Learn The Basics of Zero Based Budgeting And How to Implement It Successfully

Michael Collins
October 28, 2020

Zero Based Budgeting 

Zero based budgeting is a form of budgeting where every single dollar is accounted for. In zero based budgeting, every single dollar you make is budgeted for in some way. Let’s learn more about zero based budgeting so you can see if it’s a tool that can help you be more organized with your personal finances

The Benefits of Traditional Budgeting 

Let’s be honest. Taking care of your personal finances can be very difficult. There are so many different types of expenses that you always need to be worried about, and it can be very hard to be organized. Remembering every cost you have from things like rent, utilities, food, and entertainment can be a huge headache that you need to deal with every single month. If you aren’t on top of your finances, you can become extremely overwhelmed and stressed and it can put a damper on your life. 

Further, if money is tight for you it can be extremely difficult to keep track of each cost and to make sure you have enough money to pay your necessary expense. If you don’t, you might find yourself having to pay even more money in the form of late payment fees. 

Thankfully, budgeting is a practice that exists just to help you with these things! Traditional budgeting helps you make sure you have enough money for each expense throughout the month. Budgeting gives you direction for your personal finances and allows you to organize your spending in a way that makes the most sense. Without budgeting, you might find yourself simply trying to remember what expense you need to pay and how much you need to pay for them. 

There are tons of different ways to budget, but all of them help you to be more organized and efficient with your finances. Let’s take a look at some of the benefits of traditional budgeting: 

  • It can help you remind you to make payments: Most payments might be at the end of the month, but there’s a chance you have multiple payments to make throughout the month. If you make a budget, you can sit down at the beginning of the month and write down everything you will have to pay. When looking at your budget later in the month, you will remember payments you need to make so you never have to worry about missing important payments!
  • It can make sure you have enough money for each cost: If you make a budget at the beginning of the month, you can set aside money for every cost you are going to have later. This way, when your payments come you will have the money you need to pay the cost successfully. You’ll never need to worry about being short a few bucks when that cost comes up. 
  • It can help you set goals: Do you have a goal to save up money for a vacation? Maybe you want to save up for a car or a present for a loved one. Whatever the case, budgeting can help you meet your goals. If you have a goal to save up for a $1,200 vacation over two years, a budget can make sure you are setting aside $50 or so a month. This way, you are making sure you are saving your money so you can make sure your goals become reality.

What is Zero Based Budgeting

Zero based budgeting (ZBB) is just one of the many different ways you can budget. Many people swear by zero based budgeting because it is arguably the budget type that is most efficient with your money. With zero based budgeting, you are never wasting a single cent. Every single dollar you make is put towards something with a purpose, and each baby step you take will get you closer to reaching your financial goals. 

ZBB implementation follows similar principles as envelope budgeting. With this, you are putting your money for things like rent and utilities in an envelope at the beginning of the month. When it comes time to pay your rent, you open the “rent envelope” and make your payment. Similarly, zero based budgeting makes sure you have extra money to make sch payments like rent at the end of the month. 

The ZBB approach is also one of the best ways to be organized with your money. Zero based budgeting sets aside money for every single one of your costs. This is important because it helps you make sure you have enough money to make these purchases but it also makes sure you do not overspend. For example, if you have a total of $250 set aside for entertainment purposes and $250 set aside for utilities, you theoretically can’t spend more than $250 for entertainment with zero based budgeting. If you do, you won’t have money for utilities and you will find yourself in some trouble. 

Still unsure what a zero base budget looks like? Let’s make a quick sample zero based budget so you can see what it looks like. For this example budget, let’s say your monthly income is $4,000. Your sample zero based budget might look like this. 

  • Rent: $800
  • Utilities: $300 
  • House Improvements: $100
  • Car Loan Payment: $250
  • Student Loan Payment: $200
  • Personal Loan Payment: $100
  • Groceries: $350
  • Gas: $100
  • Entertainment: $300                          
  • Insurance: $400
  • Shopping: $200
  • Healthcare: $300
  • Personal Care: $100
  • Vacation Savings: $100
  • Personal Savings: $200
  • Miscellaneous: $200

Total: $4,000

See how you made $4,000 and your budget adds up to $4,000? That’s no accident. Every single dollar is used towards something. If you did not have a zero based budget and you had $200 unaccounted for, you might just be letting it sit there instead of putting it to good use. Even if you know that $200 is going to be put towards your savings account, keeping it organized and accounted for is beneficial for your long term money goals. 

Overall, zero based budgets are one of the best ways to keep track of your money and make your earnings as efficient as they possibly can be. Still not convinced? Let’s take you through why zero based budgeting works and why it can be a positive thing to implement in your personal finance routine. 

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Will Zero Based Budgeting Work Help You Reach Your Financial Goals?

According to Forbes, zero based budgeting is a practice that many companies are beginning to use. This budgeting process is making their finances more transparent, efficient, flexible, and helps to make better spending decisions. But you’re not a company. Does this budgeting method still work for you? 

To put it shortly, zero based budgeting works. However, like everything else, it does come with its drawbacks (which we will discuss in more detail later). 

Zero based budgeting is a strict budgeting process. This makes it both very effective yet sometimes difficult to put into practice and maintain. Zero based budgeting is a very tried and true method that people swear by. 

With zero based budgeting, you will find that you are always much more aware of your spending, which can never be a bad thing. You will also likely find that you are successfully making your payments on a more consistent basis. Overall, doing this budget method can make you more organized and can remove some of the heavy stress that comes with your personal finances. 

Zero based budgeting works, but it is not perfect. Here are some of the advantages and disadvantages we found with zero based budgeting: 


  • Get control of your spending: Running out of money for something you either wanted or needed to have money for is extremely stressful and disheartening. It may even mean you need to take out debt in order to pay your necessary cost. The main way to prevent this is obviously to avoid overspending, but this is much easier said than done. Zero based budgeting is meant to prevent this. If you already have costs of your payments set aside, you know how much you can spend to prevent overspending. Instead of spending money you don’t have and causing yourself stress, use zero based budgeting!
  • Meet saving goals: While this is a general advantage for most budgets, we feel that this is particularly an advantage for zero based budgeting. This is because with this method, you are making the most of every single dollar that you make. This means you might be able to meet your goal faster than you might with a different budget. It is also meant to strictly keep you on schedule for saving enough money to meet your saving goal. Overall, zero based budgeting is one of the best budgeting methods for meeting a goal to save up for something in the future. 


  • Difficult for varying monthly income: While many people get a fixed amount of money per month from their job, there are plenty of jobs that get paid in varying amounts. For example, if you work hourly but work different amounts of hours every month, you do not know how much you might make in the next month. This creates a problem for zero based budgeting. Zero based budgeting only works if you know how much you make each month. If you don’t, you won’t be able to budget out every single dollar which is what zero based budgeting is all about. If you work a job that has varying monthly incomes, zero based budgeting really is not for you. 
  • Unforeseen costs: We all know far too well that most times things do not go as planned, especially when it comes to your personal finances. There is always something that is more expensive than you anticipated or there is an expense that you were not exactly expecting. Unfortunately, an unforeseen expense does not bode well for budgets, and zero based budgets in particular. Just think about it, if you have every dollar mapped accounted for and your utility bill is $50 more expensive than somewhere else, that $50 will have to come from somewhere else. That $50 might have to come out of your savings or somewhere else that is important to your goals. Even worse, if you are in a pinch and can’t afford savings, an unexpected cost could come out of your debt repayment or even from something like food or housing. Unfortunate, right?

How to Create a Zero Based Budget 

Making your own zero based budget is extremely important, but it can also be slightly difficult. You will likely need a few months worth of expenses to go off of, so you might not be able to make a budget in one day. There are plenty of budget apps and budget websites that could help you make a zero based budget if you need some help. Regardless of how you make your budget, these are things you will need to create your budget effectively: 

  • Calculate your income: Since zero based budgeting makes sure your income - spending = zero, you will need to figure out what your income is. Again, there’s a chance it is difficult to exactly calculate what your monthly income is. Go through your bank statements and paychecks to try to calculate your monthly income as precisely as you can. If you don’t, you might not be able to budget as effectively. 
  • Look at your spending trends: It’s very important to know how much you are spending per month and what you are spending on. Look at about 3 months worth of bank statements to see what exactly are your expenses. Average these out and come to a figure of how much you are likely to spend on each expense. 
  • Group your expenses: A huge part of zero based budgeting is correctly organizing your budget. Figure out how much you spend on each expense and put it into a category that makes sense to you. For example, determine whether you will categorize eating out at restaurants as food or as entertainment. Be as organized and you can and your budget will be that much more effective. 

Overall, while zero based budgets are somewhat difficult to make and have their drawbacks, there are a fantastic tool to get control of your personal finances. Using this budget method can help you pay back your loans faster, meet your savings goals, and take a great deal of stress off of your shoulders. Get started on making a zero based budget today and be on your way to successful cost management!

Michael Collins

Michael has a passion for writing and has since brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college allow him to be on the forefront of business knowledge so he can better inform his readers.

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