This is the second post in my Family Budget series. To read more about my story and why I am passionate about family finance, head over to read the first post in this series.
What is a zero based budget and why keep one?
A zero based budget sounds like living paycheck to paycheck. But that is not the intention of this type of budget. If you have a budget, it is probably already written up as a zero based budget.
The zero based budget functions this way: Your income minus your spending equals zero.
There is no money left hanging out in la la land to be carelessly spent. And if income minus expenditures results in a negative number, then you have some cutting back to do.
INCOME – EXPENDITURES = ZERO
What a zero based budget does NOT mean.
A zero based budget does not mean spending every dollar that month on purchasing stuff. That would be the definition of living paycheck to paycheck! Make sure your monthly budget includes saving and giving already blocked out.
I find that it’s most helpful to us to have automatic giving and savings set up through our banks. Each month a set amount goes to our church, missions and charity. Each month set amounts go to “sinking funds” which I will talk about further on in the family budget series.
The “Do’s” of a zero based budget
✅ Look at past months’ budgets to get started. If you don’t have budgets from past months, look through your bank account and make a budget from last month’s transactions to decide how much you should spend for each category going forward.
✅ Categorize every dollar of your income. For the spending categories that tend to vastly fluctuate each month I make a “miscellaneous” category. Some of the things I would include in this category would be toiletries, craft supplies, seasonal decor, and other house items. I try to not make this category take a large amount of money, because I like to specifically categorize as much as possible. This makes us accountable to spend purposefully.
✅ Attach a buffer. When you keep a zero-dollar budget (as in, every dollar is spent out of the budget) even the best intentions can sometimes result in going over the bank account balance a bit due to fluctuations in expenses. If you attach a savings account to your bank account with a little bit of emergency fund money, you can quickly “borrow” that money if there is an unexpected overage. Another way to accomplish this is to keep $200 or so in your checking account that doesn’t factor into your budget. If you use some of this one month, budget in the amount to pay back the next month.
✅ Update your budget weekly. It’s important to track your spending weekly at minimum. Less frequently than this and you will not know if you are overspending. Take the extra step of looking at your budget before making impulse purchases.
✅ Knock out debt. If you have outstanding consumer debt or loans, lower your other discretionary spending so you can dedicate to pay your debt off quickly. It’s hard, but totally worth it.
✅ Prioritize giving. When money is tight, giving is one of those things that falls to the wayside. We can’t neglect to give back our firstfruits to the Lord! Make sure you pre-set an amount in your budget for giving each month.
✅ Auto-withdraw retirement. When retirement funds come out of your account before you even see them, you won’t be tempted to spend that money and cut the expense of retirement. You might live a long time, but you likely won’t have the energy you do now for earning an income in your old age.
Budgeting Categories I recommend
With young families, I think it is important to not put too much stress on living super frugally in order to set aside large amounts of money for later. There are so many expenses that come along with children.
It is not worth putting your children’s health at risk by skimping on healthy food, for instance, to save money for the future. Also, for busy families, blocking out money for dining out is reasonable – for date nights, or occasionally taking a break from cooking dinner, or grabbing something on the go when times are busy.
Don’t feel guilty about paying for the regular expenses of life. Enjoy what blessings today brings, be generous, and plan your savings carefully and reasonably.
After years of trying different budgets, these are the categories I personally use:
- Church Giving
- Other Charity
- Emergency fund
- Christmas savings
- Car maintentance savings
- Extra mortgage payment
- Home improvement / furnishings
- Car maintenance
- Licensing fees
- Restaurants / coffee
- Lunches for my husband
- Life insurance
- Auto insurance
- Medical insurance
- Music / dancing lessons
- School lunches
How to start
I recommend starting with a premade budgeting template. Budgeting on the computer is the easiest way by far, you have access to ways of quickly tracking your expenditures that would be tedious using paper.
In this series I will talk about how to budget using cash and using credit / debit cards. I will also talk in depth about how to budget using apps, which is my current method of budgeting.
If you are looking for an easy and inexpensive budget template so you can get started today, I recommend this Excel spreadsheet I designed for myself, and that I’ve priced super reasonably ($5) with the intention of helping families stick to their budgets.