What is a Zero-Based Budget?

What is zero-based budgeting?

Zero-based budgeting is a method where you assign every dollar of your income to a specific category until your income minus expenses equals zero. The idea is to give every penny a job, including savings and debt payments, so nothing is left unallocated.

How it works

• List your monthly income.
• List every expense category (housing, groceries, transportation, utilities, debt payments, savings, and discretionary spending).
• Allocate amounts to each category until you reach zero.
• Track actual spending and adjust in the next period.

Pros and cons

Pros:

• Encourages intentional spending and prioritizes saving.
• Makes waste visible and helps you live within your means.
• Improves awareness of where money goes.

Cons:

• Can be time-consuming to set up and maintain.
• May feel rigid for irregular income or life changes.
• Requires regular updates and discipline.

Getting started

• Gather your income and a list of fixed and variable expenses.
• Create budget categories, including a line for savings and debt repayment.
• Use a simple spreadsheet or budgeting app to assign dollars to each category.
• Review your spending monthly and adjust as needed.

Common pitfalls

• Underestimating irregular expenses or sinking funds.
• Allocating after the fact instead of at the start of the period.
• Not updating categories when circumstances change.

Examples

Example with a monthly income of 3,500:

• Savings: 600
• Housing: 1,500
• Groceries: 550
• Transportation: 150
• Utilities: 150
• Phone/Internet: 100
• Debt payments: 350
• Discretionary: 100

Total = 3,500. Each dollar has a job, and the budget balances to zero.

Tools and resources

• Spreadsheets work well for many people.
• Budgeting apps like You Need A Budget (YNAB) or EveryDollar can streamline the process.
• Use what helps you stay consistent without overcomplicating things.