We Tried a Zero-Based Budget
We weren’t standing on the edge of our financial cliff anymore—we were seeing rainbows.
In March, I launched a year-long novel writing course called A Novel Idea.
It changed my life. I sold enough spots in the course to make it profitable enough to replace the income from my day job for the next two years. That meant that I was able to quit my day job.
It also meant that I got a one-time check in April that just happened to equal about one month of typical household and business expenses.
So we were able to try a zero-based budget.
A zero-based budget means that you’re using last month’s income for this month’s living, and at the end of the month everything comes out to zero.
Let me break it down.
First, you need to know your monthly income and your monthly outgo. This is tough, mostly because you have to be brutally honest with yourself.
You can’t just trust your memory or what you think you spend every month. I honestly, truly believed that we were going to have a monthly outgo of about $3,500 between our household expenses and my business expenses.
I was so wrong.
Like scary wrong, when you consider that my husband was shocked as well. That means that both of us were completely clueless.
Here’s the truth: We spend nearly exactly $5,000 a month. Our regular income, before my class took off? $4,600.
No wonder we constantly felt poor. We had been robbing Peter to pay Paul in an effort to stay afloat, and we didn’t even know it.
We use debit cards nearly exclusively, so we spent a couple of hours looking at our online bank statement and making a list of exactly what we spent in March 2016.
The good news is that I had enough money come in during March from A Novel Idea’s early days that, for once, we weren’t actually behind.
The bad news is that we teeter on the edge of disaster nearly all of the time. We support our adult son who has autism, an 11-year-old daughter, another daughter in college, and my husband’s parents who both have dementia. I also have an employee.
A lot of people count on our $4,600 monthly outgo.
No wonder we constantly felt like we were a toenail’s width from the edge. Every month, we were trying to spend more money than we had coming in.
Starting from zero
Once you have your numbers, for better or for worse, you need to have a savings account that equals your monthly outgo so that you can start the month with enough money to pay everything that needs paying.
That’s where this windfall from my course came in. It was almost exactly $5,000. If that hadn’t happened and we had wanted to try a zero-based budget, we would have had to save until we got an extra $5,000.
Also, by the time we did all this math, our income had increased thanks to my class. If we’d figured out sooner that we had a $400 monthly deficit, we would have had to make some changes to close that gap.
Once we saw just where our money was going, we made some changes anyway. For instance, we were spending an almost obscene amount of money on food every month. We were able to cut that in half. In half. We also had some small expenses that we were able to get rid of. (Hello, Hulu. We hadn’t tuned into you for a full year.)
Saving next month’s money
You also need to open a second savings account, unless you’re far more responsible with money than I am. You could just keep your income for two months out in the same account as the money you’re saving for one month out—but for us, being able to collect our income in a separate account makes it easier not to spend more than we should.
Plus, it’s pretty cool to see the money add up.
On the first of the month, transfer your monthly budget into your checking account. This is your money for EVERYTHING: rent, utilities, incidentals, gas in your car, food in your fridge, credit card minimum payments, soccer fees, entertainment, clothes. Everything.
Then, pay whatever bills you can. It won’t be everything, because maybe your power bill hasn’t been generated yet, or whatever. But you should be able to pay a lot of them. Fill up your gas tanks. Go grocery shopping. Get yourself ready for the month ahead as much as possible.
For the rest of the month, whenever you have any income, transfer it to the special savings account you opened. We are so creative. We call ours “next month’s money.” Let’s call it the NMM account for the purposes of this post.
Keep adding to your NMM Account every time you have any money coming in. You’ll be able to easily see how much money you’re accumulating. If it looks like it’s going to be a tough month, you can sell something or work some extra hours or do whatever it is you do when you need to hustle up a little more income. Or you can adjust some of this month’s budget so that you have some money at the end of the month to carry over.
Zeroing out your leftover money
Ideally, you have more income than outgo. Once you start earning more than your monthly expenses—let’s say you earn $6,000 but only need $5,000 for the month—you can start “zeroing out” your extra cash.
For us, once we had one month’s rent in emergency savings, “zeroing out” means using our extra cash to pay off debt or start saving for upcoming goals. That first month, we had $462 left over. We used that money to start our emergency savings. We did the same for the next two months.
The fourth month after using a zero-based budget, we had $328 left after transferring our monthly income from savings to checking. We used that money as an extra payment toward a credit card.
Building your own pots of gold
I’m in love with having a zero-based budget. Every month since April, we’ve paid our rent a month ahead. That means that on November 1, we’ll pay December’s rent. As someone who’s spent considerable time in fairly deep poverty, that is one of the most luxurious feelings I can imagine.
When I’ve thought about financial freedom in the past, I’ve always thought of things like earning a million dollars or winning Mega Bucks. It’s always seemed like a pipe dream, or something that’s for people who aren’t like me.
What I’ve learned the last six months or so is that financial freedom is a continuum. Obviously, there is freedom in being a millionaire. But there is also freedom in being a full month ahead of every expense. It’s allowed me to breathe a little deeper and take a giant step back from the edge—and see what might be waiting for us at the end of the rainbow.
Shaunta Grimes is a writer and teacher. She lives in Reno with her husband, three superstar kids, and a yellow rescue dog named Maybelline Scout. She’s on Twitter @shauntagrimes, is the author of Viral Nation and Rebel Nation, and is the original Ninja Writer.
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