I appreciate so much about Dave Ramsey’s baby step method, but what does he think about zero based budgeting?
Dave Ramsey holds a wide range of opinions on numerous personal finance topics, and one such topic of interest is zero-based budget. He has inculcated the concept of zero-based budget in a wide range of solutions, and these have seemed to give impressive results to his target audience. But what’s a zero-based budget, and are there templates to use for it? This and many other questions will be answered in this article.
What Is a Zero-Based Budget?
Dave Ramsey defines Zero-based budgeting is a budgeting technique where the subtraction of your monthly expenses from your income gives zero. See an example of a zero-based budget. With this budgeting technique, it’s imperative that your income minus expenses are zero. That’s kinda simple, isn’t it? if you still didn’t get it, don’t fret as we’ll expatiate further.
Assuming your monthly income $5,000. Then the total sum of what you save, spend, invest or give should be $3000.
Dave Ramsey says that not knowing how you’re spending your funds is a recipe for financial disaster, and chances are high that you’ll just look at your account and find nothing left without knowing how you spent the money.
Now that you know what zero-based budgeting is, how do you make it. While there’s an easy way out that doesn’t entail making the budget from scratch. We’ll still touch on how to make it for a better understanding of how it works.
Making a Zero-Based Budget
1. Write down the sum of your monthly income
You can pen this down on blank paper, or use an Excel spreadsheet on your computer. The easiest way is to use Dave Ramsey’s very own EveryDollar app.
By monthly income, what we mean is all the cash you bring in. This may include side hustles, child support, residual income, income from small businesses, paycheck and every other cash. As long as the money is one you can claim to be yours, then it’s income.
2. Note your expenses for the month
Before starting a new month, jot down your expenses. Important things like cable, food, rent and every other less important thing you spend money on should make the list. Ensure your begin jotting down your expenses from the four most necessary monthly expenses—utilities, transportation, shelter and food.
After covering these four necessary expenses, it’s now time to take note of other expenses. You might be worried about other emergency expenses. Thus, you should have a category for miscellaneous.
Dave Ramsey has specific budget percentages that he says can be helpful to stick to.
3. Write your seasonal expenses down
Now it’s time to write down your seasonal expenses. What seasonal festival do you celebrate? Let’s assume it’s Christmas, and you plan to spend $1000 for the celebration. You simply have to divide $1000 by the number of months left to have an idea of what you’re going to save. Learn more about sinking funds such as these and how to save for them.
You should also use this method for other celebrations you wish to save for. Be it birthday, holidays and other special occasions. Irrespective of the occasion, ensure that you have a budget for it.
The next step is to consider those irregular expenses that can come up. Some of them include insurance premiums, property tax etc. You will be strained when it’s time to pay If you save up monthly for them.
4. Ensure that the subtraction of your income from expenses is zero.
It’s imperative that this number is zero, however, you may not get it right on the first attempt. It might take you up to three months of constant readjustment to finally get a budget that works for you, so don’t give up.
Why does Dave Ramsey Recommend Zero-Based Budget?
Dave Ramsey believes that the quickest way to achieve your financial goals irrespective of your current realities is having a budget. Trying to meander your way out of a debt problem? Create a budget. Do you want to save up for an emergency? Create a budget. Are you a millionaire that’s living the dream life? You still need a budget.
Dave Ramsey explains that since you’re the owner of a budget, you’ll have better control over your finances. This way, you can determine where every dollar in your account goes monthly.
Dave Ramsey reiterated that it’s imperative not to consider budgeting as a tool that limits your freedom. He says that a budget enables you to purposefully spend your money—which is real freedom.
Want to budget Dave Ramsey’s style but in a much easier way? Then you can get Dave Ramsey’s app that he called “EveryDollar.” He explains that the app is easy to use and is highly effective.
What are Good Templates You can Use for Zero-Based Budgeting?
There are numerous templates for zero-based budgeting, you just have to find one that suits you best. Here are some very helpful ones:
Free zero-based budget template
Need a free budget template, click here to access one. The template follows Dave Ramsey’s recommended 5 steps for creating a zero-based budget. It’s suitable for Google Sheets. This template is friendly and easy to share and sync.
Zero-based budget for debt payoff
This budget template is one that’s created by Ellie Mondelli, and it’s intuitively designed to give optimum satisfaction to users. The template, as its name suggests, prioritizes debt payoff first. You can easily set up this template by following the creator’s instructions for getting that done.
A detail-oriented zero-based budget template
If the name suggests something you’ll love to have, then you should get this Vertex42 budget template. This template churns out a lot of details. It works by dividing the expense categories into multiple sub-categories. It then helps you to pinpoint the potential expenses you may have.
A printable zero-based budget template
If you’d rather opt for a printable easy-to-use budget template, then it’s best to opt for the Mom on Purpose’s budget template. It’s a PDF file that you can easily print and you can easily work around it. Irrespective of what your budget looks like, the maker clearly stated that your balance must be $0.00
Are there alternatives to Zero-Based budgeting?
The three most common alternatives to this method include:
1. Incremental Budgeting
This is basically a type of budget you develop by making adjustments to a previous budget.
2. Pay-yourself-first budget.
The pay yourself first budget works primarily to save and make necessary debt repayments. You’ll be required to set some money aside for debt repayments and savings anytime you’re paid, then you can spend the remaining money on whatever you deem fit
3. Envelope system system
Dave Ramsey’s envelope system is pretty similar to the zero-based budgeting technique, but it has one major difference. For this technique, you categorize your expenses for each month, then allocate an envelope for keeping money for each category. Once the money in a category runs out, you can’t take it from another category to augment a need.
4. Envelope system system
The 50/30/20 budgeting system is a simple approach that allocates your budget based on your needs, wants, and savings. Here’s the breakdown:
- 50% of the income should be devoted to “needs.”
- 30% of the income should be devoted to “wants.”
- And, the rest 20% of the income should be devoted to “savings”