Zero Based Budgeting

Published on February 10, 2021 by Lauren

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  • There Have you ever heard of “zero based budgeting”?


    zero based budgeting


    I consider myself pretty money savvy, so I know the ins and outs of budgeting. So when I started hearing about “zero-based budgeting,” I became curious to know more about it. I was taught expenses should be less than income. Then, any money you have leftover should be put towards your debt or a savings goal.

    A lot of times people believe budgets are limiting, and there seems to be a constant struggle either to make more money or spend less money. Sometimes it’s both. I’m a firm believer in budgeting as a way to keep you out of debt.

    What You Need To Know About Zero-Based Budgeting:

    What is zero-based budgeting?

    First, some terminology.  The folks at NerdWallet explain the idea of zero-based budgeting, or zero-sum budgeting centers around the idea that each month the difference between your income and your expenses would be zero. In other words, all of your money should have a job — either set towards your expenses, your debt, or your savings.  No money is “leftover.”

    In reality, sometimes this happens to us by default, right? Zero-based budgeting is designed to be this way.

    What are the steps of zero-based budgeting?

    Zero-based budgeting is pretty easy to start. You’ll want to begin by knowing your income and expenses for a few months so you have an idea of what is currently happening with your finances. If you are coming up with negative income, you can look at your expenses and see where you might need to cut back. If you are coming up with excess income and aren’t quite sure what’s happening to it, you’ll want to figure it out and start accounting for it. Are you spending a few dollars on coffee here and there or doing random Amazon shopping? Write it all down.

      • List out your income. This may not be just paychecks. It may also be things like child support, interest on accounts, any side hustle income you might be getting. Write it all down.
      • List out your expenses. The important thing here is that you list everything. The key to making zero-based budgeting work is accuracy. So include it all and it might sting a little seeing what you are actually spending money on. Splurge on an app for your phone? Did you give your kids a few dollars for something? Spend a dollar for chips at the vending machine at work? Go out with friends for drinks? Track it.
      • Subtract your expenses from your income. This should be exactly zero. Not more, not less. If you have extra, make it fit somewhere whether a debt repayment, a savings goal, or in one of your categories.
      • Make adjustments as needed. It only makes sense that you will have more expenses some months, so you need to be aware of this and plan for it. If you are strict around your budget, you are more likely to abandon it.
    zero based budgeting

    Image from Nerd Wallet


    What are the pros and cons?

    This method of budgeting seems like it makes a lot of sense, but as with everything, there are pros and cons. Some benefits of using a zero-based budget:

      • You will have a greater understanding of where your money is coming from each month and exactly how it’s being spent.
      • You’ll feel a sense of control over your money that can be helpful if you are used to feeling a lot of chaos and overwhelm around your finances.

    Some cons to be aware of if you want to give this method a try:

      • You have to be very strict and accountable to yourself in order to make this work each month.
      • People with variable incomes or expenses each month may find this difficult to use since everything has to be planned to the penny. One way to solve this is to have a floating savings fund where you can add “extra” income certain months and use that to cover months when your expenses might be a little higher or unexpected.

    How do you know if zero-based budgeting is right for you?

    If this sounds like something that might be for you, I recommend you give it a try. If you find it doesn’t work or you are struggling to be consistent, there are other methods to try. Other popular budgeting methods are the ‘cash envelope system‘ which helps you curb your spending, the ’50/30/20 budget’ system which allows you to pay down debt (my money-saving planner is explained here), and the ‘pay yourself first budget’ which sets money into savings before paying expenses.

    Ready to give zero-based budgeting a try?

    1. Zero-based budgeting means all of your money has a job each month and must be accounted for
    2. Get started by making a list of your income and expenses; the difference between these should be zero. If it’s not consider adding extra money to a category (debt payoff or savings) or spending less on one of your variable expenses.
    3. Pros of this method are a greater understanding and sense of control of what is happening with your finances each month.
    4. Some people cite cons as the challenge in accounting for every penny consistently. It may also be difficult for those with variable income and expenses.
    5. If you feel this budget method isn’t right for you, there are other budget strategies you can try such as cash envelopes or the 50/30/20 method.



  • YNAB (You Need A Budget) has their entire budget teaching system on this.
    I think NerdWallet hopped on board.

    But for the java addicts, buy an open box/refurb/used like new machine from amazon or ebay or somewhere. Get the fillable baskets to put your stuff in. Brew it yourself. It’s a sound investment that pays for itself over time.

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