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I started following Dave Ramsey budgeting principles to create my monthly written budget. A budget is a plan for how I am going to spend my money.

Zero-based budgeting

Dave Ramsey advocates for what is more commonly known as zero-based budgeting. It means giving every dollar a job to do. Spending, giving, saving or paying off debt. Every dollar is given a purpose. He called it “being intentional with money“. Put the extra money to work towards goals based on the current Baby Step that I am on.

I find this idea intriguing – being intentional with money by assigning every dollar a job. I’m a competent saver. My challenge is knowing what to do with the money I save. Initially, I left them in my bank account with low interest rates. When I try to invest, I often get impatient and choose the wrong things to invest in.

I hope that by setting money goals based on the Baby Steps I am on will help me make better use of the money God gave me.

Household Budget Percentages

The next key feature is his recommended household budget percentages. Assigning a percentage of household income for a particular expense. For example, 10% for giving and 15% for retirement saving. The percentages change according to the Baby Steps one is on. People with debts have different percentages from people who do not. People saving for a house differ from people who are saving for retirement.

I am used to the practice of putting 10% aside for tithes. For other expenses, I sometimes use price caps. For example, I have a daily price cap on my lunch. I think setting percentages and planning these expenses is a better and more balanced guide.

Make a Budget in 5 Steps

So how does one go about creating a zero-based budget? Dave Ramsey budgeting has a 5-step process:

Budget Step 1: List Your Income

Track all net income. This means every dollar that come in after deducting taxes and anything else that’s taken out of the paycheck.

This doesn’t really work in Singapore since we do not have a withholding tax system. I have to budget for my taxes as an expense.

I’ve also decided to include my employer’s contribution to my Central Provident Fund (CPF) as an income line because I want to tithe that although I have no access to it.

Budget Step 2: List Your Expenses

List all expenses. Both fixed and discretionary expenses. Here is where the budget percentages come in. Mine would look something like this:

• Tithing – 10% of my income
• Gifts – 2% of my income
• The Four Walls – top bills to cover: 
  • food – 5%
  • utilities – 1%
  • shelter – 10%
  • transportation – 2%
• Other essentials – health (5%)
• Extras (Here’s the fun part: entertainment, fun money, restaurants, etc.)
• Month-specific expenses (Prep for month-specific expenses such as birthdays and anniversaries)
• Sinking funds (for cash flowing vacations, seasonal purchases, semi or annual expenses)

Deciding on the list of expense categories and sub-categories were time-consuming. I had to revise it several times in the first month as I didn’t anticipate sufficiently. I suspect I may have to revise again when I start work and the types of expenses change.

I have also decided to plan an annual budget in addition to the monthly one for 2 reasons:

1. I think it is a good reminder for expenses that pop up once a year
2. It is beneficial to me to see the annual totals of my various expenses

Budget Step 3: Subtract Expenses from Income

Subtract all expenses from income. For me, I am sure I am going have extra money left over. This is the time to re-allocate the extra money towards the money goals I set. When I have done that, the balance should be zero. I would have assigned every dollar towards something. My money goals could be saving for a vacation or a big purchase or debt repayment or investment. It is not just sitting in a bank earning very little interest. It is also not going towards spending on something I do not need nor value.

Budget Step 4: Track Your Transactions

The written budget is just a plan. To implement, I need to track every single income and expense. I must account for everything that happens with my money all month long.

I have tried to do this before. It is not easy month in month out. I think it helps if there are fewer payment methods. For example, credit cards. I have decided not to use them unless I have to. I’m down to debit card, cash, bank transfer and GIRO. I have also set up a tracking sheet using Google Sheets. I can call it up to update anywhere I am.

One benefit of tracking is awareness. I noticed what I tend to spend money on. Tracking also mean adjusting.

Budget Step 5: Make a New Budget Before the Month Begins

Dave Ramsey advocates planning a new budget every month. There should not be major changes, so it is going to be quick to adjust. It also allows the inclusion of month-specific expenses.

To make this work, I have schedule time for budget revision in my calendar.

Implementation

I use Google Sheets to create my budget and tracking sheets. Information that I input in the tracking sheet is automatically pulled into the budget sheet so that I can easily check whether I am on track with my income and expenses.

Google Sheets is quite user-friendly on my mobile phone so I can enter my spending on the go instead of asking for and keeping receipts for data entry later.

Reading List

Ramsey, D. (2013). The total money makeover: A proven plan for financial fitness. Nelson Books, an imprint of Thomas Nelson. [ Affiliate link] – The Total Money Makeover outlines the 7 steps in the plan and provide key information on each step.

Ramsey D. (1998). The financial peace planner : a step-by-step guide to restoring your family’s financial health. Penguin Books. [Affiliate link] – The Financial peace planner offers more detailed discussion and rationale behind the Baby Steps and their sequence.

Ramsey Solutions. (2022, October 4). How to win with money in 7 baby steps. Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/budgeting/how-to-win-with-money-in-7-easy-baby-steps

Ramsey Solutions. (2022, November 10). How to make a budget: Your step-by-step guide. Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/budgeting/how-to-make-a-budget

Ramsey Solutions. (2022, October 20). How to build wealth at any age. Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/retirement/how-to-build-wealth

Ramsey Solutions. (2022, October 20). How do I save for retirement, college, and pay off the mortgage at the same time? Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/retirement/retirement-college-mortgage

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