Anyone Use Zero-Based Budgeting?

TickTock

Full time employment: Posting here.
Joined
Oct 22, 2007
Messages
769
I recently read Chris Hogan's Everyday Millionaires and Retire Inspired. Hogan was associated with Dave Ramsey at the time, and the books mention zero-based budgeting. I did a forum search and found a few mentions here and there, but no in-depth discussion. [I'm only interested in household ZBB, not corporate.]

Here's a link to a Ramsey-associated article explaining ZBB: How to Make a Zero-Based Budget

I'm a fairly detailed and organized person, but ZBB looks like a nightmare to me.

So I put in my expected monthly income and expected expenses for everything. But then I have some overtime and I'm saving X% of after-tax income but I won't know what the after-tax portion is until after I receive the paycheck so I'll have to go back and readjust savings later and then the laptop stops charging and it costs $Y that I didn't anticipate so I adjust... where? maybe from the emergency fund and then next month put a fund backfill expense in or since from the article "Pro tip: Don’t forget to give yourself a miscellaneous category too so you’ve got a little extra cushion in your spending. That way, anything that pops up unexpectedly isn’t a problem—it’s in the budget." it's already covered - wait a minute - in my mind putting a miscellaneous category says up front that you don't know where every dollar is going which of course you don't because life happens and... and... and...

[Head explodes.] Yes, that above sentence was deliberately a run-on.

I don't see an advantage to ZBB over traditional household budgeting. Full disclosure - DW and I don't budget per se - but we do track monthly expenses.

Does anyone here use or used to use ZBB? What was your experience?
 
We don't budget. We do however track spending & look for excessive frivolous patterns. If nothing jumps out, we don't sweat it anymore.

I did go to a quarterly assessment vs the old, monthly spending. We really have a handle on spending.

If I were single or just starting out, it may be good for training your spending / savings.
 
We don't budget and don't really track spending. We keep an eye on the balances in the major cash funds such as check book and savings accounts or CDs, etc.

If the balances get low, we take from our 401(k) while rebalancing. Everything else seems like w*rk to me, but I'm not knocking it for anyone else. IOW YMMV.
 
We don't budget nor track spending. As long as our investment grows, who cares. :) We are 50-50 taxable to tax deferred accounts. When we need more money, we pull from taxable. We preseve the tax deferred account and only withdraw RMD.

At work, we used ZBB, but not in our personal lives.
 
I don’t budget per se. But before I moved into retirement, in what I’ll call the analytical years, I did something similar to zero based budgeting. I did a pretty detailed analysis to understand two things about my spending.

First, what was my base budget. This was very similar to zero based budgeting. Its purpose was to answer the question - if the bottom drops out completely, what do I need to be able to eat and keep a roof over my head? Also known as my necessary (versus discretionary) expenses.

Second, how will my current spending change when I move into retirement. So the starting point is current spending (and associated style of living) and then adjustments are made to see where my best estimate of actual spending will be. This was very useful for the retirement calculators like FireCalc. For the retirement calculators, I added some expenses to this number just to be conservative and/or see how much I could spend before the retirement calculator came back with a “no go” answer. Kind of a stress test.

The main value of any budget IMHO, is the process and the information you gain by going through the steps, not necessarily the final answer. I can guarantee you that what ever number you “budget” it will not match your actual spend. However, figuring out why the numbers were different (variance analysis) will increase your knowledge going forward significantly.
 
I went back and re-read your post and I am puzzled at the way you did your ZBB, based on earned income etc. ZBB at corporate level, which I assume is how you would apply to your personal budget, would set out that you can afford to spend $X. Since you are still working, I would not worry about working overtime or not. When you determine $X, it has to be based on your projected income for the year. Then you prioritize on what your spendings are going to look like - shelter, food, travel, shopping, home projects etc and draw the line across where you run out of money, i.e. $X dollar. It is done at a high level. It is impractical to try to do it day-to-day. I would true-up at some interval to ensure that you are on track to spend $X. If you spend more than $X, then you either pump more money into the budget or cut your spending to bring it back to level $X.
 
Well, corporate budgeting was a big part of what I did for many year... and I think you are over thinking it...

Let me do this very simple...

Traditional budgeting is where you take last years actual spending and then adjust various categories up or down... so if you spent $10,000 on vacation you up it by 5% and now have $10,500 in this years budget... you do not know where you are going or where the money is to be spent, but you have a budget...

ZBB is where you say... I do not care what I spent last year... I want to know what I am planning on spending this year... so you actually make a vacation plan and figure it out... it might be $8,000... it might be $15,000... it really does not matter the number, just that you figured out what you plan on spending...
 
No, of course not. Cannot imagine ever using ZBB.

We do not have a budget. We typically buy on value rather than price.

I track annual, after tax spend. For information only. No category breakdown. Just a addition from our cheque account bill payments.
 
At the beginning of each year I calculate how much I am allowed to pull from my investment portfolio for the upcoming year (using the VPW method). I have no pension, no SS yet, and no other source of income, so I have to budget to make sure that I don't run out of money before the end of the year. But I have discovered that strict budgeting (where every dollar is allocated to a specific category in advance) does not work for me at all. What works instead is budgeting using broad categories (bills, food, gas, fun, savings).
 
I guess my budget is zero based?
Been tracking expenses for years (not yet retired) and have very detailed categories for things I'm certain my peers forget about. Any income over those expenses goes toward various savings vehicles and technically 'zeros out'.

When an unexpected repair takes from savings, next month extra money redirects to refill that bucket, so every dollar has a place. It's never, "extra money this week, Great, let's go shopping!" It's never that. Too much still to save for.

Every other month I check in on spending, see how much it's inflating, see If there are new categories (kids and extra curriculars are expensive), and adjust as needed.

So it's not a budget where if the envelope is empty then we're done until next month.

Does that qualify as zero based?
 
We don't budget... but we spend about everything each month. We get our monthly checks, DW about 40% into 401K. Pay the bills, then split the rest to pay down debts, and play money.
 
Why bother?

Sorry, old retiree here. We did some budgeting in the early years and carefully tracked spending to know where the money was going. Updating the budget each year so that we had a good idea of our income and expected expenses. Along with our careful saving and investing.

We still track spending, it’s pretty automated. We generally spend within an expected range and have extra funds for one off lump sum items. These days I occasionally review cash flow, that’s most of it.
 
Zero based budgeting, which was developed originally for governments, has nothing to do with what is proposed in this article.

What this article calls “zero based budgeting” members here would call “live beneath your means and save or invest the difference”.
 
With a few exceptions, our spending has been remarkably constant (within $4-5K) for the past ten years. It is just spent on different things YoY.

My tracking pretty much consists of recording our AGI and comparing by year as the IRA is the toggle that is used to fill in the gaps while the rest of our income is fairly stable.

Our lifestyle more or less dictates our spending and not the other way around.
 
I have tracked our spending in detail for over 30 years, but we have never had a "budget" per se. We spend what we spend to do what we want to do and have what we want to have. That spending has been remarkably stable over the years, and it has always been less than our means. The only time we have spent beyond our means were the three years I was in law school, but we had planned for that and saved in advance to do it.
 
LBYM was ingrained in me by my folks.
We still track spending, and every month, money goes into "savings". It is what I call a spendable savings account, that we use for property taxes, emergencies, one offs, etc before we pull from investments.
We have 4 sources of secure income, 3 go into regular monthly bills/spending, one goes to "spendable savings".
It's all "spendable", I get that. This is simply my mental math--lol.
 
I track spending by category (big ones) and compare year to year amounts. Tracking all details is fruitless for me as I spend on the same things from month to month. No budget as it meaningless to me with all the variables that seem to show up unannounced.
 
OH... BTW, I stopped budgeting and tracking expenses a few years back... I could not get DW to buy into either and got really frustrated at her spending on things not budgeted...

And tracking also got me frustrated... so we spend what we spend... I have told her that we have enough for my lifetime but I am not sure about hers... after I am gone that is her problem...

We are spending WAY too much... but the way the market has been we have a lot more than we did a few years back even with the too much spending...
 
Never had a budget. Never kept track of what we spent each year on frozen peas, gasoline, personal care, or anything else. Not even as poor students.

Never had any consumer debt. Who wants to pay interest to finance a depreciating asset?

Never sweat the small stuff. Paid more attention to the the bigger items like insurances, vacations, autos, communications.

Always lived below our means, never experienced lifestyle inflation. Always bought on value, not price or name brand.

Worked out just fine. Actually....better than fine.
 
Years ago I used the budget app YNAB-You Need A Budget which is based on the concept that every dollar needs a job. Seems like zero based budgeting to me.
It was really just the envelope method only electronically so not cash per se.
I really liked it and it helped me a lot but I stopped somewhere along the way.

I tried using it again when I retired but then my bank wouldn't auto transfer the transactions and there were other issues that I just didn't want to spend time figuring out.
Now I just use an excel spreadsheet for my accounts/bill paying. I keep several months worth of bill paying in one checking account with a good size savings account in case I need to quickly transfer-although that hasn't happened in years.

So I don't really budget but about once a year I do list my anticipated monthly expenses vs my income to see if I need to adjust anything-in particular streaming services and really non essential expenses.

When I first joined this site and saw the acronym LBYM-I thought it meant Living BEYOND Your Means and I thought-my people!
Then I realized it meant Living BELOW Your Means-and sadness.
 
I've never used it. I just lived well below my means and saved/invested the difference.

I do actually track everything by category in Quicken to the penny, but Quicken makes that pretty easy. For a while I looked back at the last six months' spending by category to see where the big rocks were and to see if I needed to optimize or adjust anything.

Nowadays, I mostly just look at the six month total, multiply by 2 in my head, then multiply by 25 in my head and compare that to my FIRE stash to see if I'm still OK. Lately I'm wondering if even that is too much hassle.

The Ramsey ZBB thing is good for people who are barely making ends meet and/or have significant debt to pay down. I think it can help a person become more aware of where they're spending, and make sure they're spending with intentionality, and force them to face the tradeoffs they need to make in order to make their budget work. Probably everyone here already does all those things either naturally or by some other method.
 
We give ourselves an annual budget, track expenses monthly & for the trailing 12 months to make sure there are no surprises in the offing. (I love that word)
 
I don't have a budget but periodically do monitor spending (in detail). I am currently in such a phase because I planned on buying a second home (done) and as a result would be using up almost all of my non-tax-deferred cash. This was necessary because I am trying to keep from blowing through yet another IRMAA bracket top and selling appreciated stock (I have none with losses) or using tIRA money would cause me to exceed the IRMAA threshold. This was further stretched at the beginning of the year when I retired and used part of my accumulated sick bank to my Roth (so increased income yet no additional available cash). I am close in terms of estimates - within a couple/few thousand $ to the next bracket so I don't have a lot of wiggle room.

So, I used quicken to track all spending. I've also created a spreadsheet to go along it where I track (over time) my last 30 day spend and see if I am able to keep it under my monthly pension + dividends + interest, i.e. my "earnings". So this is a bit like the Ramsey ZBB in that I am attempting to keep ongoing spend under that threshold that would use up what is left of my precious available cash. (I used most of it doing the home purchase).

It has been interesting to say the least, and I have cut back on things that I wouldn't have had I not tracked it.

My plan is to start taking $ from my tIRA at the beginning of 2025 to not be so tight in terms of available cash. (I won't have my previous job or cash out $ to inflate my income). Until then, no Amazon prime for me!
 
We have a fairly detailed budget (and I’ve extrapolated out for the next 20+ years). And I track all of our spending against that budget. We have come in significantly under budget every year since I retired (the pandemic certainly helped for a few of those years). And I like it that way :cool:. We carry over the unspent budgeted money to next year’s spending, which always feels like a windfall. If we ever have a big, unexpected expense, I won’t feel bad at all since we came in under budget for so many years. There are line items in the budget for big house and medical expenses, and big (for us) travel expenses. Those are three categories we tend to underspend in.

We have averaged a ~2% withdrawal rate, which will drop when I start Social Security sometime in the next 5 years. LBYM was ingrained in me as a child.
 
I don't have a budget but periodically do monitor spending (in detail). I am currently in such a phase because I planned on buying a second home (done) and as a result would be using up almost all of my non-tax-deferred cash. This was necessary because I am trying to keep from blowing through yet another IRMAA bracket top and selling appreciated stock (I have none with losses) or using tIRA money would cause me to exceed the IRMAA threshold. This was further stretched at the beginning of the year when I retired and used part of my accumulated sick bank to my Roth (so increased income yet no additional available cash). I am close in terms of estimates - within a couple/few thousand $ to the next bracket so I don't have a lot of wiggle room.

So, I used quicken to track all spending. I've also created a spreadsheet to go along it where I track (over time) my last 30 day spend and see if I am able to keep it under my monthly pension + dividends + interest, i.e. my "earnings". So this is a bit like the Ramsey ZBB in that I am attempting to keep ongoing spend under that threshold that would use up what is left of my precious available cash. (I used most of it doing the home purchase).

It has been interesting to say the least, and I have cut back on things that I wouldn't have had I not tracked it.

My plan is to start taking $ from my tIRA at the beginning of 2025 to not be so tight in terms of available cash. (I won't have my previous job or cash out $ to inflate my income). Until then, no Amazon prime for me!
Be aware that you can borrow some money and pay it back early next year... that is IF it would save you on whatever the IRMAA costs... I have no idea..
 

Latest posts

Back
Top Bottom