#Frugal | Start the New Year with a Zero-Based Budget

Tired of the after holiday hangover every year when you find you’re just stretched too thin?

Not as many households operate from a budget as you’d think, but that doesn’t have to be your lifestyle. In order to reach your goals, you have to first know what is coming and what is going.

We’ve always operated from a budget, but it did little more than provide us with a picture of our finances when we first bought our house. About five years ago, I streamlined our budget to a zero-based one and we now have a place for everything. It provides us the framework for goal-setting, which helps one get out of debt and get into investing.

None of our debt-free goals could be accomplished without first and foremost, having a budget.

How do we actually do the budgeting? 
We share a Google Drive Spreadsheet to outline our budget and update quarterly.

What is included in our budget? 
– our income
– a list of all regular and irregular yearly bills
– cash allowances
– savings/investing/retirement plans

What is not included in our budget?
– line-item expenditures like gifts, holidays, parties, etc. (these are lumped into a savings account)
– extra income that is not from a regular salary (this includes odd jobs, advising, coaching, etc.)

Where does extra income go?
– depending on our goals, it may pad our emergency fund, pay down our mortgage or retirement

What’s the bottom line?
– by the end, our income equals our expenses+savings goals and thus we are left with $0 at the bottom

Hence, a zero-based budget.

Our budget is designed and updated differently than most, as we both work and get paid only 10 months out of the year. Unlike popular belief, educators do not get paid for our summers off. We just make less money over the course of a year than a private employee makes, but I won’t get into that here… We also have to budget to save for our summer bills, as no paycheck is sent out after June 30th or before, eeek, September 15th.

We are also flexible in our budget and allow for changes in seasonal needs, income levels or desires.

There is a lot to be said about using credit card rewards programs for extra income, but I don’t recommend them. If credit cards are already being used, and too easily, these reward programs do little else but put you further into debt. Personally, I don’t recommend credit card use for anything unless you are smart about it (for example: paying for a car on credit, getting the cash back rewards points and then paying the bill the next day).

My motto is: if it’s not in my savings account, I can’t afford it today. Maybe in 30 days. Hence, ℝunning ℛewards!

Get Started This Weekend

When you’re getting started, with or without debt, I believe a budget is a basis for growth.

While I never read Dave Ramsey’s books, nor followed much more than a pdf I found for his debt snowball method back in 2008, I am fond of his approaches.

I recently stumbled on Dave Ramsey’s Budgeting Guide [pdf] and thought this was even better for someone just starting out with creating a household budget and becoming debt-free. It includes the snowball method, plus a bunch of other useful ideas.

Also, here are sample budgets of mine to take a look at (not including real numbers):
10 Month Sample / 12 Month Sample [pdf]
10 Month Sample / 12 Month Sample [google doc]
10 Month Sample / 12 Month Sample [excel file]

I’d love if you share in the comments whether or not you operate from a budget! In an upcoming post, I’ll share how we manage our day-to-day finances using a money-tracking software.

I realize, budgeting sounds just as much fun as struggling to get a toy through the side of another toy, to some.

Equipment used: iPod Touch 5G

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