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How to Create a Zero-Based Budget

Zero-based budgeting is a way of budgeting where your income minus your expenses equals zero. With a zero-based budget, you have to make sure your expenses match your income during the month. That way you’re giving every dollar that’s coming in a job to do.

Now, that doesn’t mean you have zero dollars in your bank account. It just means your income minus all your expenses equals zero.

Pretty simple, right? Basically, it’s just a plan for your money.

Let’s say you earn $3,000 a month. Everything you spend, save, give or invest should to add up to $3,000. That way you know exactly where every one of your hard-earned dollars is going. You could be setting yourself up for disaster if you don’t know where your money is going each month. It’s no fun to look up one day and find out you have no money—and no clue—where it all went!

How to Make a Zero-Based Budget

1. Write down your monthly income.

You can do this the old-fashioned way with a sheet of paper, Excel spreadsheet, or you can use our free budgeting app, EveryDollar. And when we say income, that should include paychecks, small-business income, side hustles, residual income, child support, and any other cash you bring in. If it’s money and comes into your household’s bank account, it’s income! Be sure to write it down and add it all up in your budget.

2. Write down your monthly expenses.

Before the new month even begins, write down every expense. Things like rent, food, cable, phones, and everything in between should be added to the list. But be sure to start your budget with the Four Walls first—that’s food, utilities, shelter and transportation.


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Once you have the four most important things covered, list the rest of your monthly expenses. Your needs will change from month to month, which is why you need to stick to it and make a new budget every single month.

But stuff always comes up! What about those unexpected things I need to buy? Slow down, buddy. Life happens, we get it. This is why you need to add a miscellaneous category in your budget. Think of it as the “catch all” to pull from when your kid unexpectedly gets invited to a birthday party or when you forget that you needed a new water filter. Believe us. Soon, the miscellaneous category is going to be your best friend.

But remember, this isn’t extra money to fund that new pair of shoes you saw calling your name at the mall. If you don’t spend that misc. money by the end of the month, then use it to get ahead on your goals! Let that money help pad your savings or toss it at your debt.

And speaking of savings, don’t forget to plug your saving and giving categories into your budget too. Saving money isn’t a matter of math—it’s a matter of priorities, and the same is true for giving. If you don’t make saving and giving a priority at the start of your budget, chances are you won’t make them a priority period.  

We know this can be a lot to take in. But don’t get overwhelmed! Just focus on one month at a time. You’ve got this!

3. Write down your seasonal expenses.

Now think through the whole calendar year—what expenses will you have coming up that you can start planning and saving for now? You know Christmas is in December every year, so there’s no reason to act like it suddenly snuck up on you. If you know you want to spend $600 on Christmas, then divide that by how many months are left and boom—that’s how much you should make sure to save each month.

The same goes for any kind of expense you want to save up for. Things like birthdays, anniversaries and holidays are set dates that shouldn’t surprise you—or your budget. So whatever the known expenses, make sure you prepare for it in the budget.

Next, think about all the irregular expenses that can pop up. Plan for those too. Things like car tag renewal fees, property taxes, HOA dues, and even your insurance premiums can be budgeted for ahead of time. If you set aside a little bit each month, you won’t feel the strain of an expense suddenly blindsiding you all at once.

4. Subtract your income from your expenses to equal zero.

Alright, we want this number to be zero, but it might take some practice to get there. Don’t be shocked or worried if your income and expenses don’t balance each other out right away. That just means you need to do something to bring one of the numbers up, the others down, or both! Yeah, it’s going to take some work, but don’t give up if things don’t line up right away. Most of the time, it takes people a good three months or so to really get the hang of it. Keep working at it until you get to a big, whopping zero.

And if you’re spending more than you make, trim up the budget so your income and expenses equal zero. To cut back on expenses, try buying generic at the grocery storecutting the cableusing coupons or discount apps, making coffee instead of buying it, or carpooling to work. If you need to bring in more money, start a side hustle or look for stuff around the house that you can sell to make quick cash.

Here’s the deal with a zero-based budget: Every dollar must have a name. That doesn’t mean you have zero dollars in your bank account at the end of the month—it just means you have zero dollars left over in your budget.

If you fill out every line item in your budget and come out $100 ahead (meaning you have nothing for that $100 to do), you haven’t finished your budget yet! You must give that remaining $100 to something. Whatever line item you plug in here is totally up to you.

If you’re still in debt, throw that extra cash there. Saving up for a big expense? Toss that money into your savings. But know this: If you don’t give that money a name, it will be spent somewhere, and you’ll end up wondering where that extra $100 went. And who wants to lose $100? No thanks!

5. Track your spending throughout the month.

All that’s left now is for you to track your expenses throughout the month. It’s the only way you’ll know if your spending lines up with your plan. This is how you’ll start winning with money throughout the month and all year long. When you track your expenses and are intentional with your money, you’ll actually be able to make progress and see that you’re reaching your goals.

Can You Make a Zero-Based Budget With an Irregular Income?

Yes! If you have an irregular income (meaning income that comes in at different amounts or at different times, or both, on a regular basis)—don’t sweat it! You can still use zero-based budgeting. It’s just as easy to make a plan for an irregular income as it is for a regular one. Seriously. It’s just going to look a little different for you.

Go ahead and budget based on what a low earning month looks like for you. If you have a commission-based or contract income, you can still budget. (Don’t fall for the lie that it won’t work for you.)

Next, all you need to do is make sure you cover the Four Walls first (just like a regular income) and then list out the rest of your expenses in order of importance.

When you do get paid, take that amount and spread it out over the items in your budget. If your paycheck doesn’t cover everything listed on the budget, that’s okay! Just take care of the things you marked as most important. If you get another check during the month, you can pick up where the last check left off. If you end up with extra money after all expenses have been paid, that’s when you look at saving more, spending more, or paying more on your debts.

So Why Is Zero-Based Budgeting Important?

Having a budget (your detailed spending plan) is the quickest way to make your money goals a reality—no matter where you’re at on the journey. Trying to get out of debt? You need a budget. Saving up for a safety net? You need a budget. Wanting to put money away for retirement? You need a budget. Already a millionaire? Guess what—you still need a budget.

Remember, you’re the one in control of your own budget. You get to tell every single dollar exactly where to go each month. And don’t think of it as limiting your freedom either. Having a budget actually gives you the freedom to spend money on purpose. And budgeting makes your money go further!

So what are you waiting for? Give it a shot! Get started budgeting today with our app EveryDollar! Best of all, it’s easy and it’s free. If you want to get even more out of it, you can upgrade to Ramsey+ and get the premium version of EveryDollar. You’ll get custom budget reports and bank connectivity, which streams transactions straight into your budget. You just drag and drop them to the right budget line. Give it a test run in a Ramsey+ free trial today!

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Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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