Zero-Based Budget: What It Is & How to Use it To Crush Your Goals

Last Updated June 5, 2025 by Davina Kelly

Let me guess – you get paid, pay a few bills, treat yourself a little and then suddenly you’re wondering where your money went? Implementing a zero-based budget can completely change that. 

Once I started using this budget method, I finally felt in control of my money, not the other way around. Instead of hoping for the best, I had a plan. A real one. 

If you’re ready to stop feeling like your money is slipping through your fingers, keep reading.

In this post, I’ll break down how a zero-based budget works, how to set one up and why I believe it’s the best budget method.

Key Takeaways:

• A zero-based budget means your income minus your expenses equals zero, because every dollar has a job.
• It’s the most effective way to manage your money with intention, stay focused on your goals and adjust your spending to fit real life
• To create a zero-based budget, you’ll need to:
• List your income and expenses
• Assign every dollar until your income minus expenses equals zero
• Track your spending throughout the month
• Make a new budget before each month begins
• Whether you’re trying to pay off debt, save for a big goal, or just get out of the paycheck-to-paycheck cycle—this method works.

What Is a Zero-Based Budget?

Okay, so before we get into this post, let’s define what a zero-based budget is.

A zero-based budget means your income minus your expenses equals zero.

That doesn’t mean you blindly spend everything. It means you give every dollar a job, on purpose. 

Whether it’s for bills, saving, investing or treating yourself, every cent is put to work. 

You’re not guessing or hoping it works out. You’re making a plan before the month starts and adjusting along the way.

It’s budgeting that actually works in real life. And once I started using this budget method, my finances improved drastically. 

How to Create a Zero-Based Budget In 5 Simple Steps

Creating a zero-based budget might sound intense, but trust me, it’s easier than you think.

Here are the steps you need to follow to get started.

1. List Your Monthly Income

First, figure out how much money you’ve got coming in this month. This includes:

• Your 9-5 paycheck
• Side hustle income
• Freelance gigs
• Anything else you expect to earn

Add it all up. That’s your total monthly income, and it’s the number you’ll be working with when you start budgeting.

Tip: I like to use a simple Google sheet to track everything, but even a pen and notebook works. The key is to just write it all down clearly.

Grab my FREE budget and expense tracker below to start building your budget. 

2. List All Your Expenses

Now you know what’s coming in, it’s time to figure out what’s going out.

Start by writing down everything you spend money on in a typical month.

Go through your bank statements, scroll through your spending history and be brutally honest.

No shame here, we’re just collecting data.

Here’s a structure I like to use:

Living expenses – This includes the expenses you need to survive each month: Housing, transportation, utilities and food. 

Saving – This could be your emergency fund, sinking fund or any other savings goals.

Financial goals – If you have any debt, you need to prioritise paying it off, so include that here.

Also, include any investments or contributions to your employer’s pension. Essentially anything that goes towards your future. 

Non-essential expenses – Once you’ve covered the important stuff, add in things like Netflix subscriptions and insurance payments.

Fun money – Yes, you can still spend money on fun. I suggest allocating a certain amount to spend in this category each month to maintain balance. 

Once you’ve got this list, allocate an amount to each category based on what you actually spend.

Be real with yourself. If you’re spending $200 a month on Uber Eats, write it down.

This isn’t the time for wishful thinking, it’s about facing your actual spending habits so you can make smarter choices. 

The good news? Once you see those numbers laid out, you can decide to cut back. 

That’s one of the best things about having a budget – it gives you the power to make changes on purpose, not by accident. 

Tip: Always include a miscellaneous line in your budget. That $50 – $100 buffer saves you when random stuff pops up.  

3. Subtract Expenses From Income to Equal Zero

Now for the fun part. Subtract your total expenses from your income.

If you followed the steps above, you might have some money left over, or you might be in the red.

Here’s what to do in each case:

Got money left over?

Great, but don’t let it sit there. Assign it to a money goal: pay off debt, add to your emergency fund, invest it or save it for a big purchase. 

Every dollar needs a job, that’s how you grow. 

In the red? 

If you’re spending more money than you have coming in, that’s a red flag, it means you’re living above your means.

But it’s ok. You can fix it, so no need to panic. You just need to cut back in some areas. 

Take a look at your non-essential expenses.

If you can see you’re overspending on eating out, it’s time to cut back.

Or if you have subscriptions you don’t need,  cancel them.

If this hasn’t made a big difference, try to reduce your living expenses.

For example, shop at cheaper grocery stores and plan your meals to save money on food costs.

Or drive less to save on transportation costs. 

And if that’s not enough, consider looking for ways to boost your income. Start a side hustle, sell used stuff or try freelancing. 

The goal: Income – Expenses = $0. That’s when you know you’ve nailed the zero-based budget. 

4. Track Your Spending All Month Long

Making the budget is just the beginning. Now you’ve got to use it. 

Track every single expense. 

I know it sounds like a lot, but trust me, in time it becomes second nature. And that’s the only way to stay accountable. 

When money comes in, add it to your budget.

When you spend something, track it in the right category. 

If you paid rent, subtract it from housing. Made money from your side hustle? Add it to your income. 

Whether you’re logging your expenses weekly or monthly, just be consistent.

Tip: Set a money date with yourself once or twice a month. Grab a coffee or some wine, lol check in with your spending and make sure you’re staying on track. 

5. Create a New Budget Every Month

Life changes, and so should your budget. It may not change every month, but it will change.

Throughout the year, you’ll have birthdays, maybe a vacation, and your spending will probably increase during the holidays. And that should be included in your budget.

So plan ahead for these types of costs to avoid them sneaking up and throwing you off track. 

And don’t leave this until the last minute.

Every single month, make a new zero-based budget before the month begins.

That way, you’re planning ahead, not reacting to chaos. 

Real-Life Zero-Based Budget Example

Let’s break this all down into a simple example so you can see what a zero-based budget looks like in real life.

Income:

Paycheck: $2,500

Side Hustle: $500

Total Income: $3,000

Expenses:
Housing: $1,250

Utilities: $200

Food: $300

Transportation: $100

Debt: $850

Fun Money: $150

Miscellaneous: $150

Total Expenses: $3,000

Every dollar is accounted for. Income ($3,000) – Expenses ($3,000) = Zero. 

Pros and Cons of a Zero-Based Budget

Let’s look at the pros and cons of a zero-based budget so you know exactly what you’re signing up for. 

✅ Pros

Total control over your money

You know exactly where every dollar is going. No more guessing or wondering where your money disappeared to.

Customisable to your life

Whether you’re saving for a holiday, paying off debt or just trying to stop impulse buying, this method adjusts to fit your financial goals.

Encourages intentional spending

No more mindless swiping. You start thinking, “Do I really want this, or is this just an emotional purchase?”

Helps you catch leaks

When you’re tracking every dollar, you spot those sneaky subscriptions and random purchases that add up quickly.

Motivates you to hit money goals

Because you see progress month after month. That feeling of knocking out a debt or saving your first $1,000 is priceless.

❌ Cons

Takes time to set up

Especially in the beginning, creating and adjusting your budget every month can feel like a chore. But once you get into a rhythm, it gets way easier.

Requires consistency

If you’re not tracking your expenses regularly, things can go off track quickly. This budget only works if you work it.

Zero-Based Budget vs. Other Budgeting Methods

A zero-based budget puts you in the driver’s seat when it comes to your money. It gives you full control, month after month.

Unlike some budgeting methods that feel too rigid or generic, this one’s flexible, focused and actually works – no matter where you are in your financial journey. 

Let’s break down how the zero-based budget compares to some of the more popular methods out there:

Zero-Based Budget vs. 50/30/20 Rule

You’ve probably heard of the 50/30/20 rule—it’s super popular because it’s simple:

• 50% of your income goes to needs
• 30% goes to wants
• 20% goes to savings or debt repayment

Sounds good, right?

And it can be a decent starting point if you’re brand new to budgeting and just want a quick framework.

But when you’re serious about taking control of your money and hitting big goals, this method starts to fall apart.

Why Zero-Based Budgeting Wins:

✅ More control: You assign every dollar a job instead of using rough percentages.

✅ More flexible: Your financial goals can change month-to-month. Zero-based budgeting lets you adapt.

✅ More realistic: Most of us spend more than 50% of our income on needs (especially if you’re renting in a big city or dealing with debt). This rule doesn’t always reflect real life.

✅ Goal-focused: With zero-based budgeting, you can go hard on one goal, like debt payoff, without being stuck in the 20% lane.

Bottom line? The 50/30/20 rule is a good intro if you’re brand new to budgeting, but if you want to take full control of your money and hit big goals fast, zero-based budgeting is a better option.

Related: The 50 30 20 Budget: What It Is and How It Works

Zero-Based Budgeting vs. the 60/30/10 Rule

This one’s a newer take on percentage-based budgeting, and it goes like this:

• 60% of your income goes toward goals, like saving, investing, and paying off debt
• 30% is for your essential needs
• 10% is for your wants and fun stuff

Honestly, I love that this version puts your money goals front and centre. If you’re focused on debt payoff or building wealth, this method can help you prioritize that.

But here’s where it still falls short:

The fixed percentages might not fit your real life.

What if you want to throw 70% toward a big savings goal this month?

Or maybe you have a low-income month and 30% for needs just isn’t realistic. 

Zero-based budgeting lets you decide what works based on your actual numbers, not a formula.

It’s still too passive. The 60/30/10 rule is easy to set once and walk away from, but that’s not how real financial progress happens. 

Zero-based budgeting keeps you involved. You’re checking in, adjusting, and staying aware of where your money is going.

It assumes balance, not focus. Some seasons are all about paying off debt. Others are about saving or investing. Zero-based budgeting adapts to your priorities instead of forcing a balanced approach all the time.

Related: The 60 30 10 Budget Rule Explained & How To Use It

Why Zero-Based Budgeting Is the Best Budgeting Method

At the end of the day, zero-based budgeting is the method that actually works, because it’s built for real life.

It’s not about following a one-size-fits-all rule or relying on fixed percentages. 

It’s about giving every dollar a purpose, staying laser-focused on your financial goals, and adjusting as life changes.

Whether you’re trying to:

• Stop living paycheck to paycheck
• Pay off debt faster
• Start saving seriously
• Or just feel more confident about your money

Zero-based budgeting meets you where you are and helps you build a plan that works for you.

If you’re ready to finally feel in control of your money, this is the budget to start with!

Final Thoughts

If you’ve ever thought, “Budgeting just doesn’t work for me,” I get it. But I promise, zero-based budgeting isn’t about restriction. It’s about freedom. 

It’s about knowing exactly where your money is going and making intentional choices with it.

I’ve used this method to save, invest, pay off debt, and still enjoy life. And if I can do it, so can you.

Give it a try for one month. Just one. You’ll be amazed how much more confident and empowered you feel with your finances.

Have you tried the zero-based budget? Let me know in the comments below. 

Other Posts You May Like:

The 50 30 20 Budget: What It Is and How It Works

The 60 30 10 Budget Rule Explained & How To Use It

The 7 Best Budget Methods for Beginners