Dave Ramsey: Zero Based Budget Puts Money to Work

This article is an excerpt from the Shortform book guide to "The Total Money Makeover" by Dave Ramsey. Shortform has the world's best summaries and analyses of books you should be reading.

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What is the Dave Ramsey Zero Based Budget? Is it the same as the Everydollar budget?

The Dave Ramsey Zero Based Budget is a method for budgeting that allocates a role for every cent. It is also known as the Everydollar budget because every dollar has a place to go.

Read on for more about the Dave Ramsey Zero Based Budget and access a Dave Ramsey budget template.

The Dave Ramsey Zero Based Budget

Create a written budget each month determining where your money will go; if you don’t, it will just disappear without your thinking about it. Here, you learn how to make the Dave Ramsey Zero Based Budget with a Dave Ramsey budget template.

Successful people have written goals; simply put, a monthly budget is your money goal. It wouldn’t make sense to build a house without blueprints, nor does it make sense to spend your life’s earnings of $2 million without a plan.

Motivational speaker and author Brian Tracy notes that having written goals is a more important contributor to extraordinary success than education, connections, talent, or inherited wealth. He quotes a study of Harvard graduates, which found that two years after graduating, the 3% with written goals had greater financial success than all others combined.

(Shortform note: read our summary of Brian Tracy’s book, Eat That Frog, here.)

The Dave Ramsey budget template can be downloaded here.

Here are the basic steps to get started:

  • Each month, draw up a new budget for the next month. If you’re married, sit down with your spouse to do this. Conflict over money is the No. 1 reason for divorce in the U.S. Often this is due to different personalities and money management styles. The way to prevent conflict is to let differences complement each other and work together each month to establish shared money goals.
  • List the month’s bills, savings, and debts, then list and allocate every dollar of your income (think of this as spending the money on paper before the month starts). This process is referred to as the Dave Ramsey Zero Based Budget: monthly income minus expenses equals zero. If you have variable income because of commissions or self-employment, use this budget form.
  • Once both partners agree on a budget, pledge not to do anything with your money that isn’t prescribed by the written plan. You can’t get control of your spending without working together. If something unexpected comes up—for instance, your car needs repairs—hold an emergency meeting and together reallocate and balance the categories so that the month’s income minus expenses still equals zero. That is the Dave Ramsey Zero Based Budget.

The Debt Snowball Process

The debt snowball method is the way to pay off debt. It’s easy to understand, but it takes effort and commitment to pull it off. Tens of thousands of Total Money Makeover converts have proven it works. It applies the principles of the Dave Ramsey Zero Based Budget or the Everydollar budget to pay off debt. There are two steps:

1) Make a list of your debts, in order from the one with the smallest balance to largest. Exclude only your mortgage, which will be addressed in another step, described in Chapter 11. A form is available for downloading here.

2) Each month, apply every extra dollar you have to the smallest debt until it’s paid off. Make the minimum payment to stay current on all other debts.

After the smallest debt is paid, apply the payment you had been making on it, plus any additional money you have, toward paying off the next smallest debt. When the second debt is paid off, apply the payment amounts from the first two debts, plus any other money you can find, to the third debt on your list, and so on.

Each time you pay off a debt, you increase the amount you can pay on the next one—your payments continue to snowball until your debts are paid off. 

Starting with the smallest debts gives you some quick wins to motivate you, and by the time you get to the largest payments, such as car payments and student loans, you’re in a position to pay over $1,000 a month. You’ll soon be debt-free except for your mortgage.

Dave Ramsey: Zero Based Budget Puts Money to Work

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  • The 7 steps to achieving financial stability (you'll love #7)
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  • How myths about debt and money are crippling your financial health

Rina Shah

An avid reader for as long as she can remember, Rina’s love for books began with The Boxcar Children. Her penchant for always having a book nearby has never faded, though her reading tastes have since evolved. Rina reads around 100 books every year, with a fairly even split between fiction and non-fiction. Her favorite genres are memoirs, public health, and locked room mysteries. As an attorney, Rina can’t help analyzing and deconstructing arguments in any book she reads.

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