Creating and Sticking to a Budget: Our “Zero-Based Budget”

by Melody on January 25, 2012

The next logical step in your budgeting journey after gathering your information is to start actually writing your budget.  There are approximately 972,345 different ways to write a budget, which understandably can make it seem a little daunting.  My husband and I kept it very basic, followed the guidelines in Dave Ramsey’s Total Money Makeover (Amazon) and just dove right in.

Despite the two college degrees in Telecommunications between us, we chose to start out with a handwritten budget.  Please don’t let your lack of computer skills or your lack of budgeting skills stop you, find what works for you and just do it.  Most of us still remember how to use a pencil, right?

We have what is called a “Zero-Based Budget”, which means that absolutely every penny of our monthly income is accounted for.  This includes fixed expenses, monthly cash funds, savings, everything.

To write a “Zero-Based Budget”, sit down and write down absolutely everything you can think of that you pay for throughout the year.  Think about your fixed monthly expenses like mortgage, rent, utilities, daycare and interest-carrying bills.  Don’t forget about bills you may not pay every month, like car insurance, property taxes, homeowner’s insurance, irrigation.  Don’t let these surprise you 3 months down the road.

Subtract your fixed expenses from your monthly income.  This is what you have left over for your non-fixed expenses, like groceries, gas, medical co-pays, car and household repairs.

Our Fixed Expenses

Cell Phone
Irrigation (paid yearly, divided by 12 months)
City (sewer, water, garbage)
Car insurance (paid every 6 months)
College Savings Plan
Life Insurance
Retirement Savings

Our Non-Fixed Expenses

Christmas (estimated needed $$ amount, divided by 12)
My Personal Cash
My Husband’s Personal Cash
Baby (swim lessons, hair cuts, miscellaneous)
Pets (food, cat litter, routine vet trips)
Medical (co-pays, prescriptions)
Entertainment (eating out, movies)
Car (small repairs, tabs, oil changes)
Home (repairs, landscape)
Gifts (birthdays, anniversaries)
Birthday ($10/month for our boy’s parties)

Every cent that is left over goes into a savings account.  Depending on where we are at in our lives, this could be a generic savings account or going towards a specific large purchase, like a vacation or a new washing machine.

We did not start our budget with all of these funds. Some have been added, some have been changed, increased, decreased, cut and then brought back.  Depending on our stage of life, our budget may look different month to month.  Your budget will most likely never stay the same for a very long period of time.

One thing to note about a few of these categories: Our mortgage, retirement savings and money we have going into a pre-tax Health Spending Account automatically come out of our paycheck before we see it, which is a huge blessing.  For several years now, we have based our income on whatever we get AFTER that money comes out.  We don’t even miss it.  We don’t see it, so we don’t miss it.

If we are in a particularly tight financial time of our lives, the first things in the budget to go are the clothing fund, gifts, birthday.  Entertainment is cut way back, as are our personal funds.  If things got really strained, we would put the hammer down and cancel our cell phones, cancel cable, probably cancel swimming lessons (which would make me sad).  The point is, if we are totally honest with ourselves, there are several places in our budget that can be trimmed if need be.  They may not be fun changes, but when you are bent on getting out of debt, sometimes things just have to give.

The Cash Envelope System

For 99.9% of our non-fixed expenses, we pay cash.  We pull out the needed dollar amount at the beginning of the month and divvy it up.  When the envelope is empty, the money is gone.  We do our absolute best not to borrow from another fund or “borrow” from our account.  If it’s been particularly hard for a few months in a row to keep money in a certain envelope, we re-evaluate the amount going in.  We are significantly more intentional about our purchases when we have to hand over cash rather than swipe a card.

We use this entirely functional accordion folder from Staples, which you can find at just about any office supply store.  You can even find small starter folders in the Dollar Spot at Target sometimes.  If you think it would be fabulous to start your budgeting journey with the most amazing cash envelopes ever designed, you should check out Kelleigh Ratzlaff Designs

Please ask questions.  This is a HUGE topic and at times, I struggled pulling in the reins on this post.  There were so many different ways I could have spun this topic.  What is your biggest challenge in budgeting?  What has been your greatest success?

In case you missed it:

{image credit}

Disclosure: This post may contain affiliate links. When you click on these links, you are supporting this blog. Thanks!

{ 8 comments… read them below or add one }

Trina January 25, 2012 at 9:44 pm

This is a simple question, but one that’s ALWAYS held me back from the cash budget. What do you do with the change? I’m a very detailed person, and pretty frugal, so I keep track of my change, and USE it whenever I can! And I think it would drive me batty to know that I really had an extra .74 cents in the grocery category that wasn’t actually there to spend! OK, I’m pretty weird. But serioulsy – I want to know how you handle the non even-dollar amounts (which are almost every transaction)!


Emilie January 25, 2012 at 10:34 pm

I just use the change when I need it so in theory just round up or down. It’s easy and seems to work out!


Carrie February 22, 2012 at 10:00 pm

I put the extra change in a jar for vacation fun money.


Trina January 25, 2012 at 10:36 pm

That makes sense. Do you have a zippered pouch with your cash envelopes for the coins?


Emilie January 25, 2012 at 10:39 pm

I just keep a coin purse in my purse or diaper bag.


Melody January 26, 2012 at 5:14 am

I do the same thing. I just have coin purse in my main purse. Change is kind of like community property for all my “funds”. I’m pretty good about spending it so it always seems to work out. The only thing I track in detail is our grocery budget, so I always know to the penny where that’s at!


Miss Jay January 26, 2012 at 7:41 am

We treaded water for about the first 2 years we were married, then I got pregnant, which is when we really got serious with the budget. Probably the easiest thing was actually sticking to the budget. We had almost no wiggle room and we were already starting with many categories cut out. Which made it really hard to save up our $1000 emergency fund. Fortunately we were both on the same page with our goals and we never really fought about our finances. Which was especially beneficial because we were looking at a long road to get out of debt.

We added another child to the family, survived my husband getting laid off 4 times in 6 years, upgraded both our pathetically old cars, and by God’s grace we were still chipping away at our debt. When my husband finally landed a more stable job and he began to get promotions and bumps in pay, we were already used to living so frugally it was really easy to maintain our old standard of living and just throw all the extra at debt.

We finally paid off the last of our debt a month before our 8th wedding anniversary. Soon we had a full 6 months worth of expenses saved up. (Which I remember thinking was a ridiculous pipedream when we first got married.) We saved up and paid cash for our first ever vacation. We took the kids (4 & 6) to Disneyland – and it was awesome! Now we are saving to buy a house. Hitting our financial goals feels so satisfying, and it more than makes up for the sacrifice and hard work along the way.


Alexandria October 5, 2013 at 9:13 pm

I feel so overwhelmed… I have been keeping a VERY simple budget for about 6 months now. It has really helped us, and we have not over drafted since starting! (I used to work with my husband, and quit to stay home with our baby. Number 2 is on the way!) But we have a lot of debt, and my husband is thinking of switching to a different company. I fear us getting behind, but then I think well shoot– maybe I just need to better allot our spending and money. The new job will be a pay cut, but after the internship will be over double what he makes now. We have nothing in savings. 🙁 I feel like I need to sit down with someone and get help. I can’t afford to pay for Dave Ramseys help… We don’t have tv, and seldom go out. Anyone who can help would appreciate it. Just stressed!


Leave a Comment

{ 2 trackbacks }

Previous post:

Next post:

Blog designed by Sharon at Good, True & Beautiful using Thesis

WordPress Admin