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A Simple Zero-Based Budget Can Help You Save More Money

 Published on November 20, 2019

If you want to make some changes to your spending habits and potentially boost your savings, consider giving the zero-based budget a try. It brings a hyperfocus to every dollar coming in and out of your hands so that you can use your money with intention.

Check out the guide below to learn more about what this budgeting technique is and how it may help you achieve your budgeting and saving goals.

What is a Zero-Based Budget?

A zero-based budget has a few different names. It’s also known as a ZBB or a zero-sum budget.

However you say it, a zero-based budget is a spending plan in which your income, minus your expenses, always equals zero. It requires you to spend every dollar you earn each month — just not in the way you may think.

The ZBB is not an excuse to buy everything off your Amazon Wish List. It forces you to use your money purposefully, in ways that may improve your financial well-being.

If it’s hard to get your head around the idea of spending, it might be easier to think of it as assigning every dollar a task. Once you assign every dollar a job, there shouldn’t be any money left unaccounted for in your budget.

In this way, the zero based budget is unlike other budgeting techniques we’ve covered in our Ultimate Budgeting Guide. There, the spending plans detailed help you slash expenses, so you have more of your income free each month.

With a ZBB, you don’t want to eliminate spending. You just want to change what you’re spending your money on. This budget shifts spending away from splurges to priorities like savings, investments, and debt payments.

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What Are Some Common Uses for Your Money?

You could assign your money some jobs like upgrading your smartphone, buying tickets to Hamilton, or going on a vacation. These expenses may help you reach the end goal of zero, but they may not improve your financial stability.

One of the most essential zero-based budgeting tips is choosing your tasks carefully and picking ones that will further your financial well-being. These tasks should play a valuable role in your budget to prevent you from spending your cash just for the sake of spending it.

A zero-sum budget is a personal spending plan, so the jobs you choose depend on your unique financial goals.

However, some of the most common goals, or tasks, include the following:

  • Building out an emergency fund
  • Investing in your family’s future with a retirement or education fund
  • Additional payments towards installment loans, lines of credit, and credit cards
  • Saving for a major purchase, like a car or home

For the zero-sum budget to work to its full potential, you’ll need to spend your money with intention and eliminate wasteful spending habits.

That’s not to say you can never eat takeout again or that you should never meet with friends over drinks. You may find it tricky to meet your goals if you can’t enjoy your life at the same time.

The zero-sum budget simply reminds us that it’s ideal to focus on your financial priorities before you treat yourself to something fun.

glass jar full of coins next to three stacks of coins on a table in front of a green background

How Should You Develop a Zero-Based Budget?

The zero-sum budget starts in the same way as any of the other budgeting techniques. You’ll have to spend time looking over your finances to create a personalized ZBB.

Below, you’ll find a step-by-step guide that explains how to complete a zero-based budget.

Step #1: Know your income

Before you can start assigning tasks, you need to know what you’re working with. Your income makes up the foundation of your ZBB, so make sure you pay close attention to your income streams.

These streams may include paychecks, commissions, child support, tips, alimony, and more. Basically, if it’s expected money coming into your account, you should count it as an income.

Just make sure you’re working with your net income, or what you make after taxes and other deductions are withheld.

Step #2: Track your expenses

The purpose of this step is to get to know your spending habits. For some people, this might be easy. You might already know how you spend your money if you have an existing budget on the go.

For others, this could take some time as you inventory every expense.

If this describes you accurately, start with the necessities, like what you spend on shelter, food, utilities, transportation, and other unavoidable expenses. These expenses make up your monthly priorities.

From there, branch out to cover all the other ways you spend your money.

No expense is too small for your zero-based budget — whether it’s a $10 top up on your gas tank or a $2 lemonade from the neighborhood stand.

Don’t forget about irregular or seasonal expenses, either. Make sure you note down things like holiday spending, haircuts, birthday presents, and household maintenance.

overhead view of a woman writing in a lined notebook on a white table next to an open laptop

Step #3: Organize your spending into categories

Now that you have an itemized list of spending, start to group them into common categories. Take a look at the table below to see what this organization looks like.




Basic groceries, delivery, vending machine snacks, restaurants, takeout coffee


Phone bill, streaming subscriptions, cable package, Internet package, digital rentals

Once you fit everything into a category, calculate how much you’re spending in each one.

If step number two was an up-close look at every expense, step number three lets you take a step back to examine your spending as a whole. It may give you the perspective you need to identify problem areas in your budget.

Rent may take up a lot of your income, and that’s common. But what might surprise you is how much you spend in categories you label as ‘wants’, like eating out or entertainment.

Take your media category as an example. Once you tally up every subscription, cable and Internet package, data overage charge, and online movie rentals, you’ll see how much these expenses truly cost you.

Step #4: Rank your categories

While thinking about your financial goals, organize your categories according to your financial priorities. Planning for your basic necessities may rank high on this list along with contributing to your savings and paying off your bills.

Whatever comes high on your list should reflect your financial focus and get paid first before categories that rank low.

Step #5: Redistribute your cash

This is your opportunity to tackle anything you may want to improve in your budget. For instance, do you find yourself spending too much on takeout? Look for tools to help you save money when eating out, or if possible, try eliminating this expense from your budget altogether.

Just be mindful of how you allocate your cash. The money you save from these slashed categories should go towards one of your goals, not other fun splurges.

Tweak your budget to get your problematic categories under control. Then compare it to your income to make sure you’re on the right track.

man holding a black wallet and money over a wooden table with a laptop and small globe

Step #6: Achieve your ‘Zero’

Remember, the basic principal behind your zero-sum budget is as follows:

Income – Expenses = Zero

You may need to take some time tweaking your spending to make sure this happens.

If Income – Expenses = a Shortfall

If you’re spending more money than you’re earning, you may need to go back to your expenses and eliminate more extra costs. Cutting those costs may be the first step here. However, if you’re living paycheck to paycheck, you may need to consider boosting your income with a side-gig or a part-time job.

If Income – Expenses = a Surplus

You may also have to reorganize your budget, even if you’re spending less money than you earn. Although this is a better outcome than the above, it may still not be your goal.

Surplus cash is money that doesn’t have a task. Money that doesn’t have a job to do can easily turn into money to burn.

To make sure you’re spending it with intention, you need to assign this surplus cash a job that serves your finances well. You may choose to apply it to something like additional payments toward your student loans or a line of credit balance, or even more contributions towards your emergency fund.

If you pay off your loans or meet your savings goal, it’s okay to celebrate your hard work by splurging on a treat or something else you may like.

Should You Have a Zero Dollar Bank Balance?

There’s never a good time to see a zero in your checking account, and that includes when you’re following a zero-based budget. A zero here is an unnecessary risk if you accidentally overdraw from this account.

Leaving a zero in your checking account is a lot like living paycheck to paycheck. It may leave your finances vulnerable to unexpected expenses or emergency repairs.

Ideally, you want to organize your budget so that you have some cash sitting in your checking account. This money’s job is to act as a cushion in case something costs more than you expect. With a little extra cash padding out your account, you may avoid paying overdraft fees.

Without it, an emergency may put you in an uncomfortable position — overdrawn and still short of what you need. If you find yourself in this tough situation and you have no other way to pay for that unexpected emergency, quick emergency loans may help you pay your bills. Take the time to learn about your online loan options to make sure it makes sense for your situation.

A short-term online loan may not always be the right choice, but it may be an option if you’ve been denied financing from a mainstream bank. Find out if we are an online direct lender in your state before you apply.

Who Can Use a Zero-Sum Budget?

The great thing about a zero-based budget is that anyone can try it. It may help someone who wants to:

  • Manage their cash flow better
  • Put more money towards an emergency fund or a retirement plan
  • Eliminate frivolous spending
  • Save up for special occasions and big purchases
  • Make additional payments towards installment loans, lines of credit, and credit cards

What if You Have an Irregular Income?

Are you one of the many people who make a living as a contract worker, freelancer, or commission-based employee? The good news is you can use a zero-based budget, too.

If you earn an irregular income, you’ll want to create a budget around a lean or low-earning month. When organizing your expenses into categories, prioritize them in order of your needs, making sure you cover the necessities first before moving down the list.

As you get paid, spend your money according to your priorities, so you can cover the necessities first. If it’s a lean month, you may not get through all those non-essentials and that may be okay. You have the option to skip them for now and get to them when you earn more.

In a busy month, when you earn more than your low-earning estimates, you can put your extra money towards your checking account cushion or emergency fund.

man in blue button down shirt sitting at table writing in a notebook in front of an open laptop

Zero-Based Budgeting Tips for College Students

The zero-based budget is also an excellent choice if you’re currently in college or a recent grad.

College students can follow the same step-by-step guide as everyone else with one major difference - in addition to any earnings you may make with a job, you’ll want to include any scholarships, student grants, and other financial aid into the equation.

Otherwise, everything else may be the same. You’ll still want to achieve ‘zero’ by making sure your income and expenses balance out.

In most cases, a zero-sum budget may fit your finances. If you end up with any extra cash, put it towards savings or payments towards your student loans.

Depending on the type of loan you have, you may be expected to make payments against the interest and/or principal while you’re in school. Making these payments while you’re enrolled may help reduce what you owe overall. Additionally, it’s important that you incorporate these payments into your primary budget, and not just use any leftover money to pay your debts off.

woman with pink nail polish holding iPhone over silver MacBook with memory stick on a wooden table

Go from Zero to Hero with These Zero-Based Budgeting Tips

Saving may not always be easy with a traditional budget. It may leave some extra cash sitting in your account, which you might find too tempting to ignore.

If you need help controlling overspending, a zero-based budget might be the answer you’re looking for. This money management style is a practical way to rein in spending and focus on your financial goals.

Also, an online cash advance may be an option if your budget is tight and you run into an important expense you can’t afford, but only in exceptional cases. This type of online loan helps you take on short term, non-recurring emergencies when money is unexpectedly tight. These shouldn’t be used to deal with recurring expenses or expenses you know you’ll need to pay in advance. Learn more about how a cash advance works.

Don’t stress out if you realize you don’t like the zero-sum budget. There are a lot of different types of budgeting techniques in the world. There are also free budgeting tools to help you manage your finances online.

Which one you end up choosing doesn’t matter. What’s important is that you choose the right one for your finances.

Posted in: Financial Tips Lifestyle

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.

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