Zero-Based Budgeting May Help Finally Curb Your Impulse Spending

When it comes to spending money, many of us fall into the trap of leaping before we look. According to Gitnux, 84% of U.S. shoppers have fallen for the temporary zing of impulse purchasing at least once, and 40% of all e-commerce sales come from impulsive purchases. Emotions, a lack of rational budgeting, and a reliance on credit cards and overdraft coverage can push us toward buying things we didn't plan for in advance. 

A couple of impulse spending moments cannot blow up your savings, but you'll be in for long-term financial distress if you give free rein to your impulsivity. If you're struggling to find a way to stay on budget and stow away funds for a rainy day, enter zero-based budgeting. Developed by former Texas Instruments account manager Peter Pyhrr in the 1960s, zero-based budgeting is a commonly used form of business budgeting that includes only justified expenditures in order to fend off resource misallocation, save costs, and maximize profits in the long run. 

This back-at-square-one budgeting technique can also be adapted to personal finances to help you keep track of your spending and minimize debts. Here's how you can use zero-based budgeting to curb your impulse spending and reach your financial goals faster.  

What is zero-based budgeting?

According to Ramsey Solutions, zero-based budgeting is a method of budgeting in which all your monthly income must be allocated toward your expenses and savings so that you can start from zero with a brand-new budget the next month. 

For instance, if your monthly income is $3,000, your total spending and saving should equal $3,000. All types of expenditures — such as rent, necessities, utility bills, debt repayments, emergency funds, leisure expenses, and investments — are all taken into account. This is to make sure that there's no penny left for you to splurge spontaneously. If there's something that you're dying to buy, you'll have to wait until your next payday. 

If you're not sure how to allocate money to each category of expenses, follow the 50/30/20 rule. This percentage-based budgeting method involves splitting your income into three categories, and they should never be commingled. Fifty percent of your income should be spent on your needs, such as housing, groceries, and transportation. Then, put aside 30% for your wants, such as "treat me" buys or vacations. The remaining 20% should go to your savings and debt repayments. And that's how you spend 100% of your income within a month.

After subtracting all of those planned expenses, your income should adjust to zero. If your deducted expenses equal a negative amount, you are overspending. A positive balance indicates that you are underspending your budget, which is fantastic news.

Pros and cons of a zero-based budget

If you work on commission-based jobs or your income varies by month, you can still use zero-based budgeting to your benefit. One way to do it is to make a record of your most recent earnings per month and designate the lowest amount you made in a month as the planned income for the coming month. Categorizing-wise, you can follow the aforementioned framework.

One of the most obvious advantages of a zero-based budget is that it makes it easier for you to keep track of every dollar that comes in and goes out. This encourages you to think twice before splurging on an item that isn't in the budget, which can help to curb your impulse spending to an extent. Plus, classifying your monthly earnings into smaller segments also makes budgeting more systematic and manageable.

What's not so convenient about this budgeting method is that you have to create a new budget each month, and it entails lots of attention to detail and forward planning. Tracking your expenses and making sure every transaction falls into the right place is not a walk in the park either. For instance, when you pay for a cup of coffee, a movie ticket, or a gym membership, you must remember to subtract that from the budget line under "Discretionary Expenses."

To sum up, although zero-based budgeting is not the most timesaving budgeting method out there, it forces you to justify every dollar spent, which reduces instances of mindless spending and helps you save more.