Zero Sum Budgeting / The Ramsey Way

It hasn’t been quite a year since I dove into the Dave Ramsey program; and took the class in person; but I’ve learned a lot in that time. It was very eye opening; and I feel like there are many ways to budget, this seemed simplest to me; and most down to earth, not over my head.  I will say, I am by no means a financial guru, just learning from a 9 week class, my own mistakes, and what works for me.

The 7 Baby Steps of the Ramsey way is as follows;

1. Save $1000 for an Emergency Fund (tire repair, washer goes out, etc)
2. Pay off all debt using the debt snowball (pay minimum payments on all debt, throwing all extra at the smallest until it’s paid off and work your way through until all debt is paid off)
3. 3-6 months in a savings account; in addition to the $1000 Emergency Fund.  This will help you to get through 3-6 months if you find yourself without income.  Personally, I’m working towards 6 months.
4. Invest  15% of income into pre-tax retirement
5. College funding for children. [skip this step if you do not have kids or come back to this if / when you find yourself in a position where kids might fit into your life]
6. Pay off house early
7. Build wealth and give.

If at any time you use from your emergency fund; replenish it!

This is a fictional budget. Single, no kids, paid off car.

In this budget above there is $340 remaining; so this person would not only make the $50 credit card payment, they’d also pay an additional $340 at it. Some might suggest waiting until just before your next payday to do so, that way you have it there for wiggle room if need be; but all your needs should be met above.  For some, they get the cash out for specific categories [fuel, groceries, extra / allowance] and store it in envelopes and when it’s gone its gone.

If you have more than one credit card payment, you pay minimum payments on all, then pay off the smallest one first. Once that’s done, you move on, there’s a new smallest one.

Full disclosure, this seems big and overwhelming, but it’s pretty easy. it helps you to realize just where your money goes.   For some, they have a few separate accounts; or if you are very great with willpower, you only need one account.

Checking Account #1 – income is deposited – keep only what you need for monthly bills in here and transfer the rest to Savings Account #2

Savings Account #1 – Emergency Fund

Savings Account #2 – Extra to go towards debt snowball at the end of the month!

You might question why there is a section called Extra/Allowance; for me, this is a big one. In order to be strict, you also have to give yourself a little grace. For example when you diet, you might allow yourself a cheat meal or cheat day, but never a cheat week or else you fall off. The same for budgeting; you might be giving up certain things, but you need to allow a little wiggle room. Whatever you don’t use of your Extra / Allowance, you can either carry over from month to month so it continually adds, or if you use $45 this month, you might only need to add $55 to it next month. This is up to you.   Or you can leave it out completely but for me, this is huge in helping with financial wins.

How to start?

I suggest grabbing a monthly calendar; and write in your income and your bills (on the date they are due) and figure out income vs expenses. Track your fuel for a month or two and estimate approximately how much you spend per month; obviously this fluctuates, be aware it might change from month to month. Track your groceries / restaurant expenses for a month and estimate.  And then come up with your budget.

I make a point to sit down each month – generally at the very end / very beginning and do my budget.

Now all this to say; I’ve done very good at tracking income and expenses, but I need to be better at sticking to a budget for groceries / home goods, and extras.  I’m needing to tighten the reigns. In the month of September I’m going to keep track of each click on Amazon and each swipe of my debit card.

Thanks for reading all the way [if you made it this far].  I strongly recommend the Dave Ramsey Financial Peace University, it was $99 but worth it; and I can take a refresher any time I want.  Listening to his podcast is great, you can find him on YouTube as well.