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How to Budget


Generic 0 Budget (in Excel format)


You can get out of debt. It is not that difficult, but it will take some time. All you need to do is want to.

For many years we struggled to get control of our finances. We simply had no plan in place for the money we earned and thus it would just drain away each month. We accumulated some credit card debt due to some emergencies and simply did not know what to do about it.

I'd tried making budgets before, but they always fell short. My biggest issue was how I approached budgeting. Falling back on my business education, I'd try to average out everything across the year making the same budget for every month, for instance my average electric bill should be $100, so that's what I put in the budget. During the summer, when the bill was higher than average, I'd think "That's ok, we'll make it up in the winter." Unfortunately, this budget was not based on our actual financial situation at that moment, so after struggling with it for a few months, we'd just give up. The numbers never added up and they never made a difference.

It was my wonderful wife who discovered the solution that worked for us. Frustrated with our situation, she checked out Dave Ramsey's Total Money Makeover from the library. She read it and it seriously clicked for her. She asked me to read it, and in a rare display of brilliance on my part, I did. I found his writing style to be a little "sales-persony," but what he wrote about clicked and made perfect sense to me as well. So we tried his way and it has made all the difference in our world.

The big key that we were missing was how to budget. Not an abstract "yearly average broken over months"-type budget, but a "this is how we are going to spend this month's money"-type. In short a cash flow budget. As I realized this, I mentally kicked myself. I have an MBA and this is pretty basic stuff. If I started a business, I would make a budget very similar to this without even thinking about it, but since it dealt with my personal finances not a businesses, I completely missed the boat.

But so what? Sure I should have figured that out myself, but the point is, we know it now and now we will put it into practice. So I went off to Excel to create our new budget for next month.

The idea behind what I call the 0-sum budget is that you start with all of the money you realistically expect to earn that month, and then you allocate it all. The goal is to end up with $0 left in the budget at the end of the month. Now some of that money may be designated for saving, you mark it as spent but it stays in your bank account to be used for emergencies or other larger expenses. As the month comes to a close, you set up next month's budget the same way: take the cash you earn and spend it all (at least on paper).

As the month goes on, each time you spend money, you log it in the correct budget line item. Once you have spent all the money budgeted for that item, you do not spend any more money on it.

This process prevents you from getting further into debt. If what you want to spend money on is not in the budget, you do not spend it. If you have to spend it, you will have to remove the same amount from some other line in your budget so that it ends in $0. It is that simple.


Let me try and address the questions you are thinking:
"But how will this get me out of debt? I still owe on my home/school loan/car, etc.?"
Well those repayments are lines in your budget. As you get control of where your money goes, you can increase the amounts you pay on one of those loans and get rid of it sooner. Ramsey suggests the “debt snowball” where you pile all your extra cash into the smallest debt and get rid of it quicker. Once it's gone, you take that money and tackle the next smallest one, etc. This doesn't make the most financially sound advice (your larger loan is going to generate more interest), but psychologically it makes a HUGE difference. The success you have by paying off your car early really charges up your motivator.

"What if I want to grab a bite to eat? Do I have to open up Excel before I make that choice?"
For us, we have a section on our budget called dining. Each time we go out to eat, we add what we spent to the dining line. When it reaches what we budget, we know we are done going out to eat that month. It has an added benefit of helping us really determine what we value. If grabbing a shake from Sonic on the way home from work means my wife and I won't be able to go out to that Chinese restaurant we love, maybe I don't really want that shake after all.

"Does following this budget mean I can't buy X (shoes, video games, movie tickets) anymore?"
Not at all. You can fit it into your normal monthly budget or set yourself up an allowance. Each month you have $X to spend on whatever you want. If you don't spend some of it, it rolls over to the next month, so you can save up.


The big idea here is to grab a hold of your finances; to know where your money is going. Once you know that, you can make decisions on where you want it to go and remove the debt that is plaguing your life.

We have been doing this type of budget for over 10 years now and it has honestly changed our life. We have no debt now. No credit card balances, no car loan, no student loan, no house loan. We know where our money goes and we can make informed decisions about what to do with it.

I've created a budget template that you can download and use to set up your own 0-Sum budget. I encourage you to check it out and start setting up your household’s budget on it. If you do not have Excel, you can use Google Sheets as a free alternative. I've tried to fully notate the sheet, but if you have any questions, please feel free to contact me.

You can gain control of your money, no matter what your income. It may be a little scary, but being in control of your finances and not letting them control you is one of the most liberating (and stress reducing) experiences you can have. It doesn't take very long to do, but it can change your life.


Generic 0 Budget (in Excel format)