What is a zero based budget?

A zero based budget is a spending plan where you look at all the money you’ve got coming in and then allocate how you are going to spend it all.

There are a few different ways you can budget. With a zero-sum budget, the aim is to divide out all the money coming in so that there is nothing left over and all of it has been put to work.

Or as Dave Ramsay puts it “give every dollar a job”.

If you have money left over after you’ve accounted for bills and groceries, you give it a job, even if that job is to be fun money for going out.


Be warned… zero based budgets can get addictive…

I LOVE my zero based budget! Don’t be fooled by the nerdy name… budgets are where dreams happen!

If you have a goal, your budget will help you get there. It is a step by step plan for achieving everything you want to do financially – from paying off debts to retiring early.

I can’t honestly put my hand on heart and tell you that I never spend too much because I do. But my budget handles it.

Money gets moved around, bills get covered and I never have the anxiety that often goes along with thinking about money.

It may seem like a bit of work to start with, but it gets easier the more you do it and there is nothing like the feeling of being on top of your financial well-being. You KNOW where your money is going instead of scratching your head and wondering where it went.

So why not give it a try?


Why go to all the effort of a zero based budget?

If you make a plan, you are much more likely to stick to it than if you were to just have a woolly idea of what’s going on. You plan your diary, your work, your holidays – and planning your finances is just as rewarding.

People who do a budget are more likely to get out of debt, have savings, have money to invest, pay off their mortgage and hit their retirement goals.

According to a Dave Ramsay survey people who do a zero-based budget (versus those who don’t) pay off 19% more debt and save 18% more money.

It’s all about having a plan.


How do you do a zero based budget?

I do a spreadsheet. It works for me.

If you want to download my budget and customise it to your finances help yourself LINK HERE. Because I also like to know what proportion of my money is going to needs/wants/savings there is also a chart on there that works it out for you. (See the 50 30 20 rule – which suggests 50% of your income goes on needs, 30% on wants, 20% on savings.)

However you can just do it with a pen and paper, a printable, or post-its or in a Word document. Whatever works for you. I like excel because it does all the sums for me when I tweak the numbers.

If you’d like to set up your own budget from scratch in Excel but haven’t got the foggiest idea how to do it, you can learn here. It is honestly MUCH easier than you think as long as you have basic computer skills.


So here are the numbers to crunch:

1. Income

Tot up any money coming in.

If you get paid monthly put that.

If you get paid twice a month, put both payments in (long term, you’re aiming to have a month’s money upfront)

If you are freelance or get irregular pay, put in a pessimistic estimate of what is likely to come in.

Now we’re going to make that go down to zero!


2. List Your Bills

How are you going to spend this money?  

First list the bills you know you have to pay: mortgage, utilities, minimum debt payments, phone, internet, groceries etc.

Lots of people don’t know exactly what they spend on things, so take the time to go through your last month and see where the money went.  Jot it down with pen and paper or you can just download your transactions as an excel or CSV file and open it in Excel.

You don’t need to do this all in one sitting, but if you’re being really thorough, you can go through 3 months’ statements and see what other expenses came up.  Not everything happens monthly.

Here’s a snapshot from my budget:

Zero based budget example

As you can see my main expenses are:


  • My mortgage
  • My credit card payments
  • Childcare
  • Groceries


Don’t be tempted to cut down anything too drastically at this point.  Just put down what you spend.

A little word on debt since you’ve just seen my credit card payments!  If you are putting off doing a budget because of scary debt…don’t!

I’ll let you into a little secret. I’ve done a couple of rounds of IVF in the last two years. IVF is one of those enormous, huge expenses that no-one expects to have to pay and because it can be time sensitive, you have to get on with it!  

For me saving up and paying for it when I was ready wasn’t an option

As a result I took on a lot more debt than I am generally comfortable with.

However, thanks to some belt-tightening and a firm hand on my budget, I don’t need to bury my head in the sand about my finances. I have budgeted several months into the future and know when my debt will be halved, quartered and when it will be fully paid off.

That’s the power of a budget.


3. Use the KNOWLEDGE and have a play

So now you have your income and your bills.  Time to have a play and make your money do what you want it to.

First off – have you got any funds left to allocate after the bills have all come out?

If so, decide where they are going to go.  Unless you have a militant financial goal that you want to prioritise above everything else, you should allow a decent enough chunk of money for fun – going out, books, whatever you like to spend on.   Don’t make budgeting miserable. Give yourself permission to enjoy some of your hard earned cash.


Make cuts if you see areas where you think your spending is too high.  

The usual candidates are spontaneous buying of groceries, takeaways, eating out, insane cable TV bills, fancy cars.  See if you can cut any of these things down.


OBVIOUSLY it is up to you!  In this article 10 things that are a complete waste of money I put a few noses out of joint for suggesting people drop the gym or expensive TV subscriptions.  If you live for the gym then that is a priority for you – go six pack! For me, I would rather spend on posh groceries, so that’s my splurge.  We all have our own things we need to keep us happy.


Overpay your debts

If, like me, you have debts to pay, don’t just pay the minimum amount.  Try to free up some money to overpay the debt to get rid of it more quickly.

The sooner you are free of debt, the sooner that repayment money can be put to your present and your future plans, not your past purchases.

Oh and make sure as much of your debt as possible is on 0% interest so that you are paying it off as quickly as you can.


Savings goals

Try to ensure a decent chunk of your income goes towards your future financial goals.  Really good things to aim for are an emergency fund, savings to cover lost income, higher pension contributions, investments…

Try not to have all your budget go on bills and entertainment.  See the 50 30 20 rule, which suggests that 50% of your budget goes on needs, 30% on wants and 20% on savings.


4. Get to Zero

Once you’ve got all this down, keep playing with the numbers until you have something that realistically sets out how you are going to spend all your money next month.

It’s a zero based budget – so get it down to zero.

Tweak some numbers up, some down.

Don’t worry if it’s not perfect.  Just get it down to zero and weeeeeeeeeeeeeeeee!  Let’s see how it goes!

Zero based budgeting

5.  Do it, track it.

Yeaaah baby!  You’ve got a big old zero based budget and now you’re going to use it!

Money comes in – spend it as you’ve planned it.

If you are thin on willpower, take out your grocery and spending money as cash and leave your cards at home.  Can’t spend it if you haven’t got it with you…

Check in as regularly as you can but at least once a week, to see that you are on track.  If you overspend a bit, see if you can move some out of another category to cover it. Or have a cheaper grocery week.

If you’ve woefully underestimated how much you need for a certain thing, don’t worry!  Move onto the next step.

Zero based budgeting

6.  Tweak it

I defy anyone on earth to make a budget and then stick to it from the first ever month.

Ha!  Maybe Dave Ramsay did… but I don’t believe it!

Budgets need a bit of love and nurturing before they turn into man’s best friend.

So tweak your budget.  

Add the expense that you forgot that bit you in the bum.

Put the extra money in your groceries account.

Don’t pretend you’re never eating out again!

It takes a few goes to get it right so don’t feel disheartened – it’s a process.


Final thought about zero based budgeting

So there it is – the zero based budget.  It doesn’t need to take ages and once you get used to it, it can be really rewarding! 

Nerd alert!: I enjoy checking into mine and seeing debts go down and savings go up. It feels a far cry from when I was younger and used to despair of making it to the end of the month.


If you like this article please share and here are some useful links to other budgeting articles that might help you out.

Setting financial goals

The Ultimate Guide to making a Budget

The You Need a Budget System

The 50 30 20 rule

Budgeting statistics (Credit Donkey)