This was my favorite class yet. Yes, it was good about learning how to relate with money. Saving money is important too. But THIS class was the kicker. This was the class I felt like we would learn something that was actually worth paying money to learn. And we totally did. We learned a simple concept called the Zero-Based Budget, which has completely changed how my husband and I think about our monthly income and expenses. No exaggeration.
In our old, dusty, pre-Dave Ramsey and Financial Peace University (FPU) Life, our “budgeting”, or finances, went like this:
1) Get paid every other Friday.
2) Sit down and pay out necessary bills.
3) Consider ourselves lucky that there’s some money left over.
4) Consider the funds left in the account what we had to play with until we got paid again. That meant that food to live on, play money, gifts, purchases for the house, etc. all came out of what was left.
5) Wonder where the heck all our money went after we paid all the bills.
I cannot tell you how many times in the past 14 years (9 of those being married) we have had this conversation with one another. It wasn’t in an accusatory, judgmental type of way towards each other, but rather in amazement: “Where did all of our money go?”
The point of the Zero-Based Budget that we learned in Class #3 of FPU, is figuring out where your money is GOING to go before you even begin the month. That’s right, no more wondering how you easily spent a few hundred or a thousand dollars over the course of a week or two weeks in between pay periods. No more wondering if you’ll have enough to pay for a trip to the grocery store for basic food and then – gasp! – pulling out your credit card to pay for the groceries, just to be safe, because you weren’t really sure how much money was in your checking account, and you weren’t really sure how much more money would be spent until the next payday.
This method of budgeting definitely takes some work, but it’s more precise. The idea is that you map out what you’ll be bringing home versus what needs to be paid out that month. Are you working towards a savings goal? Then you can budget for some funds to be set aside for this. Paying off debt? Figure out how much you have left over in your budget after paying for your essentials, then take a chunk of your residual income and apply it towards that. The goal is to get to zero – that being that all of your income that you brought home that month went somewhere, and you actually planned where it was going to go, and it went to meet those needs. Most of us have a residual income, meaning, after all of our essentials are paid for, there is money left over, even though it might not feel like there is. Now that you know what you have to work with, take those extra dollars and make them work for you! This was a huge empowering moment for us.
Examples of quotes heard around our dining table were things like:
1) “Wait, we are doing okay!” (My favorite quote)
2) “Our mortgage payment might be our biggest payment, but it’s completely in line with our income.”
3) “Even though we feel like we spend a ton of money on food, our food expenses are in the ballpark for the recommended percentage of income.”
4) “We can make this money work so much harder for us.”
Cash plays a huge part in this budgeting strategy. For example, budgeting an amount for groceries each month, then pulling cash out of your bank account to set aside in an envelope to go towards groceries, means you’ll always have enough to pay for groceries, without having to even worry about what your bank balance is at (because you’ve already accounted for paying for groceries in your budget, and withdrawn the cash to do so). By stockpiling a pre-determined amount of cash in some envelopes for expenses such as these, you’re budgeting for them upfront, and eliminating some of the worry that comes with that ever-moving balance in the ole’ checking account.
It’s a different way of thinking, for sure. We’ve been just swiping our debit cards for so long, for every purchase and not even really thinking about it. But we’re much more excited about actually figuring out where our money is going to go each month (and to have it work for us with meeting some of our financial goals), and both my husband and I are 100% on board.
YouTube has been my go-to place for awhile now for anything how-to, because chances are if I want to learn about it, someone on YouTube has already shown others how. I came across this video and I feel like the speaker has a good way of explaining the Zero-Based Budget and it’s complete concept, including using envelopes, all on one single piece of notebook paper.