The Zero-Based Budget, A Critical Key for Saving Cash

Until two years ago, I’d never heard the term “zero-based budget.” I have learned to dread it. In fact, I hate zero based budgeting. But we use it at our house, because it works. It works brilliantly.

Zero-based budget is basically this: Project what you have coming in for the month, and match your budgeted expenses to the income exactly. Yes, exactly. At the end of the month, your checkbook balance should be exactly what it was on the first day of the month.

We know approximately what our utility bills will be for the month—we budget for the high end of the range. Any savings (cash leftover) goes to our charity project for the year, or savings.

We budget for weekly expenses (spending money, gas, eating out, entertainment, grocery shopping, clothing, etc) and put the planned amount of money in an envelope which we spend from the entire month. We spend no more money than is in the envelope. When grocery shopping, if our bill is $152, and only $125 is in the envelope, we literally find a way to put $28 worth back on the shelf. It’s humiliating. It’s restrictive.

It has also cut our spending dramatically, and really has made the difference in getting the rest of our debt paid off on these past couple of months. It’s also putting a lot of money towards our family’s mission trip to South Sudan for next year.

The budget envelopes are also a great, visible reminder for the kids that we are spending only what is available to us to spend.

I will tell you that putting the entire month’s cash in the envelope on the first of the month is too intimidating for me. It’s hard on our cash-flow, and I worry about spending through the month evenly, so we put either 20% or 25% of our budgeted amount into the envelope each Monday, depending on if there are four or five Mondays in the month.

But I have a variable income…

Excuses, Excuses! I do too. I manage this by projecting my minimum income for the month, so I can’t spend more than that. Any additional money goes directly to a list in order of importance, 1. Ten percent to charity, 2. The balance to debt repayment, and 3. The rest to savings until we have our 3-6 months of emergency fund saved.

We learned this system in Financial Peace University, a Dave Ramsey program, which has been a great resource to our family, and a key to honing our budget and financial plan. If you’re new to learning to budget, offers spreadsheets that you can use to learn how to budget.

Good luck!


By , on Jun 2, 2011
Jessica Ward Jessica Ward is a full-time writer and adoptive mom to two wonderful children. She writes to support her parenting/adopting habit. For frugal family tips see The PennyWise Family or @jessc098 and my google+ profile.


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  1. kate:

    Oh i see. :-) im not currently in debt (no medical bill emergencies so far, and i only use my credit card as a debit card, meaning i only buy things on it that i already have the money for but want the extra convenience or extra protection of a card).
    So i guess i just didnt think of debt snowballing because i never had an emergency where i ended up going into debt for long (we did have a problem a while back where the refrigerator/freezer malfunctioned and our food had to be replaced but that was just a couple weeks before that debt was gone)

    Anyway, thanks, it makes sense now

  2. To clarify, on the Ramsey program, you’re tithing all the way through (debts paid or not), but just not saving until you’re debt free. There was a threshold for when to save anyhow–I think it was if you’re going to take more than 3 years to get out of debt.

  3. When you’re doing the debt-snowball, you’re not saving at the same time.

    I’m on the Dave Ramsey program, so after all debts are paid, yes, 10% is tithe, and 15% is savings. The way you account for that number is take your net income for the month (or net expected income and adjust later if necessary), take 10% off the top to tithe and 15% off to savings. You wouldn’t envelope that, you’d transfer it to your preferred savings method, but a separate account.

    In that case, savings is just a line item in your budget.

    The idea is that at the end of the month (or each pay period) you’ve put to work every dollar that came in during the prior period, and you know where every bit of it went.

    Good luck!

  4. kate:

    Color me confused. Shouldnt you budget for LESS than you make? I was always taught that 10% minimum should be saved. How are you supposed to save up if you are doing projected minimum instead of automatically saving even with the minimum. If you come in at minimum then you didnt save anything at all. Or perhaps was one of the envelopes DO NOT TOUCH money? I am not new to budgeting, but im new to this zero based method. Im just not understanding why you are budgeting ALL the money instead of say, 80-90%. This just goes against all the things they taught us about budgeting in high school. I feel like im gonna get scolded by the teacher just *thinking* about budgeting all my money.. also for thinking about predicting next months pay. They really crammed into our heads how you should be at minimum one month ahead. This is all just so strange.

    I understand the envelope part. But why are you putting all the money in them? Why not stick some in a saving account and put the rest in the envelopes. Thats what they taught us to do.

  5. Beth:

    Great tips! I am currently reviewing my families budget, maybe I should think about a zero balances budget as well. Hmm. You can see my own plan here….

  6. So that’s what we’ve been doing! I hadn’t heard the term “Zero-Based Budget” before. We’ve been doing Dave Ramsey’s plan for a long time but haven’t had the opportunity to take an FPU course. I’ve noticed that when we fall off the zero based part of this budget approach we struggle more and don’t make progress quite as well. I noticed you seem to be saving up your 3-6 months emergency fund at the same time you are paying off debt. I’m curious about your decision to do that. Can you share your thoughts on it?

    • Tara, I’m not saving up the six months emergency fund at the same time, but part of it will be funded at the same time as the debt payoff, because it will happen in a lumpsum when we get our tax refund. It’s just a matter of timing for me, I couldn’t swing paying down debt at this rate AND funding the emergency fund at the same time. :)

  7. zero-based budget really a new thing for me. I never heard it before. You told me about managing budget. Saving and managing can make us happy and relaxed. Thanks for the new ideas…

  8. DebtDewd:

    The Zero-based budget is awesome, but it does take some time and practice to get to a point where you feel like you are on top of it.

    For me, I have a lot of random travel trips because of weddings or family – and there are some areas that are just toss ups each month. I’m sure everyone has some type of similar variable each month – yo have to do what works best for you!


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