When I coach people to create a powerful budget, I always show them the Zero-based method. Simply put, Zero-based budgeting means that all your INFLOW minus all your OUTGO must equal ZERO. As John Maxwell coined the definition of budgeting, it tells every dollar where to go instead of wondering where they went.

I wrote about ways to increase your INFLOW in the first two parts of the series: Achieve Your Financial Goals Faster. In the last two posts, I reveal ways to optimize your OUTGO. Those are hugely important if you want to get out of debt in the speediest manner possible. Or if you’re going to build up your retirement account before it is too late. Maybe you have a big and costly goal of buying something like a house, or donating to, for example, a community center.

Here I want to present a system I developed to classify the different places OUTGO needs to go. All your INFLOW needs to have a destination, and no matter what the goal is, these are the categories you need to make your own. These five buckets are the same for everyone; only the specific items in the buckets change.

Before You Create a Powerful Budget

The first bucket resides before budgeting begins. It is where you return the tithe and pay your taxes. These are non-negotiables. Make sure not to cheat or steal from God or the government. It will never get you ahead and many times regresses any progress you may have made. Let’s call this bucket: First & Foremost.

The tithe is the Lord’s; don’t touch it. There are unequivocal warnings in the Bible about touching the first fruits of your INFLOW. But there are also promises of prosperity when you are obedient in this area. I wrote a blog post to help you with tithing if this is an area where you struggle.

Taxes are usually automatically taken out of your paycheck, so it is easy to forget about them (until February when you get your W2). But you must keep tabs on what taxes you are paying or not paying. You should certainly not pay more than your required share. Getting advice on how to minimize your tax burden is essential. On the other hand, trying to cheat the system or work an illegal scheme never works out in your favor. Even if you don’t get “caught,” you will pay in other ways. It is a moral law.

So if you can picture all your INFLOW pouring into this first bucket, the money left over after tithe and taxes is where the budgeting begins.

The Essentials of a Powerful Budget

When you create a powerful budget, you must begin with the essential items. These items include food, housing, communication, transportation, insurance, and other real necessities.

You must eat and feed your family. Having a roof over your head is essential. Today it has become imperative that you have internet and wireless phone for work, family, and doing personal business. It would be best if could get to work, the grocery store, and other places to sustain your life, no matter if that’s a personal car or public transportation. Don’t forget the proper amount of insurance where necessary. And lastly, you need to budget for hair, fitness, and other real needs.

Make sure to list these items to the extent that you cannot live without them. It is tempting to go out to eat and put it in the food category, but in reality, you don’t “need” to eat at a restaurant to feed yourself. Dining out will come later. Health and fitness is another area that is commonly overspent. There are ways to stay fit without spending on a gym membership. If it fits in the budget, it will be coming soon.

The same concept holds for housing, communication, and transportation. Having more house than you need maybe a place you can trim off your budget. You don’t need all the extra features on your phone plan. And most people drive a car well outside the need for a reliable and safe vehicle. Don’t worry; the fun and extra items are coming in the next bucket. For now, think about what you need, not want.

You may have also noticed some things missing from this shortlist. This bucket is not the place for entertainment, for instance. Vacations will be coming up in a bucket near you. Those toys and hobbies must wait a minute. Yep, that goes for that facial and massage as well.

Prioritized OUTGO is the Way to Create a Powerful Budget

Congratulations on being honest with yourself in listing the first two budget OUTGO categories. It is not complicated, but many find it not to be easy. You have been faithful in returning the tithe, paying the proper taxes (First & Foremost), and designating funds to only the items you need (Essentials). If you have been filling out your budget along the way, look at the amount you have left. That’s the amount for the next bucket: Aspirations.

What do you aspire to do; what do you want? Many of my clients find it helpful to bring up their checking account statements for the last year and scan those transactions. Remember, though we must focus forward, it is many times necessary to glace back.

List all the extra stuff, the things that are not dire needs, but you enjoy and desire. Eating out is a separate category from food & groceries. The gym membership comes to play here, though you could live with the resistance bands and sneakers you have purchased in the Essentials. While getting your hair done, you can now splurge on the extra amenities.

But be careful not to spend it all; there is more to do. I don’t have to tell you how to spend the money in this bucket. Most people have no problem vacationing, drinking lattes, or buying a video game. The entertainment business booms because of our overspending on Aspirations.

List everything you can think of and your experiences that fill your dreams. But let me warn you now, you will most likely come back to this bucket to adjust a few things. You’ll see why shortly.

The Dreaded Bucket of Debt

Too much OUTGO in America goes to the Red-Ink Bucket. Yes, this is where all the debt payments reside. Don’t skip this step; you must face the music. List all your debt and all the minimum payments. Is there enough to pay these bills?

If you have enough money left over from the first three buckets to make all your debt payments, great! But I don’t want you to stay in debt. The longer you keep debt around or add to it, the less you have for the third and fifth buckets. I want you to enjoy the wealth God has given you to manage. You must get out of debt fast and stay out of debt for the rest of your life.

You must be intentional about getting rid of this bucket for good. I have several posts to help you, but coaching can certainly help you get there if you want a tailored plan for your situation. The best way to move forward is to Optimize your Outgo in the Essentials and Aspirations buckets and pause all Outgo in the last bucket. But don’t do this unless you are sick and tired of being in debt. If you are ready, it should take less than 24 months to be debt-free.

Call me so we can walk through a plan to get you there.

Think Long-Term When You Create a Powerful Budget

So, I said there were five buckets, but actually, you should only have four on your budget. If you are in debt, you should be getting out of debt, and you should pause anything that is going into the last bucket: Treasure. Once you are out of debt, you can resume your dreams for the future!

I named this last bucket your Treasure because this is where your heart points. The Bible says, “For where your treasure is, there will your heart be also” – Mathew 6:21. So, if I want to know what a person loves, I ask to see their budget.

This bucket is where you save up the down payment for your home, or if you are like me, saving up to buy a home with cash. Here you add your Generosity Fund so you can give significant monetary gifts and donations. The Emergency Fund lives here. And investments for retirement and ultimately leaving a legacy all go in these categories. All the big goals, the ones that fund your “why,” end up being supported by whatever is leftover.

It shouldn’t be rocket science to see that since this is the bottom bucket, you would need to adjust the other three to get the most to end up fueling your dreams. Just like the Red-Ink bucket shrinks, the Treasure bucket only grows at the spend of opportunity cost. Every dollar that gets spent on rent, movie tickets, or a pair of shoes is one less dollar that can go to the compounding machine, better known as your 401k. When you see the big picture and take the necessary actions, you realize the power in budgeting this way!

FEAR No More – Achieve the FEAT

It’s time to change the way you direct your dollars. No more being afraid that you will never retire. There is no need to wonder how you will start your dream business. The kids’ college fund is all in the plan, and everyone’s focus can be choosing the school. And, of course, you have big plans to give to your church, your community, and your favorite charity.

Fear steals your dream. Though your goals are incredible feats to achieve, this plan will help you create a powerful budget that will get you there. You see, it’s time you turn that pesky FEAR into achieving this remarkable FEAT by getting out of debt and starting to build wealth.

Start with the First & Foremost things first (tithe & taxes), then take care of the Essentials (real needs), next optimize those Aspirations (expenses you want but don’t need), so you can maximize getting rid of the Red-Ink (the debt that is in your way). It’s time to get rid of FEAR.

It won’t take long when you focus on the goal at hand. You will soon be exchanging that “R” for a “T,” moving from FEAR to that great FEAT. No more Red-Ink. It’s time to achieve all your Treasures.

You can do it!