Zero-based Budgeting: A Beginner-Friendly Budget That’s Easy To Stick To

Whether you’re trying to get a better hold on your spending habits, or hoping to start aggressively paying back some debt— having a good budget in place can help. Budgeting isn’t just for people with specific types of financial goals, in fact, it can be a helpful financial strategy for just about anyone who’s interested in being more aware of their money and where it goes.
Unlike other budgeting methods, zero-based budgeting (also called ZBB) is an incredibly simple way to manage your income and meet your financial goals at the same time. It doesn’t require any special tools or skills either— just a reliable way to record your spendings and a willingness to try something new. Ready to see if zero-based budgeting might work for you? Let’s find out.

What is the Zero-Based Budgeting Method?

The zero-based budgeting (ZBB) method is a traditional budgeting approach that accounts for every single dollar you earn. Unlike other budgeting methods, which allow you to allocate your funds into various categories of spending and savings as you go, the ZBB process requires every dollar be categorized upfront and immediately after you get paid. While the categories you choose to put your money in can change from month to month, the overall goal of ZBB is that your income is divided up into various expenditures so that your monthly balance is zero (hence the name).
When starting the ZBB method, you’ll typically want to account for all of your bills and essential items first. This will include things like rent, utilities, and the cost of groceries. Whatever’s leftover can then be placed into savings accounts, put towards paying back your debts, and even used on miscellaneous things like wishlist items or a night out with friends. Regardless of how you choose to allocate your funds in this budgeting approach, the point is to thoughtfully decide how every dollar of your income will be spent in advance. Let’s take a closer look at how you can get started with this unique method of budgeting.

How to Zero-Based Budget

There are quite a few ground rules to keep in mind when creating a new budget using the zero-base approach. When creating your budgeting system, these are the steps you will need

Record your income & expenses

Recording your monthly income and monthly expenses not only helps understand exactly how much money you’re making but also where it goes every month. Get in the habit of writing down your income each time you get paid, then jot down your expenses for that pay period as well. This way, you’ll be able to see what extra money you have or where you might be able to further cut costs to meet your financial goals.

Make your allocations upfront

One of the biggest rules when it comes to using the zero-based budgeting method is to make your allocations upfront. This should happen right after you get paid, whether that’s once a month, twice a month, or more frequently. Whenever money comes in, try and designate it into your categories right away, starting with the most essential items first. By not allowing your money to sit around, you’ll have a clearer plan for how you spend it. The ZBB method helps ensure everything important is paid for first, and that you put your leftover funds towards meeting financial goals (like savings and paying back debt) before tapping into it for miscellaneous items.

Put income towards the essentials first

Like I said earlier, a key rule to practicing the zero-based budgeting method is by putting your income towards essential items first. This will help ensure that all the important things get paid for before anything else, and long before your budget balance becomes zero. Essentials you’ll want to pay first will include things like your rent or mortgage, various forms of insurance coverage (health, car, and home), utilities, and groceries. After these must-haves are spoken for, you can start deciding what to do with the rest of your budget.

Give every dollar a purpose

One of the reasons I like this budgeting method is that it gives every dollar you earn a purpose. Rather than just wasting away in a checking account or serving as a temptation to buy something random you really don’t need, the ZBB method forces you to put your money towards your goals. After designating funds for your essential items, you can start deciding where you’d like to put the rest of your hard-earned cash. This might include things like setting up a retirement account, a savings accounts, or even paying more towards your debt. However, you decide to spend your money on this budgeting method, be sure to leave yourself with a little extra for things like takeout and treating yourself to anything you may want or need. This will help ensure the budgeting method isn’t too strict and allows you to enjoy your income while also meeting important long-term financial goals.

Who is this budgeting strategy best for?

Anyone with limited expendable income

If you don’t have that much extra income to work with (after paying for things like rent and groceries), then this budgeting method could be a great one for you. Not only will the ZBB method help you prioritize your spending, but it will also allow you to visualize how much you can afford to put towards various categories of spending after those big-ticket items are paid for.

Someone struggling to save money or pay off debt

Another person this style of budgeting is great for is anyone who’s struggling to save more money or aggressively pay down their debt. Again, because of the visualization component of the ZBB method, you’ll easily be able to see how much you can realistically afford to put towards these goals every month, while still being able to pay for anything else you may need.

Anyone new to budgeting

Because of how clear-cut this style of budgeting is, it’s also good for anyone who's new to budgeting and not sure where to start. With zero-based budgeting, you can easily prioritize your spendings and savings without the need for any complex budgeting strategies or applications.

Who is this budgeting strategy not for?

Someone with a lot of expendable income

While this type of budgeting can technically work for anyone, it seems to be easier for those with limited expendable income. If you’re in a position of having a lot of extra income after your essentials are paid for, other budgeting methods (that don’t require a zero-balance) may make more sense for you.

Someone who’s primary interest is cost-cutting

Although this type of budgeting does a lot of things well, helping you cut costs isn’t necessarily one of them. If cost-cutting is a primary objective in your budgeting goals, a more traditional budget or spending management tool may be best.

Someone who needs more flexibility

If you’re the type of person who’s budget (and income) changes regularly, you might find zero-based budgeting to be a challenge. While this style of budgeting does afford some flexibility (on a month to month basis), it still requires you to set certain categories of spending and stick to them. Doing this can be a pain for anyone whose income or spending needs change more frequently than once at the end of the month.

Anyone who wants more support budgeting

If you’re someone who has a hard time starting new things on your own, or would just like a little more guidance when it comes to budgeting, this might not be the best budgeting method. Because of just how basic this type of budgeting is, it’s better for someone who’s comfortable doing the leg work solo.

How to get started with the zero-based budgeting method

Record your expenses

In order to get started with zero-based budgeting, you’ll need to get in the habit of recording your income and expenses. This can be done in a variety of ways, but probably the easiest is just by using an excel spreadsheet or a notebook, and writing out your income and expenses line item by line item. Depending on how often you get paid and how different your paychecks and expenses are, you may want to spend a few weeks recording your income and spendings before getting started. Once you have a better idea of exactly how much money is coming in (and going out), you’ll be able to decide exactly how you’d like to spend it.

Categorize your expenses

Now that you have a clearer idea of how much money is coming in and going out, it’s time to start labeling your expenses. One of the easiest ways to do this is by simply breaking things down into four categories. You might call them essentials, goals, needs, and wants. Comb through your expenses and write a letter next to each and label them. If you have a lot of expenses in one category, consider numbering them as well in order of importance. Now that you have this clearer picture of what categories need your money and how often, it’s time to set up your budget.

Set goals

Start by ensuring all of your essential bills can be met. This includes things like housing, food, and even your health and car insurance. Then set a few goals for yourself. These might include things like paying down your credit card balance or saving more money to buy a new car. It might also mean saving more money for your various retirement accounts or putting aside more money to pay down your student loans. Rather than trying to put exorbitant amounts towards these goals, try and pick amounts you can actually stick to. For example, if you know for sure you can afford to put $50 a month towards something, that’s much better than trying to put $100 and then lowering that category back down to zero. When it comes to budgeting, slow and steady progress is better than making goals you can’t keep.

Needs vs. wants

Last but not least, it’s time to take a look at your “needs” and “wants” categories. This is a great place to reward yourself for your budgeting efforts by saving some money for fun extras, like a new bike helmet or a takeout fund. While you might be tempted to shirk on these categories in favor of stashing more aside towards your goals— don’t. Again, having a budget that makes slow reliable progress towards meeting goals is a lot easier to stick with than if you try to deprive yourself of everything. Always remember, having money for personal spending is important in any budget.

Account for odd expenses

Another thing to keep in mind that budgets can change, especially with the seasons. For example, your heating bill might cost more in the winter, or you might have multiple birthday presents to buy next month than this month. Whatever the case may be, don’t be discouraged if your budget is changing— especially as it relates to minor changes in your “needs” and “wants” categories.

Pros and cons of the zero-based budgeting method

Pros

Easy to get started

Unlike other styles of budgeting, this one makes it incredibly easy to get started. All you need is a sense of your income and expenses, then you can start planning for where you’d like to cut costs and how to best optimize your spending to meet your financial needs and goals.

Puts every dollar to good use

This style of budgeting gives purpose to every single dollar you earn. If you struggle with overspending or finding the cash to put towards one of your goals, this budget can help you change that. By allocating every dollar of your income to a particular category, you’ll be better able to track your spending and make sure the important expenses get taken care of first.

Clearly prioritizes spending

Zero-based budgeting makes it easy to prioritize your spending in a smart but simple way. After creating your spending categories and allocating funds, you’ll gain more visibility not only into how you spend your money but also into how you can begin implementing a better system of cost management.

Cons

Less flexible

While other forms of budgeting might allow for more fluid changes to happen, this style of budgeting can feel rigid for some. If your income (or expenses) change frequently, then zero-based budgeting might not allow for the level of flexibility you need.

Time-consuming

Although easy to set up, there’s definitely something to be said about how time-consuming this style of budgeting can be. Because of the rigid categories, you’ll set and the need to manually deposit funds towards each of them, it isn’t necessarily the fastest type of budgeting available.

Minimal guidance/support

Whether you’re unsure of what categories to set, or if you just need more support when it comes to budgeting, this method might feel too hands-off for you. Because you set all the categories and amounts yourself, it helps to be comfortable and have a rough idea of your financial goals.

The bottom line

While it might not be for everyone, the use of ZBB is a great way to get started with a more traditional budget style — and one that simply and clearly helps you gain visibility into your spending. Because it gives purpose to every dollar you earn, this method is a great one for those looking to get the most out of their limited expendable income, or even just to gain some clarity into how much they can reasonably afford to put towards their goals every month. If ZBB doesn’t sound like the best fit for you, worry not. There are a lot of great budgeting methods out there and this is only one of them.
Curious to learn more about different ways you can maximize your budget? Check out the 50/30/20 Budgeting Method.

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