Zero Based Budgeting 101 + Best Zero Based Budget Templates

Zero-based budgeting example

Budgeting… the dreaded “B” word. You're welcome to join the club if you have tried budgeting in the past and failed. I'm one of those people who fails to do it the right way every time. You most likely didn't find the right method for you. Today I'm going to discuss the zero-based budgeting system, which happens to be my favorite.

Learn more about zero-based budgeting, its benefits and drawbacks, as well as how they work.

You can also review our zero-based budget example and download free templates to get you started.

What exactly is a budget zero-based?

What is a zero-based budget? A zero-based budget is where you assign all of your income to specific budgeting categories until there’s no money left over.

So, for example, $3,000 per month is your salary, so you divide $3,000 between your expenses and debt payments until you have $0.

It’s sometimes referred to as the “zero-sum method” because your income minus expenses always equals zero when you’re finished. But in this example, the "expenses” also refer to money paid by you in savings or extra debt repayments.

Budgeting with zero base: How it works

These are the steps for budgeting with zero basis.

1. Your income should be listed

As with other budgets, zero-based budgeting starts by listing your monthly income. You could include income from side hustles or your job as well as rental income.

2. Compile your expenses

Now it’s time to calculate how much you typically spend each month. It is best to examine your credit and bank statements to figure this out. Then, create a list with all expenses on paper or in a spreadsheet.

Because no two months are the same, it is a good idea to keep track of your expenses over the last three months to give you an overall picture of what you spend.

Don't be discouraged. It’s totally normal to forget about small or one-off expenses when you do this the first time. However, don’t beat yourself up if you keep adding in forgotten expenses those first few months.

3. Budgeting is a way to budget for everything

This is the fun part. You'll be able to create budgeting areas for your expenses and save money for your debt repayment goals.

These are some ideas to get your mind going:

Expensive mandatory

  • Rent/mortgage
  • Utilities
  • Handy phone
  • Groceries
  • Gas
  • Insurance
  • Healthcare expenses
  • Supplies for pets

Other expenses

  • Restaurants
  • Subscribe to our Newsletter
  • A haircut
  • Fun money

Debt payments

  • Auto Loan
  • Kreditkartes
  • Students loans
  • Personal
  • Medical debt
  • Extra debt payments

Goals for saving

  • Fund for emergencies
  • Sinking fund
  • Vacation fund
  • Deposit on a House
  • Kids’ college fund
  • A new car
  • Furniture new
  • Renovating your home

4. Use your dollars for good

After you have created your budgeting categories it's now time to get those dollars into action. Take however much money is in your checking account right now — whether that's $500 or $5,000 — and divvy up every dollar among your budgeting categories until there's no money left over.

If you do that, it will result in one of the following:

  1. You will have money left over so your budget is in the red.
  2. You'll find your budget in red, which means you are spending more than what you earn.

Congratulations if your budget is green! Spend the extra money on your debt or savings.

However, you could also try to cut back on your expenses if the numbers are low. This list contains 23 methods to reduce your spending.

5. Track your expenses & stay flexible

You live a fluid life that is constantly evolving. Your budget should be no different. Keep track of your expenditures and adjust for any overspend.

Expected expenses Will pop up — whether it’s a last-minute dinner out with friends or a $25 co-pay to the doctor’s office. It's possible to get a $25 co-pay at the doctor's office. Will inevitably have items you forgot to budget for — like a birthday gift, an oil change, or a new filter for your water pitcher.

That’s all okay. The beauty of zero-based budgeting is that it’s flexible. If you go $50 over on groceries this month, move $50 from your “fun money” category to cover the difference. You can save a little money on your gas and grocery bills until your monthly electricity bill is lower than normal.

You now know how to zero-based budget. Check out this zero-based example.

Exemplary of a budget with zero base

For this zero-based budgeting example, let’s say Christin makes $4,000 a month after taxes. You might set your zero-based budget this way:

Mieten $1,400
Utilities $235
Internet $50
Handy phone $70
Food $375
Gas $100
Subscriptions $75
Fun money $100
Expected expenses $100
Payment for a car $250
Auto insurance $70
Payment by credit card $200
Students loans $300
Fund for emergencies $200
Holiday $100
Extra debt payments $375

Rest: $0

Christin's zero-based budgeting model shows that she not only covers her necessities, but also allows for fun money. This is so her budget does not feel restrictive. It can be used to pay extra debt early, save up, or make savings goals.

To create your budget, you could use the zero-based example!

These are the best budget templates that don't require any capital

You may not know, but Clever Girl Finance has created a zero-based budget template that can be used to get you started. (It is available here for download.) If you are a spreadsheet geek like myself, choose between an Excel or PDF version.

Other popular budget templates that are zero-based include:

These budget templates are zero-based and will help you get started with budgeting.

App for budgeting that is zero-based

The highly-coveted app is a must for anyone who talks about zero-based budgeting. It is important to have a budget (YNAB). This is hands down *the* most popular zero-based budgeting app, software, and tool on the market.

Its whole philosophy revolves around giving every dollar a job and paying off your debt. You can also spend more money than you earned in the past 30 days (aka you are no longer living paycheck-to-paycheck).

Since 2016, I personally have used YNAB. In 10 months it has helped me pay $18,000 off student loan debt and built a six month emergency fund. In addition, it's helped me increase my net worth from –$25,000 to $250,000 by the ripe young age of 27. It's awesome. It works.

Dave Ramsey's 7 Baby Steps will be a favourite of yours. EveryDollar It is also an excellent app.

There are advantages and disadvantages to zero-based budgeting

We'll now dive into the pros and cons of zero-based spending and discuss why and how you might avoid it.

Let's begin with the benefits of budgeting zero-based!

Benefits of budgeting on a zero basis

There are a few benefits to zero-based budgeting:

1. This is a great way to learn about your spending habits

Zero-based budgeting has the advantage of allowing you to see all your expenses. You can then ruthlessly reduce expenses that do not align with your goals and values.

2. This is a flexible budgeting option

The greatest benefit of zero-based budgeting? It's flexible.

You don't have to guess at your spending and hope that it doesn't exceed. Instead you monitor your spending and make any adjustments needed.

The cons of a zero-based budget

There are pros and cons to almost any method, but one thing is certain: it can be slow. It can take a lot of time to manually enter all the transactions for your zero-based budget.

You can save time and reduce admin by downloading an app that imports transaction data automatically. You can clearly see that the pros of budgeting on a zero basis outweigh any cons.

If you are not able to pay your regular income, can you still use the zero-based budgeting system?

A lot of people think you can’t use a zero-based budget if you have irregular income, but that’s not true. It is important to budget only with the money in your current checking account. If it’s not enough to cover all your expenses at once, rank them in order of importance and put the money toward expenses you need to cover now.

You can pay the electric bill first, then buy groceries for $80 and gas for $30. If you are paid, you can delay and pay your internet bill.

Let's conclude: Can zero-based budgeting be right for me?

You now know the basics of this budgeting method and what its advantages and drawbacks are. Do you think the zero-based Budget is right for your needs? It's impossible to know what you don't try until it happens!

Personally, I enjoy the advantages of zero-based budgeting. It adapts to your lifestyle and doesn't cause you to blow your budget.

Additionally, this is a great way to get out of the "paycheck to paycheck" cycle and pay down debt.

There are many budgeting options, however, it is worth starting with the zero-based budgeting steps. This may be the right budgeting method for you. Register for the free Budgeting Course if you need help getting started.

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