Budget. To some people, budget is a dirty, ugly, disgusting word. It was the same for me. Iʼve tried using several different budgeting methods in the past using anything from spreadsheets to budget building software. All of them left me frustrated at the end of the month.

Iʼd use them for maybe a month or two and then decide that I didnʼt like it or that the budget didnʼt allow me any flexibility. The biggest problem I had was trying to allocate money to various categories within my budget. At the end of the month, I would get so frustrated because I was
over budget in some categories and under budget in others. Every month, Iʼd make adjustments only to have the same thing happen again.

At the beginning of the year, I decided to switch to a different budgeting method. Iʼve tracked my finances long enough to know what I bring in during the month and approximately how much I spend. Each month, my income minus expenses was ending up at around the same amount; give or take a hundred dollars or so.

I decided to change things up and start budgeting using a set amount of money for the month, instead of trying to budget for different categories. For example, Iʼm currently basing my budget on monthly expenses of $4100. At the end of the month, whatever amount of money left in my checking account is transferred to savings to “zero” out the account. At the beginning of the next month, I transfer another $4100 to cover expenses for that month.

So far, this method is working like a charm. I currently use Quicken to track my income and expenses for the month. To me, using this new budget method makes it so much easier to manage my budget and I can easily see how much money I have available to spend and/or save.

As much as Iʼd like to say this was my own idea, itʼs not. Itʼs actually called “zero-based” budgeting. The premise is very simple. You assign a category to every dollar you receive. Itʼs really easy to get started with this method, if you have a good idea of your monthly income and expenses.

If you are fairly familiar with what comes in each month and what goes out each month, getting started with a zero based budget is pretty simple. The first thing you want to do is find out how much money you bring in each month. Take that number and subtract from it the amount of your monthly expenses. The resulting number should be a positive number; hopefully, itʼs a large positive number. If not, itʼs time to thoroughly review your expenses and find out what you can cut out. Do you really need all of your premium cable channels? Actually, with all of the ways to watch TV for free, do you need to subscribe to cable at all? Do you frequently eat your lunches and dinners out of the house? Finding ways to cut your expenses will probably end up cutting out some of your fun but in the end, it is all worth it.

Are you currently using a zero based budget? Are you happy with it?

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  1. mike // March 24, 2010 at 3:51 AM  

    It took me a long time to really get this concept. I was a long-time, yet reluctant, Quicken user. It wasn't until I discovered You Need A Budget when the light bulb went "click!" This software is the epitome of budgeting software. I have no stake in the product or company. Just a very enthusiastic and grateful user. Anyone wanting to set up a real budget should give the trial a test run and see for themselves.

  2. Stay at Home Mom CFO // March 24, 2010 at 7:55 AM  

    I have heard of it and I'm thinking about using the "zero based" budget. Everyone who uses it really seems to like it. Mine is on paper now. Do you need to be one month ahead/have one months expenses saved up for this to work though?

  3. Lulu // March 24, 2010 at 10:29 AM  

    I am using a zero based budget as well and I am happy with it. I have been tweaking the budget a lot in the past but I think the most recent changes are the best ones for me so far.

  4. Money Honey SF // March 24, 2010 at 2:24 PM  

    I am using a "mental" estimated budget. So far, it's been sticking. I usually go under by a few every month.

    But it's good to have a budget and I'm very happy with the month to month budget trend.

  5. Jeff @deliverawaydebt // March 24, 2010 at 2:50 PM  

    I use a $1000 based budget. Same thing as a zero based budget, I just use my $1000 emergency fund as working capital. After every paycheck the checking account balance is $1000 after all my accounts are funded and all extra money is added to my Debt payoff fund. Works great and I've been using it for almost a year.

  6. RDT2 // March 24, 2010 at 4:09 PM  

    Ive been working with something similar for the past year and a half. After looking at my fixed costs that are deducted from my check for taxes/insurance and then my debt and monthly bills I settled on a 50/50 idea. 50% of my gross paycheck goes to taxes/insurance 401k/IRA and savings. The other 50% goes towards Bills/Debt and weekly living.

    I basically treat my weekly living like your zero based budget. I've got a few hundred bucks a week to spend on food, gas, entertainment, and any other shopping. It's not important that I only spend $X on any one category for the week only that I am below my weekly living budget.

  7. mike // March 24, 2010 at 4:30 PM  

    @Stay at Home, YNAB does not require a one-month buffer to work although it is one of the goals of the YNAB philosophy and the software can help you reach that goal. It took me almost a year. Where some commenters here use a fixed amount and others a fixed percentage, YNAB uses a fixed amount based on one month's income. Now every paycheck I receive is applied toward next month's budget as my expenses are already covered for the current month (by paychecks I received last month!). But it certainly doesn't mean you can't use YNAB to start budgeting right now. Without it, I'd have a hard time reaching the one-month buffer goal because using Quicken I wasn't able to do much more than record my expenses and verify they were being accounted for correctly by my bank. With YNAB, I have total control over how much I spend in all of the budget categories important to me. Granted, YNAB is just a tool, but a great one for people wanting a way to better grasp what is happening with and how to control their day-to-day finances.

  8. Bucksome Boomer // March 24, 2010 at 8:26 PM  

    I've used a zero-based budget since last May and love it!

    It's so much easier for me to manage my money because I have every dollar accounted for and "spent".

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  10. youngandthrifty // March 25, 2010 at 12:30 PM  

    That sounds like a good idea!

    It's all about the psychology, isn't it.
    Thinking Oh.. there's no $in my chequing account, can't spend more than I need.

  11. Unknown // March 25, 2010 at 9:35 PM  

    To be honest, I am still hating our budget. We thought we were on track all last year. When we finished the year I began doing a bunch of analysis and discovered that we misplaced $6K... arrgggg

    We still have some work to fine tune our approach but I'm not giving up!

  12. Financial Samurai // April 3, 2010 at 12:40 AM  

    I like it. It's called "going broke to win big".

    No money able to spend in the bank is a good thing!

  13. Shane // April 3, 2010 at 11:58 AM  

    An Irregular Expenses Account is a great compliment to a zero-based budget.

    For illustrations sake, we used to put $2000 a month into our savings. However, we regularly withdrew from that: Car Insurance, Vacations, Furniture Purchases, etc. At the end of the year, we averaged, and we were truly only saying about $1500 a month.

    So we decided to stop kidding ourselves! We created another budget line-item called "Expense Account" and we now put $450 a month in there.

    This is really just a temporary savings account. But it's made us feel good that our savings is TRUE savings and that we have a separate funding source -- without the guilt of a savings withdrawal -- for the occasionals that always come up.

  14. Hustler // April 6, 2010 at 9:40 PM  

    As long as I'm making more than I'm spending..that's pretty much my budget. But yeah, not the best idea for someone who thinks about money daily.

  15. Catie // April 12, 2010 at 2:58 PM  

    How do you deal with those couple months out of the year with an extra paycheck?? Just stick it in savings???? Thanks! Great post, btw!

  16. Barb Friedberg // April 16, 2010 at 5:01 PM  

    Hi single guy,
    I like posts with actionable tips!! very nice!

  17. Anonymous // April 16, 2010 at 5:19 PM  

    I have been using a zero based budget for 3 years in July. Every payday I sit down and give every dollar a name. At this time I put all alotted money in savings and make debt payments. This way I am limited to my predetermined amounts in other catagories.

    It has been a great tool in my success and I would recommend it to anyone. It's so easy I just use pen and paper.