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Zero-based budgets for the home: a primer

Budgets have a bad rap because they’re seen as shackles. Instead of getting to do fun things with money, budgets make you do boring things, like pay the gas bill, and not go out to eat.

Not necessarily. Whether you realize it, you do have a budget. Your budget might reveal that morning lattes are worth 13% of your income to you, but it’s still a budget.

Living on a budget simply means telling your money where to go – it doesn’t handcuff you from spending it.

Ever feel like money somehow vanishes every month? We did too, until we started regular budgeting. More specifically, until we started planning monthly, zero-based budgets.

Zero-based budgeting is basically putting a name to every dollar that comes your way. It starts with your income side of the equation, and line by line, the total subtracts as you allot amounts to each category, until you are down to zero.

The goal is simply this:

income minus expenses equals zero

I’ll show you an overly basic example.

The McSimples bring home $3,000 a month. So that’s the number they start with.

INCOME: $3,000

  • giving – $300
  • mortgage – $1,000
  • utilities – $500
  • groceries – $500
  • insurance – $200
  • gasoline – $firstborn
  • TOTAL EXPENSES: $3,000

$3,000 – $3,000 = $0

There’s no “miscellaneous” category. There’s no money set aside for “just in case,” because you’ve already planned where every cent is going. Even if it’s going to savings, it’s going somewhere.

The key to what the McSimples did was that they planned their month’s expenditures on what they were actually going to bring in that month. They didn’t budget what they thought was ideal for each category, and then hope that amount comes in that month. That’s not even budgeting, really – that’s just writing down on paper what they wish they could spend money on. I like how Amber coined it in the comments section yesterday – “prediction-based budgeting.”

So the key difference to a zero-based budget is that you look first at the numbers on the income side of the equation, and then you make your expenses work within the boundaries of your income. It balances. Which means, you actually have the money you’re allotting.

So the next question to consider is – if you were to write a zero-based budget for your family every month, would you keep track of it? Do you just set the paper aside and hope for the best? Do you walk around with it in your purse, analyzing every single number until you’re cross-eyed walking around Target and scared to death of putting anything in your cart?

I encourage you – prepare a zero-based budget as part of your home management every month. And then regularly (such as weekly, like what I do), enter your expenses to stay on top of how well you’re sticking to your budget. As the month progresses, you can see how well – or not so well – it’s working, and tweak it from there. I promise you it doesn’t take much time when you stay on top of it.

This is also infinitely easier to do when you have a smart, simple tool that subtracts expenses from your budget as you record them. And since this is Simple Mom, after all, I prefer a tool that’s as light and easy-to-use as possible. No bells and whistles that I really don’t need for everyday family finance management.

I’ll tell you more about this little gem of a tool tomorrow. But even better – I’m giving you a chance to win the use of this tool for free, for life. Yep, you read correctly – it’s almost time for another giveaway. Find out tomorrow.

How about you – have you ever tried zero-based budgeting before? Or is there another system that works better for you? Do you think it would help seal in the cracks where loose change is slipping? Or would it make your head spin with details? I’m curious.

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  1. Journeyer

    We have been zero based budgeting for about three months now. Despite my fears, I do not spend hours checking and cross checking where our money is going. Each week I spend maybe 30 minutes reconciling everything. I use a “virtual” envelope system (called Budget – very creative), so any time we need to check if there’s enough money for something, I flick onto my budgeting software and check my envelopes. Really simple and best of all, we haven’t spent more than we’ve earned since we’ve been using the system 🙂

    Journeyers last blog post..Living with a chronic illness

  2. Jill

    There’s a question in here somewhere. Here’s my scenario:
    Hubby is self-employed. His income is based on sales. We can’t foretell what his monthly income is going to be. We can make a fairly educated guess as to how much will come in next month. But as for the month after that? God only knows. Is there a way to make zero-based budgeting work with these circumstances?

    Jills last blog post..The Subtle Romance of Clothespins

  3. Anne

    We’ve done something a bit like this but not as radical. One thing that I do every month is pre-pay our water, electricity and council rates. We added up what these cost over a 12 month period, divided it by 12 and then prepay that amount every month. We still get a bill but it’s usually tiny compared to the overall spend i.e. a $500 electricity bill for 3 months has already had $350 paid on it etc. I like the idea of zero-based budgeting. Mister Bear starts a new job on Monday so this might be a great time to give it a go. BTW I love the Aussie money on the previous post…our notes are just so pretty 🙂

    Annes last blog post..No school today

  4. Melissa North

    I love the idea of zero budgeting, but my husband works freelance so we have no reliable income. I’ve only started budgeting this month (thanks your great articles and PearBudget!) and find I have to keep some money in the budget aside to anticipate next months expenses. Is there a way that it could be tailored for non-regular income?
    Just a side note, I adore your articles and have made big changes in my home already (budgeting, menu planning, decorating) thanks soley to your site. I feel much more in control of my household now. Thanks for all the hard work 🙂

  5. Jogirl

    Wow I love this idea. I am going to keep reading more. Thanks Jogirl

    Jogirls last blog challenge today

  6. Lori Ann

    We do this! We each have a personal item in our “budget” – the “Lori Ann” category is the cash I get to spend or save on whatever I want. Not having a “misc.” category was the top recommendation of our friend who did our pre-marriage counseling, and I think he’s right. It’s been working for us for over a year of marriage!

    Lori Anns last blog post..Rural China & Sustainability

  7. Denise

    did you have to use the Starbucks example? my serious downfall living in Seattle.

    I’m glad to learn that I somewhat already do this just didn’t know there was a name to it!

  8. Laura

    A few years ago, I was the spend now, pay bills later kind of girl. Flash forward and I’m ridiculous about how on time our bills are paid each month. However, I struggle with the “leftover” money. Once the preset housing/debt type bills are paid, the money that should go into random savings accounts leaves me puzzled as to how much of what should go where. So we’ve had a pretty big miscellaneous category in the past and of course since those dollars didn’t have a pre-determined name, I called them Shopping or Fast Food and several years later, we can’t figure out why we haven’t made a dent in our debt or savings. We’re working on all of this (my husband hates the term “leftover” money) and have a finance counselor coming to our house tonight to give us some good advice about planning/budgeting. Your site has helped me a lot too!!

    Lauras last blog post..Pieces and Parts

  9. Jennie

    This is very intriguing for me. To be honest, I’m financially illiterate. I’ve never really understood budgeting but this makes sense to me. I’d love to read more and if you have any books you’d like to recommend I’d appreciate it.


  10. simplemom

    @Journeyer – Sounds like you have a great system working for you!

    @Jill – Ooh, the big fluctuating income question. I know the right answer, but it’s long. I’ll write a post on it soon, though if anyone else wants to pipe in with advice, feel free!

    @Anne – That’s exactly what sinking funds are! Good for you.

    @Melissa – Thanks for your kind words. Your question is very much related to Jill’s (see above), so I’ll definitely tackle this issue in a post soon.

    @Denise – The reason I used it is because it’s my serious downfall, too. 😉

    @Laura – I believe that’s when something like a Debt Snowball would come into play for you. That’s what we did/do with our “leftover” monthly income –

    @Jennie – Sure, I’ll be glad to recommend a few books, though you have to know I’m still learning myself! The one I recommend the most for basic, beginner stuff is The Total Money Makeover by Dave Ramsey. Click on the Simple Mom Shop in the right sidebar.

    • Lisa Popkins

      My Mom and Dad used envelopes! and they were locked in a little tin box mom was a miser ( I thought then) and so when I grew up, I became a spendthrift! I am horrified at how much money we spend on entertainment/eating out every month ( Avg $650 per) and am seeking a good way to manage funds, pay more into the mortgage and and Retirement, yet also have some $ for two teens myself and Hubby to have fun with- Any examples out there?

  11. Frugal Dad

    I’m a huge believer in zero-based budgets. We actually budget every two weeks (each paycheck), because we found we could get much closer to predicting expenses with a smaller window. Biweekly or monthly isn’t the important part, it is sitting down and as you say, “telling your money where to go.” Great article!

    Frugal Dads last blog post..Charity for Debt: Will Volunteer for Debt Freedom

  12. Kristen

    I’m in the same boat as Jill and Melissa…DH runs his own businesses and so we never know how much we are going to have each month. We used to do something of a backwards budget: we estimated how much we could spend in each category and then analyzed our spending at the end of the month. If I had overspent in a category, I would do my best to spend less in that category for the next month. We do pay for things mostly with credit cards, which I know Dave Ramsey doesn’t recommend, but we always pay the bills at the end of the month and we talk to each other before we make purchases over $10 so it works for us since we have fluctuating cash levels.

    Things are a little up in the air with our finances right now because we are moving and have a lot of extra expenses.

    Kristens last blog post..Social Frays: Human Trafficking

  13. Dominique

    I personally haven’t tried zero budgeting but worked on a principle that if possible save 50% of earnings. Don’t buy anything that you don’t really need or on a fancy. I don’t have such a detailed monthly expenditure budget but do manage to have some leftovers which are tipped into our savings account.

  14. Blessed

    We also have the fluctuating income problem. Fortunately for us, my husband has consistent income and I’m the one with fluctuating income. We haven’t yet quite gotten our budget fully lined out but we’re working on it.

    We figured out how much our shortfall was between my husbands income and our expenses. I took on a menial, mind numbing job I can do from home in order to guarantee a fixed amount of income while my freelance business builds enough revenue to make up the difference. Any un-accounted for income I earn currently goes straight to our debt snowball (minus taxes and a wee bit for our larger emergency fund).

    I love your tips and your website – it is helping me get a grasp on the Dave Ramsey/Have No Debt, philosophy of life and I appreciate it!

    Blesseds last blog post..Unconventional Partying

  15. Julie

    My husband and I took Dave Ramsey’s “Financial Peace University” class last fall. For the first time in our 15 year marriage, we are on the SAME PAGE in our finances and it is wonderful! I highly recommend the FPU class, it is worth the investment. Google it and find a class to attend in your area. The zero-based budget is just one of the many things you will learn. For those of you who have fluctuating incomes, this is covered too. All I can say is that the princples we have learned has changed our lives! We have three children and are on target to be debt free (except for our house) by Jan 2009!

  16. petersons

    Where I have a hard time with my budget is groceries. If I see a good sale, I stock up on the item. This will put my food bill out of wack for the month, but will pay off in the end. Also, there’s some stuff, like cleaning supplies that don’t necessarily need to be purchased every month. I have a really hard time staying with a fixed amount in this area. Any suggestions?

    petersonss last blog post..French Braid Over The Top

  17. Jeni

    We’re fairly new to the zero-based budgeting & are in the process of paying off HUGE debt. I just wanted to let you know that your posts are an encouragement to me to fight the good fight, keep track of my money, and tell it where to go.

    Jenis last blog post..Bella: Before & After

  18. Jenn

    We have been working on this for a few months now. It definitely helps to curb the “where did all our money go?” feeling. Can’t wait to see what tool you’re using!

    Jenns last blog post..Wednesday Internet Wanderings 6-18-08

  19. Omaha Mama

    My husband and I work for the same school district. We get paid on the same day, one day per month! We do the budgeting based on Financial Peace by Dave Ramsey. Now that summer’s here and the daycare bill is zero instead of $1100, we have gotten lax, which is not good. We use the cash envelope system and it’s working well. The only thing we do not do is track where the cash is spent. I’m looking forward to your simple system (and maybe winning it!) because maybe that will be the missing piece of our puzzle.

    Omaha Mamas last blog post..Dark

  20. bee

    We’ve been using the zero-based budget system (via Dave Ramsey) since 2002. It’s hard for me to imagine how anyone does it any other way.

    We do have to do a little more back and forth between HH and me. We count on his freelance work for a good chunk of our needs, so I start a couple of months out and put together a “best case scenario” budget complete with what I think we need in each category. (I’m able to predict needs by looking at last year’s budget for the same month). It doesn’t balance, but this is on purpose. The deficit at the bottom is what he needs to bring in freelancing for that month. It gives him a good guide to arrange his freelance work and payment schedule to coincide with when we’ll need it most. Of course, about two weeks out, I have to revisit the budget and see what he’ll actually be bringing in and tweak the categories to fit.

    It’s a little bit of a longer process than yours, but same results!

    bees last blog post..Back in Business

  21. Maure en

    The Zero-Based budget is working out well for us. For those with fluctuating incomes, maybe something like You Need a Budget (YNAB) would work well for you? They use budgeting based on paying this month’s bills with last month’s money. i.e. Paying July’s bills with June’s money.

  22. Julia

    We attended a Dave Ramsey seminar and a Willowcreek Common Sense seminar through church and I created a zero based budget a few years ago. The problem is: I wasn’t going through receipts until the end of the month and felt like at that point it was too late. I was just seeing what we spent, and whether we overspent in one area or not- it was already done. We don’t use credit cards and our rule is always just “try not to spend anything extra” and then I try to just put away a bunch in savings every month. Somehow it works but it’s just not organized how I’d like it. We never have cash when we need it- I wish I could make it a habit to go take out cash every month but I never do! Next week I’m really going to work on getting this going again.

    Julias last blog post..Earthcraft Birdhouse by GreenBird

  23. Amber

    I second Maureen’s mention of YNAB. We have a fluctuating income too, and their approach to dealing with that was one of the things that attracted me to the YNAB system. Not that we’re anywhere near close to fulfilling this goal of living on last month’s income, but we’re at least making baby steps in that direction.

    I really like the idea of zero-based budgeting, but as I commented yesterday it is quite a paradigm shift for me. I am looking forward to getting more comfortable with it though, because I think it is a very powerful tool for really watching and (more importantly!) planning where the money goes.

    Ambers last blog post..Life with a New Baby

  24. Marc and Angel Hack Life

    Interesting… We’ve never practiced zero-based budgeting, but it does sound effective. We have an automated percentage that we save each paycheck and the rest goes to bills and fun.

    Marc and Angel Hack Lifes last blog post..21 Must-Read Articles on Happiness

  25. Jennifer (Et Tu?)

    [I apologize if someone has already asked this, I’m in a rush and haven’t had time to read through all the other comments…]

    I really like this approach. One thing I struggle with, that I’d be curious to know how you deal with, is all those “extras” that come up almost every month (e.g. car repair, cost of registering kids for a summer program, cost of expensive one-time prescription medication, etc.) Our monthly expenses can have some pretty wide fluctuations depending on what’s going on.

    Currently we do have a “miscellaneous” category in our budget for things like that (although our miscellaneous expenses often exceed what is available in that category). With a zero-based budget, how do you handle that? Earmark the money for savings and then take those expenses out of savings?

    Anyway, thanks for this post! Very helpful, as always.

    Jennifer (Et Tu?)s last blog post..Hospitality in my home

  26. Gretchen

    I guess we use the Super-McSimple program wherein one of our incomes goes completely toward bills and living expenses while the other income (which fluctuates) goes toward savings and paying off those darned student-loans. That amounts to zero left over!

    I second the question about how to deal with the one-time expenses like summer camp and car repairs, though. We definitely leave a buffer in the budget for those things and then when we look back on our spending for the previous year we add it all up and see how much “misc” we spent and on what. Perhaps from that you can get a good idea of what you’ll spend the next year on those misc items.

    Gretchens last blog post..Already Over-Budget

  27. Laura

    My dad taught me zero based budgeting when I was in college. I have used it faithfully ever since (which has been about 20+ years). I can’t imagine living without it. Our circumstances and finances have changed a lot over the years but all I have to do is revisit my budget, make my adjustments in the appropriate places and go forward. Once you get the hang of it, it doesn’t take a lot of time and it really makes sense! Thanks for the great posts.

    Lauras last blog post..Hot Dog Casserole

  28. Pam

    Wow, good article! I tried a bunch of different things for zero based budgeting after listening to Dave Ramsey, and most of them make it too complicated. Doing it on paper is good, but it takes a lot of time! There’s a website I use now called It works great for me.

    Thanks for the post!

  29. George

    If you enjoy using Excel, you may want to consider a customized Excel file that includes registers (similar to a checkbook to track your accounts), the ability to create your own categories, split transactions, create a monthly budget and view reports such as budget vs actual in a simple dashboard layout. See:

  30. TuxGirl

    So, I’m just barely managing to get us on a budget right now, but I have an answer (which my mom taught me) for the question about how to handle the unexpected expenses. My parents, who have been budgeting successfully for at least 26 years have categories such as “auto maintenance” and “home maintenance” in their budget. If they knew they wanted to send me to a summer camp, they would set up a category for “summer camp”. For the summer camp one, they would divide the cost of the camp by the number of months til the camp, and budget that much money for each month. For the maintenance budgets, they would add a set amount each month, at least until they had a reasonably sized buffer there. Once they had a buffer, they would decrease the amount added each month, but still add some each time. That way, if the car suddenly needed repair, or something broke in the house, they had the money in the budget to pull from.

    It seems to have worked, because for my entire life, my parents never had debt aside from their home mortgage. My husband so far have been trying to do the same thing, and have managed to keep our debt to just the home as well.

    It takes a lot of discipline, but I prefer setting that money aside when we don’t need it over having to steal from savings when we do.

  31. Beau

    That’s exactly how you should do it TuxGirl! It’s called a rollover budget. The whole concept of saving up for things and paying cash is so foreign to most people, good on you for not going into debt!

  32. Laura

    Good morning ladies!!! I LOVE your site, which is why I was surprised to be directed here by google while doing research on the history of ZBB. Just to clarify, this is not Zero-Based Budgeting, but it IS a great example of line-item budgeting and I love that you talked about putting a name to each of your items. In my home budget we do this same style of budgeting and love it – for something as concise as a home budget this is really the best method. Just to clarify though, ZBB has nothing to do with ending in zero, rather, it begins at zero. Each budgeting period the company or government entity starts with a budget of zero then creates “decision packages” that are ranked in order. Everything is examined and justified – which is why we no longer use this style of budgeting (except in Georgia where we can’t seem to get rid of it) LOL 🙂 Thanks for the great post about budgets!

  33. AP

    I have using BOA my portfolio to track my budget and expenses and its free. I think many other bank has this tool available online. There are some paid tools as well from Intuit called Quicken.

    I can organize all my back account at one place, categorize my spending, set budget or saving goals and can really see where I am spending my money. It really helped me controlling my unnecessary expenses.

    No tool actually can save you money, but it does help to identify cause of your unexplained expenses and control them. Money saved = Money earned.

  34. Mrs M

    Just discovered this post and think it is wonderful. It is just the advice I have been looking for. I’m returning to work in a couple of months after maternity leave and want to start to get our finances in order to pay the mortgage off asap! I’ve linked to your site from my post – hope you don’t mind.


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