Why you should have an essentials-only budget

  Now and again, I like to do a little financial experiment, which I call an essentials-only budget.

Usually I have a zero-based budget which means that every R is accounted for, whether to an actual expense like groceries or to a savings account.

Because of this zero-based budget, there is never any money left over at the end of the month and, in fact, I also have a little quirk where if there is some spending money left, I transfer it out of my account to my savings account so that there’s no “old money” left before payday.

Now let’s talk about an essentials-only budget.

If, for some reason, you or your spouse/ partner lost your job, your budget would look very different. Some expenses would fall away and you’d get back to basics, or essentials.

This is the essentials-only budget.

When I took a sabbatical from work four years ago, I worked off my EO budget. I stopped adding to my savings account because I was drawing down from my savings instead. I wasn’t tithing because I had no income except for a tiny bit from my online courses and interest on my savings accounts.

Our petrol usage reduced, groceries stayed about the same but because I had a closer eye on things, we weren’t buying a lot of junk, and I also reduced my personal care & clothes spending. The house and both cars were paid off, but we still had expenses like gym, insurance, school fees, and so on.

In short, my essentials budget ended up being about 35% of my actual budget.

So why would you want to do a budget like this while you’re employed?

  • It gives you a clear and accurate idea of what you actually need to bring in to live on
  • It also shows you how much you could do without
  • It gives you peace of mind – I’ve done this exercise every couple of years for about 10 years, and each time the amount is far less than I anticipate
  • If you’re planning an emergency fund (I highly recommend it, and it’s the reason I took the sabbatical in the first place because I had money saved), you have an actual amount of savings to work towards. The financial experts recommend 3 – 6 months; I recommend about 2 months longer than a recruitment agent thinks it would take for you to be placed 🙂

I recently did my essentials-only budget and this time, it’s 51% of my actual budget. That’s mostly due to the new house!

It’s still a very useful exercise to do, if nothing else but to set your mind at ease.

Over to you.

Do you budget? Do you do zero-based budgeting? Have you ever done an essentials-only budget?

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Comments

  1. An essential post. We also make up our budget to zero, but I do like to have a little float in there for things that are out of the original budget but we need now: Eg. lost bits of school uniform which must be replaced immediately. Someone needs a doctor’s visit, things like that. The float means we don’t have to use the credit card and we do not have to draw off the investment accounts.
    Our essentials only budget (nice term)…is something we review monthly, to ensure we have enough saved in the emergency fund. Besides the emergency fund we also have a separate one for those yearly expenses. Eg. My membership fees, conferences, tv and car fees, car services (hubby’s is now outside the service plan), post box. We don’t need the money immediately, these are known costs and we have enough notice to know when to draw the money and this means that the essentials budget is buffered slightly. You are also able to stick that fund into a short term investment account.

    • You are much more organised than I am – I love it! I just have a tiny line item for miscellaneous 😝 I really like the annual expenses fund too. We each pay for our car services and licence renewal but that is a great idea!!!

  2. Lea White says:

    This is a very interesting post. I have some adjustments to make to my budget (and it is a good idea looking at an essentials only budget as that will, as you say, really tell you what you need and what you don’t), but in essence I work with a running budget (or at least I call it that). In New Zealand most companies pay their staff fortnightly, but you could have weekly, fortnightly, monthly, quarterly and annual expenses. So my budget in my spreadsheet shows me what will go off where because one fortnight will be more expensive than the other (the one that will also have your monthly expenses that will come off).

    What I do then is to calculate everything as a fortnightly amount. If it is a monthly expense, divide by 2 and if an annual amount, work out what it comes to if I divide it over the number of weeks within that year. This means that I keep my expenses manageable and every fortnight I put away the bit that is not yet due so that when it happens I have the money ready to go.

    So for example if I know that a car service, warrant of fitness, tyres, etc would come to maybe $1,000 as an estimate (could be a bit less or a bit more depending on the work that is required) and I know that this is likely needed once a year, then every fortnight I will put $41,67 away. Same with things like school costs, Christmas, birthdays, holidays and so on. This means if I mostly stick to it then at the very least I will have the bulk of the money ready to go when I need it. So for example if I save throughout this year for next year’s school costs then the pressure is off so if my work or other circumstances change then then at least I will have some of it, if not all covered already. I do have another more generic savings account that is meant to not be touched (so similar to the one where you build up enough money to see you through a time where you might be out of work).

    The other thing I do is to have several savings accounts coming off my current account and I name each one what it is for i.e. Holidays, Car Expenses, School Costs and so on. I find this way I don’t accidentally spend what I really wanted to keep for something else. For the ones that are annual and I am not likely to make any withdrawals on a regular basis, that having a savings account where you are rewarded for not making the regular withdrawals is even better as you then earn better interest than with the regular savings account.

    One initiative I have read about that I will be looking to try out at some point is the $1000 project (she has a blog all about her project which was pretty cool to learn more about).

    • Marcia Francois says:

      I love the detail in your budget, Lea! I just lump everything in one account that I call a “joint savings” account (vs a personal savings account) which I know will pay for annual and ad-hoc expenses, holidays, etc. Basically anything that is outside of set monthly expenses 🙂

      How is your $1000 project going? I saw there’s something on Instagram this month for a $3000 savings……………… very steep for South Africans 😉

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