Why I Don’t Use Zero Based Budgeting

Angry Tiger


in Budget

Daniel PictureThis is a guest post from Daniel Packer over at Sweating The Big Stuff. Daniel writes about negotiating, saving, and conscious spending while attempting to maintain a high quality of life. To read more, subscribe to his feed or follow him on twitter.

As you must know by now, Fiscal Geek is a HUGE fan of the zero-based budget. His Zero Based Budget System posts outline what it is and goes into detail about how to create one and tools you can use to make sure you stay on track.

Some people like a zero-based budget because it forces them to realize what they are spending their money on and what they need to cut back on.

But I don’t use it. Why?

In my traditional budget, I have a place for savings, for paying down my debt, and for most of my other expenses. I even have a miscellaneous spending category because it’s hard to account for every expense. But I don’t account for every dollar. In fact, I account for about 80% of my income. At the end of the month, anything I don’t spend goes into my savings account. So what happens to the other 20%?

Having a zero-based budget stresses me out. It means I have to think about whether I should treat myself to a candy bar. It means I have to question whether or not having a beer with friends is a good idea. I don’t like worrying anymore than necessary and I enjoy the flexibility to go with the flow and relax about my decision making. With a zero based budget, I am tied down to do something specific with my money rather than having plenty of options.

I definitely track my expenses and I have a pretty good idea of how much I spend on each category, but I am not vigilant. Since I am hitting my savings goals and I do not overspend, there is no reason to track every dollar. After making all my required expenditures and tucking away money into my savings accounts, so what if I don’t know what’s happening with that extra money at the end of the month?

Maybe it will go towards a nice meal or a night at the improv club. Maybe I’ll decide to take a trip with friends or maybe it will be swept into my savings account. And if that extra money is different month to month? I’m ok with it. I like to keep my options open.

The stress of zero-based budget can scare people into not budgeting at all because they may find that small purchases cause them to worry more than before their budgeting days. If you are new to budgeting, choose something simple, sign up for your favorite budget program. You’ll learn that budgeting can be fun if it doesn’t control your life!

Everyone has their own way of budgeting. Some choose a simple budget, some choose a zero-based budget, and some don’t budget at all. Of course, it comes down to what works for you.

How do you track your spending?

Photo courtesy Tambako the Jaguar

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Money Reasons 2010/02/25 at 8:20 am

Interesting budget systems! I use a technique call an “Automatic Budget”, it took me some time initially to setup in a spreadsheet, and it doesn’t really prevent me from spending until the next month, but it’s a low impact system that helped me to become totally debt free (although it took me 10 years to do so) on an average salary! On my system, both you and your spouse must both be frugal, or it doesn’t work as well…
.-= Money Reasons´s last blog ..Wealth Tip #4: Invest Money Saved on Food and Other Products =-.

paul 2010/02/25 at 8:28 am

Daniel you make a very good point. I never want to be in the place where I’m saying that this is the only way you are going to make any headway with your finances by using “X” and this is a good reminder. But I still think the key is some form of budget whether a Zero Based or more flexible bucket based approach similar to your method. Thanks for writing!

Ted 2010/02/25 at 9:25 am

Great post! We are working on a zero based budget- just because our margin is so slim right now as we are paying down debt. Once our debt is paid off. I can see leaving $200-300 off the budget that we can use depending on what is happening that month. Savings, celebrating a friends birthday party, extra to charity, something for my wife business. But right now we are doing a zero based budget out of necessity. I love how you are thinking though!
.-= Ted´s last blog ..Cash money! =-.

Daniel 2010/02/25 at 2:51 pm

Do you like the zero-based budget? Obviously it’s what works for you and will help you pay down debt faster, but does it stress you out (more than usual)?
.-= Daniel´s last blog ..Samurai Alexa Challenge Update =-.

[email protected] are the New Black 2010/02/25 at 1:37 pm

It sounds like you simply allow a certain percentage of your income each month to be spent at your “discretion” — aka your blow money; fun money; or quite simply, your discretionary fund… Not too dissimilar to a zero-based budget, from where I’m sitting!

Everyone needs to have some blow money each month, IMO. If your spending is mindful and you’re still struggling after paying the bills, then it might be you have an income problem, not a budgeting problem.

No one s/have to account for every single single dollar spent on a drink or dinner out with friends! What gets people into trouble is when they have NO idea how much they’re spending on the “discretionary” stuff. And that certainly doesn’t sound like the case with you.
.-= [email protected] are the New Black´s last blog ..To Buy a New Car or Used? That is the question. Please help a reader out! =-.

Daniel 2010/02/25 at 2:48 pm

You’re right, but the truth is that there aren’t too many differences between a traditional budget and a zero-based one. It’s a matter of assigning dollars to specific things. I prefer to go above the standard “miscellaneous spending.”

Clearly, the most important thing is to have some sort of budget, and from there, you can tailor it to your individual situation.
.-= Daniel´s last blog ..Samurai Alexa Challenge Update =-.

paul 2010/02/25 at 2:49 pm

Jolyn let’s not talk about blow money around here, I don’t want this conversation to get out of hand. :-). I think it’s just that Daniel has a slightly larger funnel opening than a tightened down zero based budget. Okay I’m going to stop commenting now I just said large funnel.

ctreit 2010/02/25 at 1:49 pm

I like your strategy, probably because we budget in a similar way. We are all individuals and we have to find what works for us personally, which is not necessarily the most rational thing. If a zero based budget stresses you out and you stick with it anyway, you can easily become a slave to your budget which probably takes away from your quality of life. This would be not that different to somebody who is a slave to overspending.

Angela 2010/02/26 at 10:21 am

I like the 0 based budget, b/c I like spending every dollar on paper before it comes in. We have some catagories where we spend the same exact amount every month. And we have some catagories where it’s a general amount being allocated, and any leftover staying in that catagory for next month. Maybe it’s because we have 2 people drawing off the same budget, it makes it easier for me to know what money is available to me. I find that instead of stress, it gives me freedom. I was always feeling nervous about making purchases before (because I wasn’t sure if Paul was going to planning on using our money for other things). It’s even more helpful for me to use the cash envelopes – if I need to purchase clothes for the kids, all I have to do is grab it and go. If Paul needs to get some jeans, he can grab what he needs, stick it in his wallet and swing by the store when ever he gets the chance.

Now that we are done paying our debt, some of the pressure is off on our super precise budgeting. We can (and have) decided at times to adjust our spending in some categories and then put less toward our savings. Though, we aren’t going to be doing much of that b/c we want to get that emergency fund growing strong!

Angela 2010/02/26 at 10:27 am

ps – we have a budget category for entertainment and we each have a certain amount of “pocket money” each month. I can still go out and have a “tasty beverage” with my girlfriends. It’s just that we have determined that we are not willing to spend more than $____ a month on that type of behavior. If we’ve already spend our entertainment money for the month and we want to take the kids out for a fun Saturday afternoon, that’s when we have to get creative and find something free.

Lulu 2010/02/26 at 1:15 pm

I have a zero based budget that is actually a hybrid if you really think about it. I have a miscellaneous category and I also have a splurge fund where I can just spend whatever is in there.

I do not feel tied down by calling my budget zero based and I think I actually have more freedom now than ever.
.-= Lulu´s last blog ..Tracking My Finances In 2010: February Week 4 =-.

Little House 2010/03/04 at 6:12 pm

I do use zero based budgeting, but only because I use Quickbooks. AND I am in charge of all the finances in my household. So that means I have to account for my expenditures, bills, my husband’s expenditures, more bills, and…oh, yeah client invoices and payments…whew! If it were up to my husband, we would be going with your method! (or probably no method at all!)
.-= Little House´s last blog ..Yakezie Group Round-Up =-.

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