If you're familiar with any of Dave Ramsey's principles, you've likely heard of the cash envelope system. It's a tool to utilize if you're budgeting. For the longest time I didn't realize what a 'Zero Based Budget' was, so I'll explain that as well since it can go hand in hand with cash envelopes.
A zero based budget (in my own words) is when you write down your monthly income or average followed by expenses for a months time--Transportation costs, Insurance, Rent/Mortgage, Food, Clothing, etc. If you have any other monthly expenses be sure to list them all out. Whatever that amount per month is subtracted from your monthly income creates your zero based budget, as in the number will be 0 once each dollar is assigned. We like to keep a ‘buffer’ so to speak in our account at the end of the month in case any charges come in, so we don’t overdraft. But that’s just our choice & what works for us. If there is money left over each month, that is what you throw into debt (or whichever baby step that you're on currently) This is why you hear of so many people on their debt free journeys seeking out extra jobs. When the goal is debt payoff, earning more or raising your income is a priority to achieve it more quickly.
I won't share numbers, but I'll list what areas we pay to, which ones are set on auto draft and which we choose to have in cash envelopes. I want to note that Baby Step number 1 is to put $1000 into an emergency fund/savings account. This can be achieved by a stricter budget, selling various items on Marketplace, an odd job, etc.
Baby Step number 2 is listing out all debts, smallest to largest (not based on interest rate.) List the total amounts smallest to largest and begin attacking each debt in a 'snowball method' which means you pay the smallest, then roll whatever you were paying on that one plus any extra into the next and so on. It creates momentum to pay them off when you can have smaller success in the beginning to keep you going.
So for the areas we pay into:
Rent (Autopay)
Life Insurance (Autopay)
Vehicle Insurance (Autopay)
Renters Insurance (Autopay)
Student Loans (We pay this manually each month since it varies the amount we add to it)
Utilities (Pay online/amount varies)
Phones (Autopay)
Tithe (online giving to church)
Baby Expenses (This varies, but we use our debit card for diapers, etc.)
Groceries (Envelope)
Clothing (Envelope)
Tires/Oil change/Repairs (Envelope)
Haircuts (Envelope)
Toiletries (Envelope)
Offering (Envelope)
Events/Holidays/Birthdays (Envelope)
Every now and again we have a yearly expense come up like identity theft insurance, property taxes, etc. And we pay online. If there are any medical charges we have an HSA account and (Praise the Lord) we've been able to pay each charge with that account over the past couple years.
We don't currently stream any channels to cut costs down (but there are so many free options between libraries, free channels on the Roku and free trials)
We've cut to what are basics for us since we are on baby step 2 and want to finish as soon as possible. The bills and auto pay amounts are pretty set for us, and we chose our own amounts for the envelopes. We chose categories that were important to us to have some cash for, but also were realistic in choosing them, Josh gets his haircut every 3 weeks or so, so we knew that would be an area we'd need cash for. Leighton is growing fast so we knew we'd need clothing to keep her in the right size and also for us if we needed to update an article of clothing. We learned early on that combining groceries and toiletries was not working for us as we always went over budget, so having seperate categories and amounts for these two is important to stay on track. Also, If you're just starting to budget and choosing a grocery amount--add $50 to whatever you think you could do. It's disheartening to over spend and you don't realize just how much you spend on food until you're budgeting all of a sudden!
We have a spreadsheet on our computer where we fill in what we've spent, what we've paid toward debt, etc. per month. We use the Numbers feature on our Mac.
If we have any extra income we list it and where it came from. If we have any charges on our bank statement, we list those. Even the outside charges not listed above because that does happen! I think it's like having a food diary--whether you list it or not, it happened. (By the way I use MyFitnessPal for my food diary and it's free and great!) With a bank statement you can see what you spent and where. Those little charges add up but it's important to list them so you stay aware. We've had several this year (we're gazelle intense but we're also human!) Just this week my sweet girl wasn't feeling well and fell asleep in the car. I was hungry so I grabbed fast food. A rare occurrence but worth it for me. She ended up sleeping 2 hours while I parked so I'm glad I got it! Life will happen. But it's been so important to put numbers in front of ourselves to stay accountable. It's also important to give each dollar a place to go. Although we do not use it, there is an app called 'Every Dollar app' which helps to budget and list out what you've spent and where.
Like anything new it takes time to develop a rhythm with budgeting. We've learned a lot and still have some bumps along the way. It won't be perfect in the beginning, and I believe Rachel Cruze (Dave Ramsey's daughter) says give it three months to get into the groove. It's an entire lifestyle change so give yourself grace.
I could chat about budgeting and Ramsey principles all day, so if you have any questions please reach out. I'd love to answer anything you're curious about!
With heart from our home,
Jordan
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