What Is a Zero-based Budget, and Can I Do It?

Zero-based budgeting is when your income minus your expenses equal zero. Perfect name, right?

So, if you make $3,000 a month, everything you give, save, or spend should add up to $3,000. Every dollar that comes in has a purpose, a job, and a goal. Nothing is left hiding or mindlessly spent on fancy coffees or $1 bin deals.

Quick callout: This doesn’t mean you have zero dollars in your bank account. It just means your income minus all your expenses equals zero. Keep yourself a little buffer of $100–300!

The best way to create a Zero-Based budget is to follow these steps:

List your monthly income

What is your income? Your regular paychecks and any other monthly income from another source. Add it up, and you have your total monthly income.

Subtract your income from your expenses to equal zero

Your expenses could be:

• This month’s expenses – all your regular expenses like food, utilities, rent or home payment, car expenses including gas, etc.
• Other essentials (insurance, debt payments, childcare, etc.)
• Giving (if you give to charities, churches, etc. – this should be a small percentage)
• Savings (try to set a percent that goes to savings every month
• Entertainment including eating out, movies, etc.)
• Other miscellaneous expenses – things that happen annually like tax filing prep, anything you often forget because it happens irregularly

When you subtract all these items from your income, you should get zero. Adjust the miscellaneous or other categories to hit zero.

Track your expenses

Track your income. If you make extra money for any reason, add it to your income total from step 1. If you missed something on expenses, do the same thing – add it to step 2 total. You need to keep ending up with a zero when expenses are subtracted from income. So, you will be adjusting each month as things change.

Make a new budget

Before starting a new month, make up your budget using everything you learned from the current and previous months. The longer you do your budget, the better you will become at it, and fewer changes and adjustments will occur.

Can I Make a Zero-Based Budget with an Irregular Income? 

Yes, you can. You just have to make a few more adjustments and stay on top of it. When you start, take the lowest amount you made recently to start and adjust it if it goes up. For expenses, take the highest recent amount and adjust as you go through the month tracking expenses. You may find that some irregular expenses have to go in the coming months until you have a good feel for making in-month adjustments.

It is proven that having a monthly budget and keeping it current is highly effective in managing your money and is a tool that people you are successful financially use. Even if you do not want to use the zero budget method, you will find that budgeting will change how you spend money and what you spend it on. It will also make a difference in your ability to have a more secure future!

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