Zero Based Budget System Part 2


in Budget,Cornerstone Series,How To...

In part 1 of our series we talked about the high level aspects of budgeting, let’s get under the hood a little more and look at some real world examples and tools for making your life infinitely easier. But first I would like to talk a minute about communication. “Dude FiscalGeek what’s your problem, give me the flipping tools you’re no communications major.”  Just so happens I am (was an easy add to my Computer Science degree) but that’s beside the point. I’m speaking from real world experience here. If you and your spouse/significant other are not on the same page with respect to the zero based budget, or whatever budget/spending plan you intend to make you are probably doomed to failure unless you are some kind of major control freak in which case my site can’t help you.

Relationally Speaking

If you are married or in a relationship with a loved one it’s extremely important that you are on the same page.  It seems basic but your budgeting plan relies on all parties involved to agree and participate in the budget setup.  The more detail oriented numbers person (geek, nerd, what have you) can prepare the initial budget but it’s absolutely key that you hold a meeting to talk about what you lay out.  It’s very easy for one of you to inadvertantly or purposefully sabotage your budgeting efforts.

The budget should not be used as a method of control of your spouse or significant other, it’s purpose is to control your money.  While the first few budget sessions can be confrontational and difficult at first I think you’ll find that you have entered a new arena in your relationship that you can talk about things calmly and then actually start looking toward the future. I know for my wife and I this was huge, our previous 9 years of marriage we really never talked about money unless we got an overdraft or a late bill and then it wasn’t exactly a “constructive conversation.”  Okay enough armchair psychology on to the meat.

What types of Categories for the Budget?

The first steps in figuring out the different categories to track is to look at where you’ve been. This is time to bust out your past bank statements or export your last 90 days from your banks website. I’ve tackled this in the past by exporting my last 90 days as a comma delimited file or .CSV and opened it up in Microsoft Excel. I went through line by line and tried to look at common items and from there I broke out our categories. There really is no wrong answer, once again this is “personal” finance so what works for you is the right answer. I would be careful of having too many categories otherwise your job is going to get much harder tracking and allocating funds. You can see the categories we use below for some inspiration. By no means are they perfect but we have adapted to them well.

  • Giving
    • Tithing
    • Charitable Donations
  • Savings
    • Emergency Fund
    • College Fund
    • Retirement
  • Food
    • Groceries (includes grocery store items like cleaners, toiletries, etc)
    • Dining Out
  • Housing
    • 1st Mortgage
    • 2nd Mortgage
    • Repairs
    • (our 1st covers taxes and homeowners insurance so seperate category not needed)
  • Utilities
    • Phone/Internet/Cable
    • Electricity
    • Natural Gas
    • Trash
    • Water
    • Cell Phone
  • Transportation
    • Gasoline
    • Insurance
    • Car Payment (#1)
    • Car Payment (#2)
    • License and Taxes
    • Maintenance
  • Clothing
    • Family
  • Personal
    • Commission – Kids (allowance)
    • Gifts
    • Spending Money
    • Baby Sitter
    • Gifts – Christmas
    • Hair Care
    • Healthcare
    • Life Insurance
    • Office Supplies
    • Organization Dues
    • Pets
    • School Supplies
    • Subscriptions
  • Recreation
    • Entertainment
    • Vacation


  • MasterCard
  • Visa
  • Line of Credit

Allocate Income to the Categories

Okay so you’ve gone through and you’ve narrowed down your categories all that remains is assignment of your income to your individual categories. I recommend going down the list with your more important categories and work through until your income versus expenses is equal to zero, aha the zero based budget. Recommendations for each category, I don’t think it’s appropriate to recommend your specific dollar amounts but if your housing is above 33% of your monthly income it might be time to explore some other housing options, that’s a huge burden for your budget.

A Word about Envelope Budgeting

You may have heard mention of envelope budgeting systems in which you simply take some of your categories and convert those to cash that you fill in the envelopes. When you buy something out of that category you pay for it from that envelope. When that envelope is empty you don’t buy anything from that category until it’s refilled. It’s extremely simple but also a powerful way to manage your money. If you are paying cash for things you’ll find that you spend considerably less than your debit card or credit card. We have fully adopted the envelope model and it works well for us allowing my wife to spend on things without worrying about taking away from our other budget items. We use envelopes for: Groceries, Dining Out, Gas, Gifts, Clothing, Spending Money and Entertainment. It’s something you might want to consider as part of your budgeting system.

Tracking Systems

In part 1 we talked about some paper forms but I highly recommend a more dynamic system and a good starting point would be a spreadsheet. You can create your own or you can go to for a great set of free spreadsheets. While you are there I highly recommend the debt reduction and the savings calculators. These are some great ways to keep motivated and try out investment and debt reduction strategies. You can use Microsoft Excel or Google Spreadsheets to track your budget. These are good for initial workups but for ongoing maintenance, expense tracking and ease of use some dedicated software or online services will serve you well.

In part 3 we will go into detail on some systems that can help you with your finautomation. You can subscribe via RSS to be sure not to miss the next installment or also subscribe via email.

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