Debt is a universal dilemma that everyone has dealt with at some point in their lives. Everyone, from households to large enterprises, has faced it, but what we fail to realize is that sometimes no matter the size of the debt, the solution is simple. Can households use the methods that corporate debt-freegiants use to cut their debts? The answer is yes we can! In fact, the method known as Zero-Based budgeting (ZBB) is applicable not only to debt, but to overall financial management as well.

What’s Zero-Based Budgeting?

First of all, you don’t have to be a math-wiz in order to use ZBB, and often people associate the term ‘budgeting’ with being ‘orang pelit’ which is not true! Although it is a bit more tedious than traditional budgeting, it has far more advantages. ZBB is a type of method where you get down to the nitty-gritty detail of everything you spend on and make a budget according to accountability. When you begin counting, unlike traditional methods, you do not start from your equity, but from zero. This is a major advantage because you are re-evaluating your needs.

Let’s illustrate this with an example. Would you still pay for Astro when you can watch shows online? Using ZBB, you shall notice a lot of superfluous expenditures that you can easily avoid. What most people do is pay all the bills and then subtract that amount from equity to find your savings. ZBB makes you question all these bills and asks why you need to pay them.

Now that we got the definitions out of the way, we can get down to business. There is more than one variation of this method, but the most basic one is categorizing. This part is simple enough and we allocate our monthly income to grocery, utility, clothing, etc., anyway.

However, you have to be craftier than that. Aptly name each category so that you know exactly where your money is going and allocate it logically. Taking our earlier example, is it worth allocating RM200 for entertainment when you can cut it down to less than 50% by using just the internet? Moreover, it also saves a lot of electricity.

Speaking of categories, they aren’t simply there for decoration. A well-organized budget can help you cut unproductive costs and can help you to be more efficient. You know yourself best, but here is a sample list of what categories should look like. Again, I’m stressing that this list is by no means exhaustive, but it is a subject to improvement according to your needs.

Tax Deductions: Yes, this is necessary because this is a category that is not flexible, and will prevent you from overshooting your budget in the end.

Utility Bills: These are also expenses that you have no choice but to pay. However, these can be broken down into subcategories. Utility can be divided into a lot of details. You have to question yourself, ‘Is there anything redundant that I am paying bills for?’

You probably are! For instance, are you using energy saver bulbs or energy inefficient bulbs? Are you placing your refrigerator in a hot place rather than a cool place, resulting in its overconsumption of energy? Do you need to turn on the AC when you can open the window? Little things matter, and you will see just how much of your hard earned money was being devoured by these unnecessary expenses. These and many other nifty money saving tips can be found on the web, so I suggest you take a look at this website.

Daily/Weekly expenditure: I keep telling people ‘learn to cook’, it’s 2015! With modern inventions and easy recipes from popular cooking gurusshoppingcart such as Chef Wan and Chef Ismail, no one needs to slave over the stove for hours! Moreover, the cost of eating out in a day is more than 50% the amount spent on buying grocery for a week! I’m not being ‘si bakhil’, but you can actually make yourself some decent meals with that kind of money.

Daily expenditure is not only about food but also other things, such as fuel, cleaning products, clothing, etc. Allocate sensibly so that you will be able to either save or take some out of these categories for others. Keep in mind that these are flexible, unlike taxes or bills. Thus, at any point if you feel the need to move money around from one category to the next, you can do so from here.

It is also important to make good investment. For instance, buy cleaning materials that will last and clean your equipment and appliances regularly so that you can cut down on repair costs later on.

Annual/monthly Expenditure: Again, these are not flexible and include payment such as insurance, various fees and charges, repair costs etc. Although these are inevitable, I still like to call them semi-flexible. In the case of credit cards, you can save a lot if you choose the right one.

For example, currently the card with the lowest interest rate is Maybank 2 Card, which also offers a 0% fee for balance transfers and virtually no annual fee! A 0% balance transfer means, that all those bills that you pay to different accounts won’t cost you a penny more than what you owe.

It is important to deliberate and transfer money quickly to this category then leave it! Under no circumstances should you touch it or any other non-flexible category. By deducting these amounts from your total equity, you will only fiddle with what’s left. In this way you ensure that at the end of the month you are safe.

Let’s talk about debt: We are not going to cover the broad topic of debt here, instead, we will focus on how you can use ZBB to manage it. What usually happens is that you leave a large chunk of your paycheck – after bills and taxes – as debt payment at the end of the month but cannot meet such expectations due to unforeseen circumstances. It’s not your fault, as the economy can frequently wax and wane, which makes commodity prices unpredictable, for example, gas, vegetables, interest rates, etc.

As a result, you have to take out money from your debt payment allocation.

One thing you can do is to split this category into two. A significant amount, say 2/3rd will be the ‘untouchable’ debt payment, and 1/3rd would be ‘unpredictable’ payment. The reason why we are being so meticulous is to simply have control over your spending. If you do not set aside an ‘unpredictable’ amount then you won’t have any boundary.

The boundary will protect your monthly debt repayment while making it easy for you to decide how much you can move around between your categories. Keep in mind that paying off at least the minimum amount on your debt should be at the top of your priority list.

Do review and revise using the Zero-based Budgeting method from time to time. I suggest that you do it twice a year. And you’ll be surprise of how much “fat” you can cut! Happy planning!

1. Investopedia
2. Zero Based Budget
3. Cost of Living
4. Low Interest Rate Credit Card
5. List of Money Saving Tips


Personal finance author and trainer

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