Zero Is My Hero
Fair warning: We’re talking about writing a monthly home budget again this week. I’ve done it a few times before, especially since I’ve started doing more and more home finance coaching. If the word ‘budget’ scares you, I’m sorry. Try calling it a ‘cash flow plan’ instead and keep reading.
We’re in the thick of June as I write this. In a couple of weeks I’m going to sit down at my computer, open up my
budget cash flow plan spreadsheet and work out where the money is going to go for July. Some things are the same every month, like groceries or the mortgage. Some things change, like school supplies or medical bills. Did the cable bill go up? Do the kids need haircuts this month?
I do this usually the weekend before the first of the upcoming month so my wife and I have time to go over the details and make any changes, and so we can both agree where every dollar of our income is going to go. Our income equals our outgo, and our spreadsheet ends with a big fat ZERO at the bottom. It’s called a zero-based budget, and it changed our financial future.
See, before we did that, we were like a lot of people. My wife would figure out how much we needed to pay the bills and take care of our outstanding expenses. Whatever was left we’d leave as carry over for the next month.
The problem was that it never carried over. In fact, we would often over-run and let our credit cards catch the slack. It’s one of the biggest reasons that we were saddled with unnecessary debts and failed to gain momentum with our finances for as long as we did.
When you’re staring at several hundred (or even a couple thousand) extra dollars, it looks like a lot of money, and that list of things you’ve been wanting to buy pretty much writes itself. Plus, if some small purchase comes up, you write it off as no big deal, because there’s “plenty of extra cash this month.” Yet, no matter how big the pile, it’s never really as large as we imagine it is. It could never cover all of things we want.
That’s why you have to make a plan for every dollar that comes in. Nothing gets left over. It all gets spent, saved or invested somewhere. Zero is my hero, because it puts all of my money to work.
Give every dollar of your income a name before the month begins…Income minus outgo equals zero every month.
– Dave Ramsey, The Total Money Makeover
Now, having drilled into that like an over-eager dentist, I need to clarify a couple of things.
1. Saving to cover a general category is a good thing. You don’t need to get overzealous about specifically naming every dollar. For instance, we save ahead for car maintenance. We don’t have money set aside individually for each upcoming oil change, and tire replacement, and minor repair. Instead, we have a general Car Maintenance Fund that we sock a little away into each month. In the same way, we save for medical expenses by putting a little away into a Medical Fund. And so on.
2. Your budget needs to end with a zero, but your bank balance doesn’t. Not everyone is going to be comfortable with draining every last penny out of their accounts to achieve financial goals (like paying off a debt). That is perfectly alright. In our home there is a figure in the bottom of our checking account lovingly referred to as the ‘bounce’. When I create a budget for the upcoming month, and I’m looking at our current balances, I pretend that amount doesn’t exist. It gives my wife peace, and that lets us work together on every dollar that’s left.
So, what’s your plan? How do you make the most of every dollar you earn?
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