If you haven’t heard of zero-based budgeting, the concept may sound a little terrifying. In fact, it kind of goes against the conventional wisdom of spending less than you make. But as you learn more, you’ll see that this kind of budgeting does carry wisdom and it may just be the budget style you want and need.

What is zero-based budgeting?

Zero-based budgeting has been around since the 1970’s when a top accounting manager at Texas Instruments started using it. Decades later, and it’s still a top budgeting solution for many Fortune 500 businesses.

Out of all the budgeting types out there, this one seems pretty radical to people who have never created a budget.

Why? Because it encourages you to account for every single penny of your monthly income. Zero-based budgeting is the concept that you give every dollar a function. Every dollar that enters your account, should be “told” what to do by you and your budget.

This doesn’t mean that you need to have zero dollars in your account at the end of each month. Instead, it means that if you make $4,000 a month everything you spend, save, invest, and give should add up to $4,000.

Yep, that’s it. But before you go on a wild shopping spree, there’s more to it than simply spending all the money you have.

In fact, the basic concept of zero-based budgeting is to teach you how to save before spending, instead of spending before saving. When you correctly budget for how much money to save each month, you always have a cushion of money in savings, retirement, or investment accounts. Zero-based budgeting can help you achieve financial peace.

The concept of using zero-based budgeting as a household budget is relatively new, but not unachievable. If Fortune 500 businesses can run with a zero-based budget, your household can too.

6 tips for starting a zero based budget

How to start a household zero-based budget

The first step is to take your monthly income and you split it into at least 3 categories – generally expenses, savings and debt payments.

Income minus expenditures should equal zero by the end of the month.

The idea of this budget is to help you realize how much money is coming in and how much money you’re spending. So many Americans have trouble with overspending, winding up in an incredible amount of debt. 

This also prioritizes savings. Even if it’s just a small amount each month, you’re working toward building savings. Nearly 28 percent of Americans have no savings and only one in four have an emergency fund.

6 Tips for getting started with a zero-based budget

  • Know your income. This one is pretty easy, just make sure you have all your income accounted for, even benefits.

  • Keep track of your expenses for a few months. Not everything is a fixed cost. Utilities fluctuate as do grocery bills. A few months will help you be able to average. Once you have an idea of how much you spend each month, you’ll have a better idea of how much money you can put towards savings each month.

  • Get serious about savings, retirement, and investments. The whole point of zero-based budgeting is to prioritize your savings. If you don’t have a savings account, a retirement account, or investments, then now is the time to set it up.
  • Set your categories. Expenses, savings and debt are the main pillars. If you want to add college fund, emergency fund or separate short-term savings (think holidays, larger one-time purchases – car, household items, cell phone), go ahead. It’s up to you.

  • Consider adding wants. It’s hard living off an incredibly strict budget that doesn’t account for occasional splurges. If you want to treat yourself along the way, add in a “wants” category to your monthly budget, even if it’s just a small percentage.

  • Don’t set it and forget it. The goal is to keep track of all money coming in and going out to make you more aware of your spending. That includes the night you were too tired to cook and ordered delivery. This is a budget that has flexibility, but requires maintenance.

free zero based budget template

Where can I find a zero-based budgeting template?

The internet is full of great resources for free budgeting printables and free budgeting templates.

The zero-based budgeting template that we recommend is this one from Smart Sheet. It’s a free budgeting template download that lets you create a spreadsheet in Google Docs or Excel.

Not in love with the zero-based budgeting template? That’s okay! You can edit it or download one of the other many different budget templates that they have to choose from.


zero-based budget template

Why is zero-based budgeting considered a good budgeting system?

This is a great budgeting system to start with because it helps you tell every single dollar where to go.

You don’t have to stick with this method forever, but this is the #1 ways to get serious about budgeting.

Every financial goal requires a plan, and you should have a financial goal. Paying off debt, building savings and having an emergency fund are important, and it’s never too late to start!

Want more budgeting tips?

Check out these posts to help you save as much money possible, while still living the good Eat, Drink, and Save Money lifestyle.

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How to get started with zero based budgeting 101