Zero-Based Budgeting: A Brief Practical Guide with Real-Life Examples
A budgeting strategy known as zero-based budgeting (ZBB) starts each budgeting period from scratch rather than using prior budgets as a guide. It requires you to justify every expense and allocate resources based on needs and priorities. Here's a simplified explanation with examples: 1. Traditional Budgeting: In traditional budgeting, you typically use the previous year's budget as a starting point and make adjustments. For example, if you allocated $10,000 for marketing last year, you might increase it by a certain percentage for the new budget. 2. Zero-Based Budgeting: With zero-based budgeting, you assume you have zero dollars available to spend and build your budget from the ground up. You evaluate each expense and justify why it should be included in the budget. Example 1: Let's say you're a small business owner implementing zero-based budgeting. You would start by listing all your expenses, such as rent, salaries, marketing, supplies, etc. For each expense, you...