I go back and forth between revising my budget based on my Quickbooks data to not budgeting at all. Lately, I’ve realized that though I enjoy crunching the numbers, my budget just isn’t reflecting my actual spending. So, I’ve decided to try out the zero budgeting method.
Zero Budget Basics
It’s really quite simple: take my monthly income (I use a low-ball average since mine fluctuates) and subtract my expenses until I reach zero.
Sounds easy enough, right?
Yes, and no.
I started with a rough monthly average ($6,250) and deducted all of my expenses including setting aside a nice savings amount until I got to zero. On paper, this looks great.
However, I record my expenses in Quickbooks and realize that I never set aside a category for household expenses (candles, furniture, plants) in my budget. Oops.
Okay, so I rework my zero budget shifting about $155 from my ever allusive savings amount and apply it to the “household” expense category. That still leaves enough in savings to cover my annual goal (save $6,000) which I’m very behind on and continue contributing to my mutual funds. I even left a little cushion of $50 in my savings category to cover additional expenses that might pop up.
Again, this looks pretty good on paper. Yet, when I compare it to my actual spending this year so far, I’ve spent quite a bit more than I budgeted for on household expenses and I didn’t leave a category for “Travel” which I spent a pretty penny on this year as well.
No wonder I’m not on track with my savings. Almost $8,000 was spent in these two categories and it’s only August!
Getting on Track
I have three choices to make this budget work: 1.) rework the budget with more realistic numbers by shaving more off savings and adding to household/travel, 2.) don’t travel or purchase things for the house for the remainder of the year, 3.) increase my income by about $1,000 a month.
A combination of all of these will probably be the answer to my problem.
Reduce purchases, increase income!
Do you use a zero budgeting method?
10 Comments
This is the first time I’ve heard of this method. Sounds like it works as a good measure for success. As for your savings dilemma, I would suggest cutting back on the household items you buy. Traveling may be expensive, but it’s worth it. Memories and experiences are priceless.
-Christian L. @ Smart Military Money
@Christian – Yes, I (or should I say Mr. LH) needs to cut back on household items. 😉
It seems like that’s the hardest part of budgeting — those expenses that aren’t always happening. Or things liek household stuff where you have no idea how much /little you’ll need to spend on that in a month! One month we need to paint our living room, the next 2 months we’ve got nothin’, how do you budget for that? I guess some peopel do different savings accounts. Ugh.
@TB – I know some people like to set aside different savings for the possible expenses that might come up throughout the year. I have a few savings accounts, but I try to lump all the “extras” into just one. Sometimes it gets a little confusing.
This is why I don’t budget! Then I have to do Arthur Anderson style accounting, and I end up only cheating myself.
@Kathleen – I track all my expenses and income, so budgeting isn’t as bad as it sounds. It also keeps me on track and makes me cut back on certain categories.
I think that’s a good move. Zero-based budgeting can be useful for shaking up a process that may have grown stale and counterproductive over time.
@Michael Davis – I think that’s what I needed – to shake things up a bit and look at the data differently.
That sounds really good but I think I could not do the same procedure, I am so poor with budgeting.
It aches my head!
Brilliantly written. Honestly speaking if you do not have specific fiscal goals in mind then a budget is just going to be a headache. Debt reduction is as good a reason as any and that’s exactly what got my family on a budget. We realized that we were making okay money but somehow when we really thought about it we were still broke. It’s not very difficult to create a budget, it’s hard to stick to it.
Jennifer Goldblum