Your Zero-Based Budget Welcomes You Back to Reality — You’ll Thank it Later

You’ll often hear people protest budgeting by saying something like, “If I budget, it will just tell me there’s not enough money” or “I don’t want to see all of those red numbers.” My mother-in-law (don’t worry, she doesn’t read this) claims that if she were to budget, her finances would be a mess, so she chooses to manage her money “on faith.”

I’m not about to dispute the principle of faith, but would like to point out that sometimes we should also…count the cost ((Luke 14:28)).

Yes, it is possible that your budget may tell you that you don’t have enough money — even for some niceties (but not luxuries) — maybe even for some necessities. Bear that in mind as you begin. You just may find out that you are completely and totally broke.

A zero-based budget does tend to highlight the scarcity of your resources. On the flip side, the Budget can also show you how flush with wiggle room you truly are. Though if you’re in that department, you’re probably not one of the budgeting unbelievers!

Rule Two of the You Need A Budget system states that every dollar is given a job. In other words, you’re expected to operate zero-based. If you have $3000 to work with, and you allocate $1000 to a house payment (a wee bit high at 33%) and then are forced to allocate another $450 for your two car payments, and $200 for credit card obligations, and maybe $300 for food (in Utah we manage about $270 for two adults, a three year old and a one year old), $100 for car insurance, etc…It starts to look pretty grim. I didn’t yet allocate the cell phone bill, cable, electricity, internet, eating out, car repairs…

But the point is that you’d begin allocating each of those $3000 to a job. By the time you had allocated through food, you’d see that you had $980 with which to work. So you’d chug along, moving down your categories, allocating your dollars. You’d be operating zero-based.

Usually in our Budget Meeting, my wife and I will ask the question again and again, “How much do we need for [category]?” Some of the categories are straight from the last month (rent doesn’t change, some utilities don’t change, the retirement contribution doesn’t change), but many of them need to be tweaked each month. So we move down with special attention on those variable categories and answer the question of how much we need in each category. Without fail, we look back at how much we have Available after doing this allocation and we see we’re in the Red. We’ve overallocated.

It’s the Zero-Based Budget’s way of pulling back on the reins and guiding us back toward reality.

In our case (thankfully) things aren’t usually in the I’m-unbelievably-stressed-because-of-our-money-situation (thanks to following these principles for years), but it’s a reality check nonetheless: “Hey! Guys! You know those dreamy allocations you just made? See how you put way too much in Entertainment? Well, pull some out and be realistic. You can’t afford that!”

There’s a silver lining though.

While we had been following the zero-based budgeting principle (Rule Two) for about a year, we hadn’t yet had the very-stressful reality check yet. We both had been working part-time, our rent was a few hundred dollars, we avoided eating out, we didn’t own a TV — we were living on the cheap. As a result of that on-the-cheap living, things were going well for us and we were able to set aside some money.

Then it all changed when our first son began his nine-month journey into our lives. We had decided beforehand (before we even married) that Julie would be 100% Stay-At-Home Mom. It was a non-negotiable decision the two of us had come to. But that meant that we’d be giving up Julie’s income as well. I crunched numbers for several weeks, forecasting how much we would be able to save up until the baby came, how much the baby would cost, how much a new place would cost (our one-bedroom basement apartment wouldn’t do, plus, I think it had a mold problem), how many hours I would be able to work while going to school, how much longer school would take (two years), etc.

Well, the more I crunched the numbers, the more discouraged I became. My zero-based budgeting idea was staring me back at the face saying, “You won’t be able to do this.” I contemplated working 40 hours per week while going to school but knew my grades would suffer. I thought about taking out a student loan to tide us over — even if just small one — but I couldn’t let myself do that. I wanted to make it through school without anything tied to our financial ankles.

I worked, reworked, massaged, and coaxed the numbers and no matter how I did it, the zero-based budget continued to tell me that we would not have enough. Welcome to Reality. Again. And again. And Again.

One night I came home from school with an idea. I would sell our budgeting spreadsheet online to help us earn some income. I asked Julie what she thought and she said there’d be no way someone would buy our spreadsheet. I went ahead anyway and worked tirelessly on learning how to write webpages, market an online product, and create a user-friendly spreadsheet that could be sold to people wanting to use the same principles we had been using with so much success.

I launched it in September of 2004 — two months after our first Son was born. While it hasn’t been the “hands off” solution I had thought it would be, nor is it some IPO waiting to happen, it did tide us over for those two years of school. And on top of that blessing, starting this business has helped me meet so many other people. I’ve been able to write in my untrained way to hopefully motivate others to manage their money. In starting this little venture, I’ve found that I have a passion for sound money management. I enjoy helping people get a hold of their finances.

None of this would have happened had the zero-based budget not told us way back in 2003 that we wouldn’t have enough. My first big reality check turned into my first big blessing. I am certain that it can happen for everyone. Don’t be afraid of reality. Embrace the problem and find the solution.