What are the key steps to create a zero-based budget? (2024)

FAQs

What are the key steps to create a zero-based budget? ›

What Is Zero-Based Budgeting (ZBB)? Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process begins from a “zero base” and every function within an organization is analyzed for its needs and costs.

What Is Zero-Based Budgeting (ZBB)? Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process begins from a “zero base” and every function within an organization is analyzed for its needs and costs.

A zero-based approach seeks to link organizational designs to strategic priorities (for example, areas for investment compared with efficiency optimization) instead of a “one-size-fits-all” solution across the business.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Zero-based budgeting (ZBB) is a budgeting technique in which all expenses must be justified for a new period or year starting from zero, versus starting with the previous budget and adjusting it as needed.

The zero-based budgeting process is a strategic budgeting approach that mandates a fresh evaluation of all expenses during each budgeting cycle. Unlike traditional budgeting, where previous spending levels are typically adjusted, ZBB requires individuals or organizations to justify every expense from the ground up.

In zero-based budgeting, your income minus your expenditures should equal zero. Savings goals, debt paydown and fun are all included.

What are the main stages involved in preparing zero based budgets? ›

For a personal zero-based-budget, here are the steps: 1) Start with your income; 2) Prioritize essentials like rent or mortgage, food, utilities, and transportation expenses; 3) Justify other spending once your essentials are covered, decide which other expenses are a good fit for your lifestyle and financial goals.

Zero-based budgeting (ZBB) is a budgeting method that assigns a role to every single dollar you earn. Where the “zero” comes in is that after you decide which expense category each dollar goes into — whether its bills, transportation, savings or otherwise — there will be $0 left over.

The zero-based budgeting process typically involves the following steps: Identifying decision packages: Decision packages are types of proposals which document the resources required to deliver a specific activity and the expected outputs.

Zero-based budgeting differs from traditional budgeting in that the companies using it create a budget for each new period. The benefits can include lower costs by keeping old and new expenses in check. Potential disadvantages are that it can reward short-term thinking and be resource-intensive.

The foremost theoretical advantage of ZBB is that it offers a rational and comprehensive means to cut the budget. ZBB can be used to make different cuts to different services based on the perceived value to the organization (rational) and all spending is put under scrutiny (comprehensive).