Zero dollars left and I just got paid
Since the start of the year I’ve begun making and following a $0 budget. In a way, it’s a huge pain, but in another, it’s very liberating. First an explanation…
A zero dollar budget is a budget in which you pre-reserve every dollar of income that you have for the next month ahead of time to categories or bills. As you go through the month and things fluctuate, you must adjust the budget to accommodate for categories that go over budget. In the same way, you adjust the opposite for leftover money at the end of the month in the next month’s budget. You also have certain categories such as “car repair” for things that most people consider emergencies, but in reality are things that obviously require money in the first place. By doing a post-month and pre-month budget you can see everything you missed on a month to month basis and smooth over things like Christmas (which still happens at the same time every year).
Dave Ramsey does a much better job of explaining the concept in general than I do (hence why he’s sold millions of copies of “The Total Money Makeover”. The budget also requires an emergency fund in order to not be shaken too much by completely unforeseen circumstances
Most people would think it’s a very constricting thing to do, but in reality it allows you to plan ahead for things that you truly want and it avoids waste on splurges.
I looked around for multiple budgeting softwares, but was unable to find any that fit my needs. GnuCash had a budget system but I wanted to see live data of how much money I had in each category, which it just didn’t allow. There are multiple other budgeting systems, but I am not a fan of most cashbook register programs such as Quicken. I settled on a more advanced method that makes budgeting a pain but gives me amazing insight into my exact circumstances on a day to day basis (which given my logical and data driven mind, is a perfect fit). I wouldn’t necessarily recommend it for most people…
The system I created involves creating sub-accounts of each asset account. For example, in my Checking account I have Food, Bills, etc…the Bills are further broken down by bill type. At each paycheck I have auto-transfers between my main Checking account into each sub-category. When I make payments or spend money (say on food), the money comes out of the sub-category rather than my primary account. I do the same thing for my savings for things like saving up for school payment so it can grow interest. This gives me a running day to day total of the exact dollar amount in each budgeted category and allows me to adjust as necessary.
There are a few caveats of that system.
- Importing becomes much more difficult, as the payment entry could have already been in a sub-account.
- Future planning of bills in the register is nearly impossible as it will lower your current dollar amount. Reports can be run against the register…but that’s more difficult than what I wanted
- It nearly requires doing double entry for every payment (where every line item has a from and a to account in the register). For me, this is a plus, as I have been doing double entry ever since I did accounts payable, but a simple register is difficult enough for most people.
To make things a little easier, I use the full general ledger in Gnu Cash a lot more where I can see every entry, and reconcile more than most sane people would. Sometimes I may need to reconcile 3-4 times a week as payments are easy to get lost somewhere in the system, entered twice, or were scheduled incorrectly. I’ve even had to back up a full month of reconciliation to find some of the entries that were duplicated.
The beautiful thing about it is that I can see, for example, that I have paid electric, phone, etc already this month, and that money that was pre-budgeted is now $0. I have so much left on food for the next week and a half, and unless I borrow from another category I’m out of luck because I’m out of money already (even though I still have some in my account).
I also run a normal budget so I can adjust my auto-transfers and see how much I spent in cash for each category as well. But overall it will either change my financial life or make me extremely depressed to see all of my money disappear the same day I get paid every time. But knowledge is power, and to meet goals you must understand the progress you’ve made, where you stand, and where it is that you need to be.
