7 Ways a Zero-Based Budget is the Best Budget for Your Money

Table of Contents

Budgeting isn’t always easy. But if you don’t want to be completely broke, you need to do a budget every single month. It’s absolutely required if you want to achieve any of your financial goals.

So it’s obvious that you’re going to need a budget that can get the job done. A budget that lets you control your money instead of it controlling you. You need the Zero-Based budget.

It’s the budget I’ve personally used for years to pay off all my consumer debt and build a $300,000 dollar net worth by 30 years old. Now I might be a little bit more motivated than the average person, but my point is still valid: the zero-based budget is the best overall personal finance budget for your money. Period.

So in this post, we’re going to go over the zero-based budget in all its glory: what it is, why it’s the best budget for your money, and how to create one.

What is a zero-based budget in personal finance?

The Zero-Based Budget, also called the zero-dollar, dollar for dollar, or zero-sum budget, is a method of budgeting that has the individual allocate every single penny of income toward expenses, savings, debt payoff, and fun.

This kind of budgeting might seem like you’re living paycheck to paycheck, but that’s not the purpose of the zero-based budget. The purpose is to use everything you have to reach all of your financial goals, with no wasted money.

For example, if you make $3,000 dollars, your expenses might be $2,000 dollars. But you also allocate the other $1,000 dollars for debt repayment. The goal is to use ALL your money WISELY.

If you’re curious about the zero-based budget, below we’re going to look at 7 ways that the zero-based budget is the best budget and how to create a zero-based budget in the section below that one. Let’s get to it!

7 ways a zero-based budget is the best budget for your money

1. It gives every dollar a job

Giving every single dollar a job or a mission is absolutely crucial in today’s fast-paced, highly-inflated world. It’s very important for your finances because everything just costs more and you want to always make sure your money is working for you!

The great part about the zero-based budget is that YOU set the budget how you want so that you have money going toward debt, saving, or investing. Every single dollar is fighting the good fight to help you improve your finances and practice intentionality with your money every day.

2. It keeps you from overspending

A zero-based budget shows you your income and your expenses so that you know what you make and exactly what you’re spending money on. As we assign every dollar toward something, you’ll see that there isn’t a lot of wiggle room, so that constantly keeps you from going out and making impulse purchases.

If you know there’s not a lot of money left to do other stuff, you don’t do other stuff. You don’t go overspend on things you don’t need. You simply spend money on what’s in the budget and that’s it. This budget does allow you to have some money for spending and fun, but it keeps you locked in under a certain amount of money allotted in the budget.

3. It doesn’t allow for waste

I LOVE the zero-based budget because it doesn’t allow for any wasted dollars. Because if there’s one thing I really hate, it’s wasting money. I mean, we all work really hard for our money so why waste it away?

You want your money to be used for good. Used for things that actually matter you. And this budget will help you do that so that more money goes to what you want it to.

4. It tracks every penny

If you want to be an hardcore budgeter like I am, the zero-based budget allows you to track EVERY SINGLE PENNY. You might think that this is a bit extreme, but that’s how I am with my money and my budget. I use the zero-based budget so that I know where everything we make is going at all times so that we can use our money to build wealth. I’m usually not a fan of micromanagement, but in the case of your budget, it’s completely acceptable.

Just don’t get stingy and mean with it. I watch our budget like a hawk, but my wife also has input and I don’t ever control how she spends her money. I just like to know where the money is going so that I can put it in the budget.

5. It allows you to be more intense with your financial goals

One way this budget has really helped is with our financial goals. Even though you might have to be a little bit more meticulous with the zero-based budget, you’ll know exactly how much money you have every month going toward your financial goals.

If you’re trying to get your starter emergency fund together, paying off debt, fully funding your 3-6 month emergency fund, or saving up for a big purchase, the zero-based budget can be the way to achieve that goal. It’s the budget you always want to use in your finances, but it’s especially good for you if you’re extra motivated to win financially.

6. It allows you to see what you’re spending in every category

Another reason the zero-based budget is great is that it allows you to look at your expenses for every single bill and category of spending. Because of this, you can really fine tune your budget. Every month you’ll see exactly what you spend so that you can work on trimming or cutting costs. If costs go up, you’ll immediately know and you can starting working on finding ways to lower those expenses.

7. It can make you feel like got a raise

Overall, the zero-based budget is great because it can make you feel like you’ve gotten a raise in your personal finances. If you go from no budget or any other budget, really, to using a zero-based budget, you’re going to find extra money in there that was just being frivolously wasted before. And now you can really start turning up the heat on your personal finances!

Most people who start using the zero-based budget usually notice how much extra money they could have if they just stopped spending too much on eating out, snacks, energy drinks, cigarettes, or material possessions. That stuff you think you “need” is causing you to be broke. So use the zero-based budget to either trim it down or cut it out. You’ll end up with more money to use for your financial goals and you’ll feel like you got a huge raise.

Most people make enough money. They just don’t budget or manage it wisely. If that’s you, let’s learn how to create a zero-based budget.

How to create a zero-based budget in 5 easy steps

Step 1 – Your income and expenses

First things first, you need to know your income and expenses. That’s a given. You’ll need that for any budget you do. So nothing special there. See? I told you these steps were easy.

Get a piece of paper and physically write down your income: how much you make per month (total gross pay and total net pay) and per year (total gross pay). You’d be surprised to know how many people don’t know this. If you don’t know how much you make, today’s the day you learn. Find your paystub and see how much you actually make.

Next, you need to know all of your expenses and exactly how much you spend per month. Write down everything you can think of and start coming up with some categories (groceries, energy bills, transportation) where you might have a couple of bills.

If you need to, hop on your online banking website and go back over the last 30 days of purchases. That can really help. So far you should’ve written down your income and expenses. Your monthly income minus your expenses needs to be with a $0 or a positive dollar amount.

If your income minus expenses is a negative dollar amount, this is bad. That means you have more expenses than income…YOU’RE SPENDING MORE THAN YOU MAKE. You need to either trim down or cut out some expenses.

Step 2 – Your situation

Next up is your personal finance situation. You need to know if you’re in debt, what kind of debt, how much you have as an emergency fund, and how much you have in savings. Understanding your situation is how we are going to start tackling any financial problems that you’re currently having.

First, consumer debt: think about all of your non-mortgage debt. Do you have any car loans, student loans, personal loans, credit card debt, or any other kind of financing debt? If you do, write it out and total it up.

Next, the emergency fund: do you have one? If you have debt, you only need a starter emergency fund of $1,000 dollars. If you have more, it all goes to debt. If you don’t have debt, you need a fully funded 3-6 month emergency fund. If you have more, you’ll start paying on your home.

Savings?: if you’re in debt, you only need a starter emergency fund and everything else goes to debt. If you’re out if debt, you need the fully funded emergency fund and extra money can go toward your home or into a sinking fund

Mortgage debt?: keep paying your normal mortgage until you’re out of debt and have an emergency fund. Once you have all consumer debt paid, start knocking out the house!

So you see, there’s a lot that you need to know in order to create your budget. The next step is pretty easy, though.

Step 3 – What platform will you use?

Well I say this step is going to be easy because it was easy for me. But it will depend for you. In step 3, you need to pick how you’re going to create this budget and what platform you’re going to do it on: Mint.com (and the app), Everydollar.com (and the app), an excel spreadsheet, or with pencil and paper.

Pencil and paper is tough but some people just live to do their budget this way and there’s no stopping them. I won’t stop you. Though, there are more efficient ways to budget.

The Excel spreadsheet is hands down my favorite way to budget. I know it’s fairly simple compared to the last two budget platforms on this list. But I like the spreadsheet because it is all in one place. It’s every category of expenses all on one easy-to-see excel spreadsheet. Pencil and paper is way too much work and the excel spreadsheet can calculate your totals using a couple of easy-to-input formulas. I’ve used this budget for over 6 years now.

I’ll link to the actual spreadsheet that I use. You can download it using this link (this is a Microsoft Excel download).

The EveryDollar budgeting app is probably the best zero-based budgeting app on the market right now. This app and the next one on this list are both pretty great but this app was designed for the zero-based budget.

EveryDollar is Dave Ramsey’s pride and joy. They literally built this app from scratch so that you could use “every dollar” for your financial goals. It’s a fantastic app with a beautiful layout and two types of membership: free and premium. The free version is fine but you have to input all of your transaction. So the best way to have it link your bank accounts is to pay for the premium version. That costs about $129.99 for the year. It’s paid yearly but comes out to about $10.83 per month. A little pricey but it also comes with Dave Ramsey’s Financial Peace program (which is fantastic) and a few other goodies.

If you’d like to try out EveryDollar, check it out here (link to EveryDollar.com – not an affiliate link, just a great product from a great company).

The Mint budgeting app is another really great budgeting tool. This fantastic app is one that I used for about three years before I started to use the Excel Spreadsheet that I talked about above.

It has a few more features than the EveryDollar App and will actually link your bank account and categorize transactions for free. This Forbes Advisor article here reviewing the Mint app states that it is “a free budgeting app that allows you to connect all of your financial accounts in one digital space so you get a high-level overview of your financial health.” I’d say that that’s a pretty fair assessment of it.

Overall, great app with no premium costs associated with it. You can check it out here (link to Mint website – not an affiliate link, just a great product from a very reputable company)

Step 4 – Add it all into the budget

Now that you’ve completed step 1 through 3 – writing down your income and expenses, understanding your unique personal finance situation, and picking how you’re going to create you’re budget – you’re going to add all of that into your budget and actually create your budget.

Add in your income and what you think you’re going to spend for the month, including all the expenses you had written down.

Again, you need to make sure you have some money left over. You will assign that money to debt or savings, but you need to have a surplus of money (extra money) after you subtract your expenses from your income.

For example, I want it to look like this:

When you look at that picture, it shows that you have a $4,000 income and $3,000 in expenses. That extra $1,000 will be added into your budget as going to one of your financial goals (like $1,000 toward extra debt payments or $1,000 toward your emergency fund or into savings). That way you start making some progress and you zero out your budget.

Okay, time for you to go make the budget. Pick which platform you’re going to use and go do it now!!

Step 5 – Update it regularly

Congratulations on making your zero-based budget! That’s the first step in winning financially. Now comes the toughest step: regularly updating the budget.

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 update it.

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 2-3 days because I’m VERY serious about my financial goals. That’s makes me a hardcore budgeter. I used to be an extreme budgeter but I’ve cut back now that we’ve paid off all our consumer debt. Now we’re just very intentional with our money and we do the best we can to stick to the budget.

But that’s how you create a zero-based budget. Hopefully, it didn’t cause you too much trouble.

Finally

In this post we’ve gone over the zero-based budget in it’s entirety and you’ve seen 7 reasons why I believe the zero-based budget is the best budget for your money. But those reasons are not why I love this budget. I LOVE this budget because IT WORKS and because it’s helped me get out of debt so that my family could start building wealth. And so we’ve continued to use the zero-based budget now for over 6 years now. So if you’d like to get out of debt and start building wealth, you need to be using a zero-based budget.