How to Use a Zero-Based Budget to Reach Your Goals

When I started budgeting, I thought I was doing great.

I had plenty of money left over in my budget after accounting for all my expenses, and I thought for sure I’d be able to save a lot and pay off my debt quickly.

But somehow, the end of the month would roll around, and I never had any money left over.

I just couldn’t figure out where all my money was going. Sure, I’d usually eat out more than I planned or make an impulse purchase here and there to buy new clothes. But surely it wasn’t enough to spend all of it.

Why couldn’t I save when I knew I had wiggle room in my budget?

It turned out that the key to changing my financial situation was zero-based budgeting. Rather than spending the extra money in my budget, a zero-based budget forced me to make a plan for each dollar I earned, including putting money toward savings and debt.

In this article, I’m sharing what a zero-based budget is and how you can use one to reach your financial goals.

There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

Zero-based budget definition

Zero-based budgeting is a way of planning your spending where you make a plan for each dollar. When you use a zero-based budget, you budget down to zero every month, meaning your income minus your expenses always equals zero.

It’s important to note that budgeting every dollar doesn’t mean you spend every dollar. The purpose of zero-based budgeting is to help you pay off debt and save for goals because you include them as a line item in your budget.

Zero-based budget advantages and disadvantages

The biggest advantage of zero-based budgeting is that it forces you to be intentional about your spending. Rather than have a large sum of money available to spend each money, you can only spend money that you’ve actually budgeted for that purpose. 

For anyone paying off debt or trying to reach a big financial goal, a zero-based budget is the best way to ensure you actually make progress each month.

The biggest downside of zero-based budgeting is that it requires more time than traditional budgeting. You have to make a detailed plan for your money and then track every expense throughout the month to make sure you’re sticking to it.

How to make a zero-based budget

1. Write down your monthly income. If you’re a salaried employee, this should be easy. For freelancers and other workers with irregular income, start with your average monthly income.
2. Write down your monthly expenses. Be sure to include fixed monthly expenses like rent and insurance, as well as variable spending like groceries and entertainment.
3. Set financial goals. A zero-based budget only works if you decide ahead of time where your money is going. You should have specific financial goals to send extra money to. Your goal can be anything from saving for a big expense to paying off debt.
4. Give every dollar a job. When you finish your budget, your income minus expenses should equal zero. This doesn’t mean you spend every dollar! It simply means that every dollar is either budgeted for spending OR budgeting for debt payoff or a financial goal.
5. Work on getting one-month ahead. The zero-based budget is easiest to use when you’re one month ahead on your budget. In other words, you’re using last month’s income to pay this month’s bills. This is important because it ensures you know at the start of the month exactly how much you have to budget.

Zero-based budget example

I promise that zero-based budgeting sounds more complicated than it is. I’ll use a real-life example to show you how this type of budget works in practice.

Let’s say your monthly take-home pay is $3,500. Using a normal budget, it might look something like this:

As you can see, this budget leaves a lot of wiggle room. You’d have $1,000 left each month that you could use to build your emergency fund, fund your debt payoff plan, or save for your financial goals.

Unfortunately, that’s not usually how it works. Often we tell ourselves that we’ll use whatever money we have left at the end of the month to reach our goals.

But because we weren’t intentional with our spending and didn’t make a plan for that money ahead of time, we simply find other things to spend it on. And then you might be lucky to have $100 left to put toward saving, let alone the full $1,000 you should have left.

Here’s what a zero-based budget might look like using the same income and expenses:

As you can see in the budget above, each budget is accounted for. You can’t impulse-spend a few hundred dollars on Amazon because you’ve already given that money a job.

Zero-based budgeting with irregular income

If you have irregular income, you might worry that zero-based budgeting won’t work for your situation. And it’s true that this budgeting style can be more difficult if you don’t know how much money you have available for the month.

But I actually think this budget is perfect for those with irregular income.

But here’s the catch.

It really only works with irregular income if you get one month ahead on your budget. In that case, you can create a customized budget at the start of each month based on the money you earned the previous month.

The best zero-based budget apps

When it comes to planning out your zero-based budget, there are two different tools I’d recommend. You can choose the right tool for you based on your budgeting style.

• You Need a Budget (YNAB): YNAB is hands-down my favorite budgeting app. With this zero-based budget app, you only budget with money you already have, and you give every dollar a job. It’s the app I personally use. It completely changes the way you think about budgeting, and really teaches you to be intentional about where your money is going.
• Spreadsheet: Before I started using YNAB, I spent years using just a simple spreadsheet in Google Drive. It’s definitely more hands-on than an app, but perfect for someone really trying to turn their finances around.

Final Thoughts

I know how frustrating it can be to put a ton of work into a budget, only to have it fall apart halfway through the month. A zero-based budget is the best way to be intentional about where your money is going and help you reach your financial goals.