Is Giving Every Dollar a Job the Right Approach?

There is this concept in the world of finance called "zero based budgeting" where you assign every dollar a specific job - put it into a particular spending/savings/investing category until 100% of your income is accounted for every month.

There are even budgeting tools like YNAB (you need a budget) specifically designed around that concept.

In the financial advice arena, gurus and non-gurus alike talk about it as “giving every dollar a job”.

And that mindset works (for some people) in the right situation.

For others, it can feel quite restrictive and counter-intuitive and cause resistance and actually make things worse for themselves because they now have a system that is restrictive and/or they aren’t following and then feel guilty and ashamed about it.

Personally, I’m on the fence. Especially if there is any kind of variability or irregularity in your income and you are a member of the 1/3 of the population that doesn't get a steady paycheck.

Irregular income is hard enough to budget for, but putting hard limits that you must spend a certain amount (no more, no less) seems like a lot of administrative burden for many people. Making things easy and removing friction is how you increase compliance, especially for things that are challenging or that you don't want to do in the first place.

I agree that you want to be conscious and proactive in your spending habits and know up front if a particular expense category is something you want to include.

An example from my own life. My wife got invited by a friend to go to a concert for a band from the 80’s/90’s that is doing a reunion tour. She didn't care about them enough to go see them in their heyday 30+ years ago. Is that really the band she wants to see today? Is that really how we want to spend our entertainment/concert budget? If not, do we want to spend some of our reserves on their show?

Categories for spending is one of the major benefits of zero based budgeting, but I’m not sure about the specific implementation of zero based budgeting.

I’m not sure if every dollar needs a specific job assigned to it up front.

I’ve always been a saver and preparing for an unknown/uncertain future seems prudent, so I’m definitely on board with that aspect.

Personally though, I would rather have extra left over at the end of the month/quarter/year that I can put into a reserve account, than have to account for it and assign it in advance.

I want a bit more flexibility with the last 10-20+%.

I would rather underspend on an ongoing basis and put the balance into savings or investing for the future. A Reserve account or more than one depending on how you structure things is how I personally like to manage our family's finances.

The concept of keeping some powder dry and available for when an opportunity presents itself.