How To Create A Zero-Based Budget In 4 Easy Steps (Plus A Free Zero-Based Budgeting Template)

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Are you sick of living paycheck to paycheck or wondering where your money is going every month? If this sounds like you…you need a budget in your life!

Before my husband and I started budgeting, we spent money without any thought or plan. This led to enormous debt and no emergency fund. So, when shit hit the fan (oh, and it did)…we were in a really lousy situation.  

We decided we needed to take control of our money and learn how to create a zero based budget.  Thanks to budgeting, we were able to come out of an awful situation and pay off all of our debt.

Now, I want to help you get your budgeting on! Below is a step by step guide with real life budget to show you how to create a zero based budget.

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What is zero based budgeting?

If you read the beginner’s guide to family budgeting, you know there is more than one way to budget.  

Zero-based budgeting is where you assign every dollar a place. So, your expenses subtracted from your income should equal zero. 

Now, this does not mean your bank account needs to equal zero when the month starts or ends (that’s what we initially thought).  It just means that every dollar should be accounted for by assigning it a category.  

How to create a zero based budget

To create a zero-based budget, follow these four simple steps.

Step 1: List your monthly income

zero-based budgeting template

First, list your monthly income(s) at the top of the page and total it up.  Make sure to include all your sources of income.  

Step 2: List your monthly expenses

Next, list your expenses into categories. 

You want to list the essential expenses first.  Dave Ramsey refers to these essential categories as “the four walls” of your budget. 

Just like walls support a house, these four essential categories support your life and budget. The essential expenses are what you need to live and support your family.  

  1. Housing
  2. Utilities
  3. Transportation
  4. Food

After your essential expenses are listed, continue with the non-essential expenditures. This is everything else that doesn’t fall in the above. 

Prioritize your non-essential bills in order of priority.  For example, the bills that you have to pay and can’t easily give up, list them at the top. Continue down the list, ending with the expenses you could easily give up if you had to. 

When you have that done, total it up.

Step 3: Income minus expenses equal zero 

At this point, you have your income(s), and your expenses totaled.  Subtract the total expenses from the income, and it should equal zero.  It’s that simple!

You may need to adjust to get to zero, but in the end, your goal is zero.  So, if you don’t have enough to cover your monthly expenses, look and see what you can cut out of that month to make it work.  

And if you have a surplus, this is extra money you can put in the debt or savings category.

Step 4: Keep track of your spending 

Now that your budget is done make sure you keep track of your spending throughout the month as you spend it.  This will keep you on track and accountable.

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    What are the advantages of a zero-based budget?

    Zero-based budgeting has many benefits, but here are a couple of the best (I think). 

    Gives you complete control over your money

    Making a monthly zero-based budget makes you completely aware of what comes and goes from your account.  Everything is budgeted, so there are no surprises.    

    Makes you spend more intentionally

    Budgeting makes you more mindful of the purchases you make. When you sit down for your budget meeting, you are talking over every expense or purchase for the upcoming month.  

    There is no impulse spending; everything is thought out and planned.

    Gives you permission to spend

    If the budget has been discussed and all categories have been approved, it means you get to buy it. No questions and no guilt about spending money!  

    “It’s freedom and permission to spend your money on things that are important to you!”

    Rachel Cruze

    What are the disadvantages of a zero-based budget?

    As with everything, there are disadvantages to this budgeting method as well.  But, I also included tips to help it work!  

    You have to practice

    Like everything, you have to practice to get good at it.  A budget is no different.  It can be hard in the beginning.  But, as you do it each month, it becomes easier and second nature to you.

    how to create a zero based budget

    Variable expenses are challenging

    Also, variable expenses can be challenging because they change from month to month.  It’s hard to budget for something that is different each time.  

    Pro Tip 1: We changed our billing to an even monthly plan for our electricity and other bills that would allow it.  This way, every month is the same.

    Pro Tip 2: We make a miscellaneous category within our budget that catches any expenses we miss or any higher than expected bills.


    Budgeting is crucial for managing your money.  For us, zero-based budgeting has been life-changing.

    If you follow the four simple steps in this guide, you’ll be zero-based budgeting like a pro in no time!

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