget. I took my rent and recurring utilities out. I split every dollar up into what I thought I’d need. This included fun stuff too like coffees out and beauty supplies from MECCA.
After divvying up my needs and wants, I allocated a set amount of money towards my investments and savings accounts.
By the end of the 30 minutes I’d “spent” my whole paycheck.
For the first week and a half, I was feeling good. ‘This is easy!’, I naively thought. It was close to the two week mark when I realised that my budgets were way off.
I’d also made an error in not having an incidentals fund. For example, I forgot to bring a towel to the office for my lunch-time running class. I couldn’t go back to the office (and to dinner in the city afterwards) dripping in sweat so I had to buy a towel at the gym.
While it’s an unexpected cost, it certainly doesn’t constitute taking money out of my emergency fund. Having unexpected costs like this throughout the month made me panic and feel bad for not “sticking” to my budget.
I’d end up having to spend more time reassessing my budget and figuring out where I could pull money from.
According to Thompson, zero-based budgeting typically involves more attention to detail and can be time consuming.
“The first month you attempt the technique will likely be the most difficult as you will lack the historical data to make easy and quick choices about what expenses stay or go.”
Thompson also notes that zero-based budgeting requires a significant mind-set shift to traditional budgeting as you can no longer assume all of your ongoing expenses are automatically included, (in typical budgeting scenarios, you would roll over any ongoing expenses to the following period.)
As the month comes to an end, according to my calculations, I’ve saved $330 in cash and invested $200. It’s not as much as I would’ve liked but considering the tight cost of living at the moment, it feels average for my lifestyle.
The question is, was it the zero-based budgeting technique or just watching my money and attempting to be sensible with it that helped me save?
From my experience, zero-based budgeting isn’t the best way to save money as a beginner. I made a few mistakes and it was time-consuming to spend so much energy thinking about my money.
Selecting one of the most rigorous and business-like budgeting techniques for my first official budget may have been a tad overzealous but hey, I don’t do things in halves.
Thankfully, I’ve still got the 50/30/20 and envelope budgets up my sleeve…
Nothing in this article is intended as, or should be taken to be, financial advice.