What is Zero-based Budgeting?
What if someone asked if you wanted all your income or just part of it? You want all of it, of course! You worked hard for that money.
But if you’re not budgeting to zero, you’re essentially missing out on money that’s yours. The good news is that it doesn’t have to be this way. A zero-based budget is the easiest way to make sure you have a handle on all your cash and are putting it toward what’s important to you.
Here’s everything you need to know about zero-based budgeting:
What Is a Zero-Based Budget?
A zero-based budget simply means that your income minus your outgo (all your monthly savings, bills, payments, and investments) equals zero. EveryDollar makes this easy by tallying up the numbers for you. No math required! That’s what computers are for, friends.
Why Should You Budget to Zero?
When you budget every dollar down to zero, you’re simply making sure all your money is present and accounted for—and working hard for you at the same time. Think of your budget as a sturdy, five-gallon bucket that’s holding all your cash. If you’re over or under budget, it means your bucket has holes in it. Patch up the holes and you’ll have more for paying off debt, saving for retirement, or funding a week at the beach!
How Do I Make a Zero-Based Budget?
Start by estimating the total income you expect to earn next month. Think regular paychecks, side work or anything that brings in regular income. Then budget for your important fixed categories. These are the easiest to plan for because they likely remain the same each month, like bills, utility bills, and regular monthly payments.
Some examples are:
Your variable categories—the ones where the amounts can vary each month—come next. Use your remaining money to budget for things like:
If you're not sure how much to assign to your budget categories, check out our recommended budget percentages. Now pause for a moment to do a little math and add up each list separately. Of course, if you use EverDollar to create your budget, we’ll compute the numbers for you!
Subtract the expenses list from your income. Let’s say your monthly take-home pay equals $3,000 and your necessary and fixed expenses come in at $2,400. You just found $600 to work with!
Of course, the money’s been there all along. It’s just that you, like the rest of us, can easily spend that extra $600 throughout the month without even realizing it.
But now, because you’re paying attention and you have a plan, you can put that $600 to better use. You can tackle debt, add to your savings account, save for a vacation, and so much more! All you have to do is build the your findings into the budget.
When you’re done, every dollar should be assigned to something. That’s what we mean by zero-based—you’re in control of all your money. Zero is wasted!
How Do I Track My Spending?
Every time you spend money—whether it’s at the grocery store, the gas station or the movie theater—enter the amount into the budget so you know how much you have left to spend. Do this as soon as you buy something so your transactions don’t pile up. Recording your purchases one at a time makes expense tracking a snap.
With EveryDollar Plus, you can save time by connecting to your bank account, so you can automatically see your purchases in your budget. Then all you have to do is drag and drop your purchases in the right budget category!
What If I Have Money Left Over?
At the end of the month, if you find you have extra money left in your budget, that’s okay. You can keep your budget zero-based with a few simple adjustments. Don’t leave unassigned dollars sitting in your account collecting dust—it’s your money, make it work for you!
Don’t Just Take Our Word for It
Glen L., an EveryDollar user, describes the power of a zero-based budget this way:
“I paid off almost $5,000 in debt in a little over a month. Before the budget I didn’t know where all the money went, and now I don’t know where it all comes from.”
The formula’s simple, but it works every time: Budget to zero, track your spending, and adjust as needed.