What Is Zero-Based Budgeting?

You know what they say: Budgeting is life. Okay, maybe nobody actually says that, but it’s true.

Seriously, if you want to use your income to its full potential so you can reach your money goals ASAP, the best way to do that is to keep track of your spending by making a zero-based budget every month. No, that doesn’t mean you start out (or end up) with zero dollars in your bank account—that would be way too stressful. Done right, a zero-based budget will actually help you get rid of your money stress!

Here’s everything you need to know about zero-based budgeting so you can start taking control of your money instead of letting it control you. (That’ll preach.) Let’s gooo!

What Is Zero-Based Budgeting?

Zero-based budgeting is a way to budget where your monthly income minus your monthly expenses equals zero. In other words, the amount of money you spend each month should be the exact same as the amount of money you make each month. Yep, it really is that simple.

So, that means that every month, every single dollar you earn is being used for something. Cover all of your most important expenses first, and then, if there’s any leftover money, put that cash to work!

Whether it’s used for paying off debt, saving up for a down payment, or just plain fun money, every dollar needs to have a job. That way you don’t have random money just floating around—either not being used, or being used for something it definitely doesn’t need to be used for. Bye, Prada pajamas bought on impulse at 3 a.m.

Benefits of Zero-Based Budgeting

What are the benefits of zero-based budgeting? Honestly, there are too many to count, but for right now we’ll just talk about three huge ones.

1. It’s simple.

There are a ton of different budgeting techniques out there, but none of them are as simple as the zero-based budget. Some people go with the “60% Solution,” where you put 60% of your income towards expenses that you’ve already committed to and 10% of your income toward each of these four categories: retirement, short term expenses, long term savings, and fun. (I don’t know about y’all, but I got a headache just reading that.)

Some people choose to put savings aside from each paycheck first before budgeting the rest of it. Other people split their budget into needs (50% of income), wants (30% of income), and savings (20% of income).

But zero-based budgeting is different (and way better!). It helps you pay off debt as fast as possible by putting more than 20% toward destroying your debt every month if you need to. It keeps you in control by letting you adjust your budget percentages to fit your personal situation. And it focuses on intentionally using every penny of your income to reach your money goals quickly.

Plus, it’s the easiest equation you’ll ever learn: Your income – your expenses = $0.

Now there’s some math you’ll actually use on a daily basis—forget all that algebra stuff you suffered through in class.

2. It makes you more intentional with your money.

There’s something about planning out how every single dollar of your paycheck will be spent that makes you rethink your money priorities. Tracking your expenses means that no purchase will ever take you by surprise again—you’ll either plan for it or move around other money in the budget to cover it. No more dipping into your retirement fund or borrowing money to make ends meet at the end of the month.

For example, when you see in black and white how much you spend on coffee every month, you might rethink those Starbucks runs and find ways to channel that money into something super productive, like paying off your student loans!

After all, money is a tool that we can choose to use wisely (or, like me in my early years, not so wisely). A zero-based budget helps you make the wisest choices about what you do with your hard-earned cash.

3. It gives you freedom to spend.

Real talk: Once you make your zero-based budget, you’ll feel like you got a raise because you’ve planned out how much to spend in each category—and as a result, you’ve given yourself the green light to spend that money within those solid boundaries.

That means, when you give yourself a budget category for fun money or eating out, you can actually spend all the money in that category without feeling guilty or out of control. Who knows? Maybe you can get those Prada pajamas if you really want them and they fit into your budget after all the important stuff is taken care of. You just won’t have to deal with that moment of panic the next morning when you realize you dropped $1,000 without thinking.

How to Start a Zero-Based Budget

Okay, this is where it gets real. Budgeting is kind of like working out—you might have to push yourself at first, but once you get started, you feel a lot better (and people want to date you). It takes new budgeters about three months to really get the hang of it. So, here’s how it works.

1. List all of your sources of income.

This includes your paychecks from any jobs you have, any cash you make at your side hustle, any money that family gives you, etc. You can record it in an Excel spreadsheet, go old school and write it down on a piece of paper, or use a free budgeting app like EveryDollar. However you decide to do it, make sure you list all your income.

2. List all of your expenses for the month.

Again, it’s important to list everything you spend money on. I like to put my giving and tithing budget categories right up there at the top to remind me of what’s really important, and then after that take care of the Four Walls (meaning food, utilities, shelter and transportation). After that, you can add more customized categories, like prescriptions, your girlfriend’s birthday that you know is coming up this month (don’t forget), or your bi-weekly brunch because you’re bougie like that.

3. List all of your big expenses for the year.

Some expenses only come up once a year, but you still need to plan for them in advance. We’re talking stuff like renewing your renter’s insurance or buying gifts for Christmas—things that you’re totally aware of but still seem to sneak up on you. Do your future self a favor and put aside a specific amount of money in a separate budget category each month for those expenses so you won’t start panicking once December rolls around.

4. Subtract your total expenses from your total income.

The good news is, you don’t even have to be a math wiz. If you’ve got a calculator, you can do this step. So what should the total be once you do that subtraction? That’s right—zero. If the total doesn’t equal zero, that means you either have too many expenses or you’re not using every dollar of your income.

If you have too many expenses, you might need to get creative and move around some money from other budget categories. For example, you could take some money out of your clothing or restaurant category if you need more money to cover bills. Or you might need to find a way to earn some extra income by picking up some more shifts or selling stuff on eBay.

If you have leftover money that’s not being used, put it toward whatever Baby Step you’re on! Need a quick review? Here are my main man Dave Ramsey’s Baby Steps for winning with money:

  • Baby Step 1: Save $1,000 for your starter emergency fund.
  • Baby Step 2: Pay off all debt (except the house) using the debt snowball.
  • Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund.
  • Baby Step 4: Invest 15% of your household income in retirement.
  • Baby Step 5: Save for your children’s college fund.
  • Baby Step 6: Pay off your home early.
  • Baby Step 7: Build wealth and give.

Personally, my favorite part about using a budgeting app is that it does all the math for you, so it’s super easy to adjust your budget whenever you need to. (I’m always looking for a way to do as little math as possible.)

5. Keep track of what you spend.

Once you have your budget all mapped out, all you need to do is track what you spend money on throughout the month to make sure you’re not overspending. The easiest way to do that is to log how much you spent as soon as you make a purchase so you don’t forget.

Remember, it’s super important to track every purchase. Spent 99 cents downloading a song? Put it in the budget. Bought M&M’s to get you through the afternoon slump at work? Put it in the budget. It all adds up.

And if you have extra money left over at the end of the month, put it toward something you’re saving for or throw it at one of those Baby Steps! You got this.

What if you have an irregular income?

If you work on commission or earn a different amount of money each paycheck, don’t stress. You can still make a zero-based budget work for you. Just budget for the bare minimum of what you expect to earn that month, and then any amount of money over that will be a sweet addition later. (And keep in mind: If your current job isn’t giving you a stable enough income, you might want to think about adding a part-time job or side hustle that can give you a little extra security.)

You guys, I 100% believe that once you start budgeting with the zero-based method, you’ll have way more peace of mind, more freedom, and more power to c-r-u-s-h your money goals (trust me, I learned from experience).

So, here’s your challenge: Get out your phone (I know you have it on you), download EveryDollar, and let the app help you set up your budget! Your bank account—and your future self—will thank you. And if you need some more budgeting tips, check out this Goal Getter’s guide!


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About Anthony ONeal

Since 2003, Anthony has helped hundreds of thousands of people make smart decisions with their money, relationships, and education. He’s a #1 national bestselling author of Debt-Free Degree and national bestselling author of The Graduate Survival GuideHe recently released Destroy Your Student Loan Debt. He travels the country spreading his encouraging message to help teens and young adults start their lives off right and people of all ages succeed with money. You can follow Anthony on YouTube and Instagram @AnthonyONeal and online at anthonyoneal.com or facebook.com/aoneal.