What Is A Zero-Based Budget?

10/23/2016 05:15 pm ET Updated Jan 10, 2017

You already know that a budget is the best way to manage your money and the fastest way to accomplish your money goals.

But what you may not know is how easy and focused a zero-dollar budget can be for people just starting out on making a personal budget.

Also known as, the zero budget, zero-based budget, or the YNAB budget. The Zero-Dollar budget is a budgeting technique that plans out your money by taking your income and allocating it to your various expenses until you get to zero dollars.

It's the ultimate way to pre-plan your money. And it's the best way for average Joe and Jane to create a solid budget plan.

Let’s explore what it is and how you can start one today.

Here's How It Works

A zero budget is completed before the month begins. So that means if you decide to start one after reading this article, you will make one for next month that starts on the 1st.

Get a pencil and paper to jot down the following, and don’t forget an eraser, things will get messy.


Figure out how much you’re expecting in income next month.

This is easy if you have regular pay.

If you have an irregular income, no worries, just calculate what your minimum average salary would be and use that.

For example, if your income fluctuates between $1500 and $5000 a month you’re going to budget with your average lowest income.

Over the last 3-6 months what was your average minimum income? If it’s something around $2000, then start with that number.

Next, under your income, write down all your expenses using two categories. Needs and Wants.

Expense Categories

Place the most important expense at the top of each category. For instance, rent should be at the top of your needs category. The needs list would have the things you need to live, such as housing, transportation, food, bills, and utility bills.

Next, list your “wants” expense categories. With most important at the top.

These would be the things you don’t need to survive - but that make life easier. Things like cable, clothing, Starbucks, a gym membership, or subscriptions.

Basically, the wants list has anything you can cut out if you absolutely needed to and it won’t jeopardize your living situation.

Your wants list will sit under your needs list. This will be the priority your money will take up.

After you’ve created your expense list, note what each expense costs you. Don’t leave anything out. Go through bank statements and saved receipts to get an idea of what you spend on each expense.

Start Planning

Now you’re ready to plan for the upcoming month.

Plan your month on a separate piece of paper. List your expected income at the top and prioritized needs and wants below that.


Subtract all your needs expenses from your income number at the top.

If your income is $2000 and your housing expense costs $500, then you’ll have $1500 left to continue with down the list.

At the end of the needs section, write down what money you have left from the income portion.

Then take that number and start allocating it through the wants expense list.

Keep assigning money to expense categories until you get to zero dollars from the income number.

Hopefully, you still have money left over after allocating to your expenses.

If you do, then great!

Put the extra toward savings, debt, or your food budget but keep going until you get to zero.

What If I Run Out of Money Before Getting to Zero?

If you can’t allocate money to all your expenses before getting to zero, then you’ll quickly see where you need to cut costs.

It’s sobering to see that you’ve been overspending your income every month. But don’t worry, the zero-budget will highlight weak spots so you can change them and get control of your money.

Here’s how you can cut expenses, so you’re not going over every month.

Start with the bottom of your wants list and cut expenses all the way up until you equal zero.

Take your time to work on this and ask yourself some hard questions.

· Can you sell your car and get a cheaper one?

· Do you really need that gym membership? What about cutting cable?

· Could you go on spending ban for a month?

· Can you make your own lunch at home instead of buying out?

· Can you sell any items you don’t need anymore?

These are the hard questions, but it’s the right the path to personal money management greatness.

What If I’m Expecting More Income Next Month?

That’s great news!

As an irregular income earner myself, I know what it’s like to get a huge check in one month and a small one in another. But that’s what makes this budget the best.

That prioritized needs and wants list is where it’s at!

If you are expecting more income next month, continue allocating down your list until you get to zero.

If you end up with more money after allocating to the expense list, go ahead and make a money goals list.

A money goals list are the things you would spend money on if you had extra.

Things like putting more money toward debt, saving for a vacation or spa treatment or putting more toward retirement.

If you wind up with extra money, put it toward your long-term money goals.

Huzzah! The Budget is Complete!

Once you’ve finished calculating income and allocating it to expenses, put your shiny new budget on the side and take a break.

The first zero budget I made took me 3+ hours. It wasn’t until 3 months later that I fully understood how this type of budget should work.

You don’t have to wait that long. The simple concepts listed above can get you started immediately.

What will take the most time is allocating your income to all your expenses. So just take your time creating your lists.

Your Turn

Have you tried the zero-dollar budget yet? What are you waiting for!

This article originally appeared in August 2016 at TheFrugalSingle.com

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