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Since every dollar of your income needs to be assigned to something under ZBB rules, you’ve got to plan for irregular and unexpected expenses, too. Plan for irregular or unexpected expenses This includes things like eating out, entertainment, and even essentials like groceries that fluctuate from month to month. Reviewing your past spending will also help you to estimate how much you spend on the other big category: variable expenses. To ensure you don’t miss any transactions, review credit card or bank account statements from the past few months. Right off the top of your income, you’ll assign funds to cover your fixed monthly expenses, things like rent, internet, and your car payment. If you’re a freelancer or seasonal worker, set your income based on an average of the past few months. Don’t forget to include any money you receive from other sources as well, including side hustles, investments, or government assistance. If you’re a salaried employee, that’s your paycheck after deductions like taxes, health insurance, and pre-tax retirement contributions. Set your budget each month based on what you have coming in. You just want to be sure you’re not missing anything and that you’re preparing for the unexpected. When you’re setting up your zero-based budget, you can customize the categories you track to be as detailed or as broad as you like. Acknowledge that your resources aren’t infinite, and use your money for the needs and wants that are most important to you. Prioritization is the key to zero-based budgeting. “We just don’t know those things.” His approach is to think of yourself as a coach making a game plan with room for adjustments, rather than as a fortune-teller. “When it comes to budgeting we pretend like we should have this crystal ball and just be perfectly clairvoyant in what we think we’re going to spend, or what is going to happen around us,” says Jesse Mecham, founder and CEO of You Need a Budget. If you aren’t willing to invest the energy in adjusting your budget each month, that’s a recipe for failure. She recommends using cash or a separate checking account for variable expense categories that are more tedious to track, like eating out or groceries.Īlso, for a zero-based budget to work long-term it needs to be flexible. If that sounds miserable, Greutman encourages you to find another way to corral your spending. It’s a big commitment to maintain an accurate zero-based budget, because you must track and record every expenditure. This is how the zero-based budgeting app You Need a Budget works (more on that later). Lowry believes that zero-based budgeting can help stabilize irregular incomes when you set it up so that you’re spending last month’s income on the current month’s expenses. So each month you’ll be making decisions about where you want to intentionally direct your spending.Īnd because what you spend is tied to what you make, your monthly budget is set up to be more flexible, which makes it a good option if you have unpredictable income. That extra $1,000 must be designated to account for all of your needs and wants. So if you make $3,000 a month and have $2,000 a month in fixed expenses (rent, insurance premiums, etc.), then you’ll have $1,000 left to divy up among your variable expenses. Paying off debt, saving, and investing are examples of the priorities you can build into your zero-based budget each month. But that doesn’t mean you’re spending it all - in fact, it should be just the opposite. With a zero-based budget you won’t have extra money lying around at the end of the month.

Greutman explains the system this way: “Zero-based budgeting is when you give every dollar, every cent, a purpose throughout the month.” For that reason, it’s also referred to as zero-sum budgeting. With zero-based budgeting, your income minus what you spend and save each month equals zero. So what is zero-based budgeting, and is it right for you? What’s Zero-Based Budgeting?