Having a budget is having a plan, and that plan needs definition. Zero-based budgeting is the most granular, detailed kind of planning you could do with your money.  It was developed in the 1960s by Peter Phyrr, the Division Manager of Texas Instruments.  Although originally meant for corporate or government use, this method does wonders for personal finance, as well.  Starting with your sum total of money, you assign all of your monthly income to various expenses, down to the last dime, or zero.  I call it "Give Every Dollar a Job."  No money should be unspoken for or left without a duty.  If you find there is not enough left to fill an important category, you adjust the balance of one category downwards in order to increase it in another. 

Ideally, you'd only use the money you currently have on hand at the beginning of each month (no projected earnings!).  This allows you to work with real numbers and maintain a more accurate picture of your finances.

A reversal of the traditional, incremental budget, ZBB provides a much sharper sense of accountability.  The following list, taken from Wikipedia.org, breaks it down.  The lingo may sound "business-like" but look closely!  It's very easy to see how these same objectives apply to personal finance.

1. Efficient allocation of resources, as it is based on needs and benefits rather than history.

2. Drives managers to find cost effective ways to improve operations.

3. Detects inflated budgets.

4. Increases staff motivation by providing greater initiative and responsibility in decision-making.

5. Increases communication and coordination within the organization.

6. Identifies and eliminates wasteful and obsolete operations.

7. Identifies opportunities for outsourcing.

8. Forces cost centers to identify their mission and their relationship to overall goals.

9. It helps in identifying areas of wasteful expenditure and, if desired, it can also be used for suggesting alternative courses of action.

Let me elaborate on a few of these…

"Greater initiative and responsibility in decision making" is the awesome consequence of keeping a budget.  Now that you have a purpose, you'll think through things more, find creative ways to stay under budget, and strive harder to keep to your goal.  Accountability is much more apparent when you know you have your budget (and your spouse) to answer to at the end of the day. 

This brings me to number 5: "Increased communication and coordination within the organization."  Translation: you and your spouse will actually talk about your money on a regular basis!  This in and of itself is huge.  When you're both on the same page and planning your finances together, good things happen.  You're on the same money-team and your supporting one another in your efforts to be financially healthy.  New goals are always easier when you have someone to discuss them with and keep you in check!  Open and regular communication is key to any successful, joint endeavor. 

Finally, anything that "identifies and eliminates wasteful and obsolete operations," is a powerful tool!  I think you already know what this means.  When it comes down to it, you're wasting money on some things that don't really matter.  We all do it, but most people don't realize the powerful change those few, wasted dollars could make if they were redirected to a more substantial purpose.  Budgeting comes with a healthy dose of introspection.  A mini self-evaluation transpires as you ponder what really matters to you, how much certain things cost to keep in your life, and what makes you happy.  You'll learn to cut what has no affect and keep what really brings fulfillment.  You'll automatically begin ranking your needs and labeling your niceties.  This allows you to maximize your time and energy. That always feels good.

Zero-based budgeting also allows for a greater level of flexibility -- a very important quality for two reasons.

1. Life is never consistent.  There's no such thing as a "normal month."  You'll inevitably need to tweak and change the amount in your categories overtime, at least in the first few months while getting started.  A ZBB allows you to shape your budget to what is coming (and meet it head-on!) rather than basing it on past events.  The closer you stay connected to your budget, the sooner you'll fall into a rhythm and gain a better awareness concerning how much you need for each category. 

2. Different families have different priorities.  If your family is big on camping, music lessons, or school sports, your budget should include those expenses.  Beyond the basic needs of survival, each family will have their own set of "must-haves" in life.  What's important to one family may not be as pertinent to another.  ZBB makes for easier personalizing, but still keeps you accountable by not letting you budget more than you have. 

Understand that you will go over budget as you get started.  This does not mean your budget failed, it means you went over in a category.  It doesn't mean you overdrew your bank account.  See the difference?  With each new month, you'll know how much should be allocated to one category, and where you can afford to cut back in another.  Combining the zero-based budgeting method with pre-determined goals for every dollar will create powerful changes in your finances.  You'll experience a much needed evaluation, a fine-tuned sense of awareness, and greater satisfaction.