What Kind of Budget Does Dave Ramsey Recommend?
A budget is a plan for how you’re going to spend your money. It puts you in charge and in control of every dollar that you earn or spend. Dave recommends telling every dollar where it should go—before the month begins—using a zero-based budget. This means that your income minus your expenses equals zero.
Remember that feeling you had when you found $20 in your old coat pocket? That’s the same feeling you’ll have when you create (and stick to) a budget. You’ll find money you didn’t even know you had—and build wealth doing it!
Start Budgeting
Step 1: Write down your total income.
This is your total take-home pay (after tax) for both you and, if you’re married, your spouse. Don’t forget to include everything—full-time jobs, second jobs, freelance pay, Social Security checks, and any other ongoing source of income.
Step 2: List your expenses.
Think about your regular bills (mortgage, electricity, etc.) and your irregular bills (quarterly payments like insurance or HOA) that are due for the upcoming month. After that, add up your other costs, like groceries, gas, subscriptions, entertainment and clothing. Every dollar you spend should be accounted for.
Step 3: Subtract expenses from income to equal zero.
We call this a zero-based or EveryDollar budget, meaning your income minus your expenses should equal zero. When you do that, you know every dollar you make has a place in your budget. If you’re over or under, check your math or simply return to the previous step and try again.
Step 4: Track your spending.
Once you create your budget, track your spending. It’s the only way you’ll know if your spending lines up with your plan. EveryDollar makes tracking your expenses (and budgeting for them) extremely easy.
As a financial expert with a comprehensive understanding of budgeting principles and personal finance strategies, I bring a wealth of knowledge to guide you through the intricacies of managing your money effectively. My expertise is grounded in a deep understanding of various budgeting methodologies, including the zero-based budgeting approach advocated by renowned financial guru Dave Ramsey.
Now, let's delve into the key concepts outlined in the article regarding Dave Ramsey's recommended budgeting method:
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Zero-Based Budgeting: Dave Ramsey strongly emphasizes the concept of zero-based budgeting. This approach requires assigning every dollar of your income a specific purpose, leaving no room for unallocated funds. The fundamental idea is that your income minus your expenses should equal zero, indicating that every dollar has been allocated to a particular category, be it savings, bills, or discretionary spending.
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Monthly Planning: Ramsey advises creating a budget for the upcoming month before it begins. This proactive approach empowers individuals to plan and allocate their income strategically, ensuring that they have control over their financial resources. By planning ahead, you can make informed decisions about how to allocate your money based on your priorities and financial goals.
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Budgeting Steps: a. Step 1 - Write Down Total Income: Identify and document all sources of income, including full-time jobs, second jobs, freelance pay, Social Security checks, and any other ongoing streams of income.
b. Step 2 - List Your Expenses: Categorize your expenses into regular bills (e.g., mortgage, electricity) and irregular bills (e.g., insurance, HOA) due in the upcoming month. Additionally, account for other costs such as groceries, gas, subscriptions, entertainment, and clothing.
c. Step 3 - Zero-Based Budget: Subtract your total expenses from your total income to ensure that the result is zero. This meticulous approach guarantees that every dollar is allocated within your budget.
d. Step 4 - Track Your Spending: After creating the budget, diligently track your spending to ensure that it aligns with your planned allocations. Tools like EveryDollar can facilitate easy expense tracking and budget adherence.
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Financial Awareness and Building Wealth: Ramsey emphasizes the positive impact of budgeting on financial well-being. By following a zero-based budget, individuals can gain a heightened awareness of their spending habits, potentially uncovering surplus funds. This newfound financial discipline not only helps in meeting immediate needs but also serves as a foundation for building wealth over time.
In conclusion, adopting Dave Ramsey's recommended zero-based budgeting method provides a structured and disciplined approach to managing personal finances. By following these steps and embracing the philosophy of giving every dollar a purpose, individuals can take control of their financial destiny and work towards achieving their long-term financial goals.
