The Complete 7-Step Guide for Building a Zero-Based Budget

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Did you know that most people don’t keep track of their finances at all?

That’s right – a study conducted by mint.intuit.com here found that 65% percent of the people surveyed said that they had no idea what they spent last month. That’s absolutely horrifying to think about. But honestly, not really that surprising.

Because people just don’t care about their finances. Most think it’s too difficult to keep track of and that they’ll never get ahead anyway. So they just overspend and neglect their finances. Until they’re completely broke, deep in debt, and financially screwed.

But no matter how much debt you have or how horrible your finances are, you can fix it. You have to change your mindset and you have to track your money. This post here can help with your money mindset.

And the post you’re reading right now is going to help you with tracking the money. We’re going to do that with a budget. But first, let’s look at what a budget is, why you need one, and what the best budget is for your personal finances.

After that, I’ll show you the simple and easy 7-step guide for building a zero-based budget! Alright, let’s get started!

What is a budget?

A budget, in your personal finances, is a way to track your personal income and expenses while allowing you to have a plan with your money and helping you make progress toward your personal financial goals.

A budget doesn’t have to be confusing, difficult, or complicated. It’s just a plan for your money. How much you make, what you spend, and where you’re planning to go with your money (as you’re working toward those financial goals).

So you NEED to have a budget. Here’s why:

Why you NEED a budget

So as you can see from the section above, having a budget ready to track your income and expenses is extremely important. But here are a couple of HUGE reasons why you NEED to have a budget:

Allows you to control your money: having a budget allows you to control your money instead of it controlling you. Because most people don’t have a budget, they let their money do whatever it wants. So guess what happens? It goes away…quickly! You can’t let your money control you. YOU have to take back control and you do that using a budget.

Permission to spend: a lot of people believe the common misconception that a budget is limiting, hard to do, and doesn’t allow you any freedom with your money. That’s just a straight up lie told to you by broke people and those who are undisciplined and immature. A budget is actually “permission to spend” your money. By controlling your money, YOU tell it where to go and YOU allot yourself money to buy things as well. You’re only limited to spending less than you make.

Helps you reach your financial goals FASTER: because you’re controlling your money and telling it what to do, as you set your financial goals, you’ll start making progress toward them quicker and more efficiently. It’s pretty amazing actually.

For more on why you need a budget, check out this in-depth post – “7 Ways a Zero-Based Budget is the Best Budget for Your Money.”

What is the best budget to use for your personal finances?

The best budget to use for your personal finances is the zero-based budget because it zeroes out your income and expenses, helps you track every single dollar, doesn’t allow for any waste, and it can help you reach your financial goals much faster than any other kind of budget (if used correctly).

The zero-based budget gives every dollar an assignment. Every single dollar has a job!

Once you start using a zero-based budget, you’ll make so much progress in so little time, you almost won’t believe it. The zero-based budget is insanely efficient, but is a little bit tougher to use than some other budgets. However, the progress you can make with this budget is 10X that of other budgets because there’s literally zero wasted dollars.

So let’s start building your budget!

The 7-step guide for building a zero-based budget

Step 1 – Your Income

The very first thing you need to do is to figure out your income – exactly how much you make per month AND per year. You may already know it. But if you don’t, this is the time to learn what it is. It’s important when determining your expenses because you need to know that you’re spending less than your income.

So simply find a physical paystub or online paystub showing base salary for your job. If you’re hourly, that’s okay. Just find whatever your base pay is on your paystub for the year. You can use your last December paystub showing total annual salary or your job’s W-2 tax form for the year prior.

It’s also important to know your annual income so that you can start working on making more!

So write down exactly how much money you made for the year now.

Next, figure out your your monthly income – you’ll use this for your budget. For this, check your last few pay stubs. That should show you your “net pay” or what you made after taxes – that’s what goes in the income category of your budget

If your income changes or fluctuates every month, use your average amount made per paycheck or use the least amount that you know that you’ll receive. If your average amount made is $3,000, use that figure. If you know that you’ll make at least $2,500 (that’s the least amount of money that you’ve made at this job), use that figure.

Write down your estimated income now – this will be what goes into your budget.

Step 2 – Figure out your expenses

Step 2 requires you to figure out your expenses for the month. Seeing as 65% percent of people don’t know what they spent last month, I have a feeling that you may not know your expenses. If you do, fantastic. If you don’t, it’s time to learn your monthly expenses.

The easiest way to learn your expenses is to check your bank statement for last month. From the 1st of last month through the very last day, literally add up every single purchase you made. It might take you just a bit, but this is important!

You can also write down all your purchases for the next 30 days and track that way. But using your bank statement is much easier.

I would encourage you to actually go back and add up the last 2-3 months so that you get an accurate picture of what your expenses have been like. And then keep track of all expenses for the next 30 days.

Once you’ve calculated your expenses, you need to look at your income and your expenses. Your expenses need to be LESS than your income. If your expenses are less than your income, that’s great! Move on to the next step because you’re “living below your means.” That’s good!

However, if your expenses are more than your income, you’re overspending and “living above your means.” That’s bad and very dangerous for your finances. If this is the case, you need to cut expenses immediately. Check out the two posts below for how to cut expenses and start saving money in your budget ⬇️:

101 Ways of Creatively Cutting Expenses to Save a Ton of Money

37 Ways to Give Yourself a Raise in Your Budget (#27 is Crazy!)

Step 3 – Figure out which platform to use

Before you actually create your budget, you’ll have to figure out which platform you’ll be using to create your zero-based budget. You already know which type of budget, so you just need to know where you’ll be keeping track of your expenses. For this, there are basically 3 main options – EveryDollar.com and the EveryDollar app, Mint.com, or a Microsoft Excel spreadsheet. You can use a pencil and paper, but that just takes way too long for me, so I’d pick from any of the first 3 options.

Excel spreadsheet: I put this first because it’s simply my budget of choice. I’ve been using an Excel spreadsheet to do my budget for over 6 years now. I’ve dabbled in the other two budget platforms, but I just love to see all my income and expenses on one form right in front of me. And with a few simple formulas in some of the boxes, it adds and subtracts for you in the spreadsheet. Easy, simple, and free.

Here is a link to download the Excel budget that I personally use.

Mint.com: Mint.com and the Mint app are tied for me with the third option this list. The only reason it nudges EveryDollar out for me is because Mint is free AND it connects to all of your accounts for free. So linking your checking is super easy and only takes a few minutes.

Check it out here on mint.intuit.com.

EveryDollar.com: this product, from Ramseysolutions.com, is extremely streamlined and looks great. It’s very easy to use and has 2 versions – the free version and the paid version. Only the paid version connects to your bank. However, if you do pay for the year membership, you also get access to Dave Ramsey’s Financial Peace University course and other things as well.

You can check out EveryDollar here on Ramseysolutions.com.

Step 4 – Start creating your budget

After you’ve picked which platform to use, start creating your budget.

I want you to get your bank statement back out or your list of written expenses and start making categories. For example: food, housing, transportation, and bills are the big 4. You can also add in stuff like miscellaneous, family, and entertainment.

Once you get your categories down, start organizing your expenses under these categories. For example: under transportation you’re going to put – car payment, gas, maintenance, car insurance, and anything else pertaining to your car or transportation.

After organizing all expenses under your categories, start adding all of these expenses into your budget. YOUR BUDGET WON’T BE PERFECT ON DAY 1. Just do the best you can and tweak your categories and expenses as necessary.

Even if you have EXTRA money, you still want to give it an assignment. So if you have $1,000 extra dollars like my example above, you’ll simply be assigning it to a task like paying off debt, saving, investing, giving, or spending.

Remember: EVERY SINGLE DOLLAR HAS A JOB TO DO in your zero-based budget.

Step 5 – Budget completed

Step 5 is simple. Continue working on your budget, tweaking categories, and adding expenses until you complete your budget. Well, complete it for now. Just like everyone else that does a budget, you’ll continue working on it until the very end of the month. The budget isn’t complete until your month is over and you’ve started a new budget for next month.

Step 6 – Determine how often you’ll check it

Step 6 is where you’re starting to work on your budget and determine how often you’re going to check it and update it.

A zero-based budget needs to be updated regularly so that you can keep up with any and all expenses. So you have to choose how often you’ll update it from one of the options below ⬇️.

Here are your options for updating the budget:

Extreme budgeter: updates budget every 1-2 days like clockwork (daily).
Hardcore budgeter: updates budget every 3-4 days and occasionally maybe more (10X/month).
Intentional budgeter: updates budget every 5-7 days and is still very serious about financial goals (4X/month).
Decent budgeter: updates every 8-10 days (3X/month)
Lazy budgeter: updates budget every 15 days (2X/month)
“At least I do it” budgeter: updates once a month and that’s it. I guess I’m just glad you have a budget. If you’re here, you need to update more frequently.

I personally update my budget every 1-2 days because I’m VERY serious about my financial goals. That’s makes me an extreme budgeter. Determine how often you’re going to check and update your budget. The more you practice and update your budget, the better you’ll get at budgeting!

Step 7 – Continue to budget monthly

Step 7 is where all the effort and hard work come into play. Step 7 is where you’re constantly updating and tweaking your budget every month. It won’t be easy at first, but over the next couple of months, your skills will improve dramatically.

I’ve budgeted almost every day now for about 6 years, as well as weekly for 3-4 years before that, and I’ve perfected our budget.

But your budget doesn’t have to be perfect at first. I just want you to do it. Create your budget and start budgeting. Then watch how fast you start crushing your financial goals. It’s honestly pretty amazing.

Finally

Budgeting is tough when you first start. You may not be used to tracking all of your expenses or living on less than you make. But you NEED a budget to help you track what you’re spending, spend less money, and make progress toward your financial goals. Without a budget, it’s hard to do any of that. So I want you to build your zero-based budget, give every single one of your hard-earned dollars an assignment, and start keeping track of your money like never before.

If you do that, you won’t just hit your financial goals, you’ll crush them in no time at all.