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?

Question of the week – 6-week wait for January salaries?

I’m not sure what happens in the rest of the world but in South Africa, companies usually pay employees by 15 December, so they have money for Christmas.

That’s lovely in theory but it does mean there’s a long, long wait between the December and January salaries.

I wasn’t always as self-disciplined as I am now but I was always a quick learner.

After one really bad year where all the money was spent early on, I vowed to never get in that situation again.

We’ve never used credit cards so that was just not an option.

I’ve now done this for about 12 years and it works beautifully.

When I get paid in December, I move the money I’ll need for the 3 weeks in January plus a bit extra to a separate savings account.

Out of sight, out of mind or… what you don’t see, you can’t spend 🙂

It’s simple but very effective.

This way I always have money in January when everybody else is broke. And everybody thinks I’m very clever when I tell them my “tricks”.

What do you do about the long wait? Or what happens on your side of the world?

P.S. In the Organise your home system, there’s an ebook on finances called 10 steps to your financial freedom which has even more fantastic tips.

P.P.S. If you’re getting paid this week, my coaching challenge is to put the January money in another account.

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