Years ago, right after getting married to my wonderful wife, I enrolled and graduated from Dave Ramsey’s Financial Peace University course. This is where I learned the true importance of budgeting. I also learned that there are two kinds of budgets. The first is a “Zero-Based Budget”, where every dollar has a place to go and you end the month with zero dollars left over. Of course, this budget includes everything from the utility bills to charity to savings and retirement. Every thing is accounted for in the budget and you live within your budget. When you run out of money in a certain category (such as “Eating Out”), you either pull money from another category or you stop spending money on that particular category. This is not rocket science. But it is pure genius. And it works every time.
The second kind of budget is the “Needs-Only Budget”, where you look at your “Needs” versus your “Wants”. When you separate everything as either a Need or a Want, you add up the Needs and see how much you COULD live on if you absolutely had to. How low can you cut your “Eating Out” budget if you needed to? No fancy restaurants and packing a lunch from home if possible. Do you really need Cable TV? How about Netflix? Unlimited Text Plan? Do you really need that new pair of glasses? It’s amazing what you can really get by with when you look at it this way.
So when do you use one kind of budget over another? The Zero-Based Budget is your normal everyday budget. If you have trouble meeting your budget, you cut from your already identified list of Wants. However, when you enter an emergency situation where your income is severely reduced (loss of a job, perhaps) or your expenses dramatically increase (such as serious medical expenses), you then switch to your Needs-Only Budget. This allows you to increase cash flow to pay for increased expenses, or live within a reduced income. Living under a Needs-Only Budget is not a comfortable thing to do. Quite the contrary. But that is the real beauty of it – you are very motivated to CHANGE your present situation if you can.
Curious. When we look at the Federal Government we see neither of these budgets being used. In fact, it seems that the Federal Government has come up with a third kind of budget: the “Don’t-Even-Try Budget”. For the life of me, I cannot understand how Congress can consistently pass a budget that exceeds its income. Following Dave Ramsey’s plan, I am debt free except for a mortgage that I will pay off in less than 15 years. I have savings in the bank for a rainy day and for retirement. I give generously to charities that are important to me. Following Congress’s plan, the Federal Government now has more debt than it has income. SIX TIMES more debt than income. The Federal Government is overspending its income by over 60% this year. The Federal Government actually owes more in retirement (Social Security) than it owes in debt!
Furthermore, incredulously, Congress has invented yet another kind of budget for times of crisis: the “All-Needs-All-Wants-Plus-Kitchen-Sink Budget”. In a time of crisis, in this case a reduction in projected income (Debt Ceiling) AND a dramatic increase in expenses (President Obama’s massive increase in spending in the current “budget”), the Congress actually RAISED spending. By a LOT!
I would like to see Congress come up with a “Zero-based Budget” – also known as a “Balanced Budget”. I would LOVE to see the Congress develop its “Needs-Only Budget”. That is the only way we will see dramatic change in Washington. That is the only way we will ever get rid of $15,000,000,000,000 of debt.