In a previous post, I ranted about how all the money ran through our hands with nothing to really show for it. Our lives finally began to change when we ran across Dave Ramsey, read his book, took a financial peace class, listened to his radio show, and started working the modified baby steps.
What helped us most from all that we learned was the zero-based budget. It is so simple. You take what you bring home each month, assign a job to every cent and stick to your budget. It is amazing how, when you take the time tell your money what to do, it doesn’t just disappear. Gaining control over your money gives you confidence and control; when you want to win with money, control is a very important piece of the puzzle.
While most of you are likely familiar with the zero-based budget concept, I’ll give a simple example for those who aren’t. Let’s say you bring home $1,000 dollars each month. First, you make sure you take care of your 4 walls as Mr. Ramsey puts it. Housing (rent or mortgage; you have to keep that roof over your head), necessary utilities (you want to keep the lights on and the water running), food, of course, and any necessary clothing (think Goodwill, not Gucci). Once your bare necessities are covered, you would want to take any extra and retire debt or, if you have none, save or invest. In other words, you’d start making investments in your financial liberty.
Rent: $600
Utilities: $100
Food: $250
Clothing: $50
Total: $1,000
If your budget looks like this, you’ll need to figure out how to economize — which is often of limited impact — or increase your monthly income to either pay down debt or save for the future.
The biggest benefit we get from using a zero-based budget is accountability. If it’s not in the budget, we either don’t buy it, or have a discussion and make a conscious decision to swap an item into the budget, meaning we have to remove or reduce spend on other plans we had made. As you can guess, “is it in the budget?” is a favorite question in the Frugal Source household ;?)
As mentioned above, we didn’t follow the baby steps to a T. There are several reasons for taking a different approach, and we will examine those reasons and the impact they had on our path very soon.