This post may contain affiliate links. Please read our disclosure policy for more information.—
Over the years I’ve spent a lot of time making monthly budgets and planning our financial future. I have taken care of our household finances since my husband and I were in College with school debt up to our eyeballs. Currently, we are a very blessed family of four, making it on one income. To stay on track we definitely have to stick to a budget but it can’t be restrictive. We like to have fun!
Enter the Zero-Based Budget Method
What is a zero-based budget? Simply put, it’s a budget where you list all of the income for the month at the top, then minus all of your expenses and savings goals until you have zero dollars left to budget.
I have to say, this has been the easiest budgeting method for our family by far. To make things even easier, I use the EveryDollar app. If you’re currently not using a budgeting app, give EveryDollar a try. It’s Free, user-friendly and you can download it from Dave Ramsey’s website everydollar.com.
Zero-Based Budgeting in 3 Easy Steps
I’ve found that all items in our family budget can be broken down into three categories–Fixed Monthly Expenses, Irregular Expenses (everything else due quarterly/yearly or infrequently) and Savings (long and short term).
That’s it. I guess you could argue that there are other ways to break savings and expenses down but I keep coming back to these three.
Note: If you have debt, Dave Ramsey recommends walking through a series of 7 baby steps, starting with a $1000 emergency fund and aggressively paying off debt before setting savings goals. If you haven’t heard of the baby steps, here’s a link to get the information straight from the source.
Step 1 | Plan for Fixed Monthly Expenses:
Fixed monthly expenses should be deducted first. For us these are pretty straight forward. They don’t change much and carry over from month to month. These are things like our cell phone bill, food, spending money, electric and natural gas bills. As far as food and spending, we budget a set amount each month so we consider it a fixed expense and when it’s gone, it’s gone!
Step 2 | Plan for Irregular Expense:
Irregular Expenses are a little more tricky to plan for than fixed monthly expenses. In our budget, these are things like life insurance premiums due once a year or the water bill that’s due quarterly.
We have a really long list of Irregular Expenses that include things like car registration fees, home maintenance, insurance premiums and taxes. In the past some of the smaller expenses would slip through the cracks and derail our budget like a $60 replacement ink cartridges for the color printer or $150 for soccer fees. I finally found a very easy way to plan for these reoccurring expenses and it only takes up one line item in our budget. You can read more on that in my post Are Irregular Expenses Ruining Your Budget?
Step 3 | Save As Much As Possible!
Although I’ve chosen to talk about savings last, that doesn’t make it less important. If you’ve eliminated debt then it’s time to make saving a priority.
Long Term Savings:
Long term savings is just that. Saving for something far in the future. For us that’s means a fully funded Emergency fund of 3-6-months first, then saving 15% in retirement and last but not least, kids college in a 529 account or ESA if you can. In that order.
Short Term Savings:
Short term savings goals may be things like saving for a down payment on a home, a much needed vacation or a new car. You don’t need a savings account for everything, just bigger expenses that you know are right around the corner.
We have six short-term savings accounts in all. One of them is a Slush Fund for stuff we couldn’t possibly see coming like an unexpected vet bill or if the refrigerator dies! I highly recommend starting a slush fund. It’s a great buffer to have and can keep you from dipping into your emergency fund or worse charging to credit cards.
That’s It! Zero-Based Budgeting in a Nutshell.
Do you break your budgeting down into manageable/actionable categories like this? If you have a helpful budgeting tip let me know in the comment section below. I’d love to hear from you.