Zero Based Budget

I’ve played around with a bunch of different budgeting methods in my time, but I keep coming back to the concept of Zero-Based Budgeting, or ZBB, as the most fundamental of them all. On the surface, ZBB is incredibly easy. Incoming – Outgoing = 0. Every dollar you bring in has a specific home, whether it’s being spent on rent or food, being saved, or used to pay off debt.

Really, it’s a fundamental behind any budget; but what I like about how I’m using a Zero-Based Budget is how I allocate last month’s income. This is great for me and Kristin, since we’ve got income that can fluctuate a bit. Previously when I was a salaried employee I always knew within a penny exactly how much my paycheck would be. This is great for making budgeting a bit simpler, but if you’re paid hourly, it makes your budgeting a bit less precise. I also don’t get any paid time off, so taking a vacation – like we’re doing when we get married – or being sick will mean that the budget will need to flex a bit the following month.

So how do you make a Zero-Based Budget? It’s pretty simple.

  • Add up all of your income you received last month. Everything from paychecks to money from a side business or dividends, if it came in last month, it goes on the list. That’s what you’ve got to work with.
  • Subtract all of your expenses for the upcoming month. Things like rent, what you’re going to spend on food, your phone, beer money. If it’s an expense, subtract it. And don’t forget those pesky “once-every-now-and-then” things like a car insurance premium paid in advance. For some of those, I may just set up an automatic transfer into a different account so that I can just move it all over…but if I do that, I account for that transfer in my income, just to make the numbers work. Don’t forget any debt repayments like credit card debt (but seriously, get rid of that CC debt ASAP!) on here.Hopefully you’re still positive here. If you aren’t, see if you can squeeze some extra out of your income by selling something, driving for Lyft or Uber, or lowering your expenses – maybe cutting out some dinners out, or not drinking for a weekend.
  • After your expenses, it’s time for the good stuff – saving and investing. If you’ve got any high-interest debt, it’s a good idea to make sure you’ve got a bit of an emergency fund and then throw as much as you reasonably can at chopping this down. If you are debt free – congrats – then focus the rest of your money on saving and investing.
  • At the end, every dollar you earned is allocated somewhere. Every dollar has a home. Now it’s your job to make sure that you actually stick to it. Creating a budget and then not following it is totally pointless. I recommend checking in at least once a week on how you’re doing to make sure you’re on target. If you’ve overspent in one category, make some changes to course-correct in the later parts of the month.

I revisit this budgeting technique at the end of each month to make sure next month we’re making progress toward our goals. Some things will obviously be variable – like my utility bills, or maybe an upcoming weekend of travel. I also don’t know exactly what I’ll be bringing home for the upcoming month, which is why I use last month’s income to make my budget. What this means is that money I earned last month will sit for a while before I do anything with it.

It’s a good trick to making sure you stay out of debt and don’t overspend. It may mean you take a little while to actually get to the point where you’re not living paycheck to paycheck, but once you’re there, staying there is a lot easier if you follow a budget like this.

I generally try to do a couple additional things each time I review my budget:

  • Review what happened in the current month. Did I under-estimate how much I’d need for groceries? Over time, your variable expenses should be easier to understand and you can plan for them a bit more easily.
  • Check and see where I can make cuts and not drastically reduce my quality of life. Can I change my cell phone plan to something less expensive? I take some time to look over the bill, see what our actual data usage was, and determine if it’d make sense or not. Same thing goes for TV and Internet – can you cut those completely, or look at alternatives like ditching Cable and just using Netflix?


Do you follow a zero-based budget? If you have a highly variable income how do you tackle budgeting?

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