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Balance Your Spending With the Zero-Based Budget

New expenses, new money, new goals? If you’ve ever been told you might benefit from a budget, you may have had some doubt or asked yourself:

But what if it’s hard?

How much time will it take?

Is it going to limit me?

All of these are valid questions, and they’re bound to cross your mind. By setting realistic expectations for your financial goals and being honest about how much effort you’re willing to put in, you’re sure to find the budget to fit your needs. Let’s take a look at the zero-based budget.

How it works

When every dollar you get has a job, it nudges you to be more intentional with your spending.

  • Who: Those who feel their money disappears; those who want more control over their spending
  • Why: Be more intentional with purchases; increase awareness of spending habits
  • Pros: Easy to create; detailed tracking; cash flow awareness; good for fixed income
  • Cons: Time intensive; requires planning; irregular expenses can get overlooked

We'll check out how to create this budget, and then walk through an example zero-based budget.

Create a zero-based budget

  1. Total up your monthly income. Paychecks, money from side gigs and residual income should all be included.
  2. Make a list of your monthly expenses. Put house payment, transportation, utilities and food at the top of the list to show that they have priority over others.
  3. Take account of seasonal spending. Even though events like holidays, birthdays and anniversaries happen at different times of the year, you can budget a little bit of money each month for spending when that event arrives. For instance, if you plan to spend $1,000 on decorations, presents and food for Christmas, you can set aside money each month and use those funds come November and December. You can also include irregular costs like vehicle registration and insurance, so they don’t sneak up on you.
  4. Subtract your expenses from your income until you reach zero. Start with your highest priorities like housing, groceries, auto insurance, vehicle payment and credit card debt. Then work your way through your list until you have assigned each dollar a task. If you haven’t accounted for all your money and still have $200 left, make sure you assign it to a category like a vacation fund or savings to help reach your long-term goals. Otherwise, you may spend it on something forgettable and will have “lost” that money.
  5. Track your purchases and evaluate. Keep tabs on the money you spend and make sure each dollar is being spent the way you intended it to. If you spent more than your budget allowed for in different categories, you’ll want to adjust your parameters to make it work the next month. Adjustments are part of improving, so as long as you’re being intentional with your money, you’re more likely to be on the right track to meet your financial goals.

Example budget

*This is an example and is not indicative of what one’s financial situation should look like in order to benefit from using the zero-based budget. The characters in this budget are fictitious and not derived from actual customer data.

Meet retired couple Randy and Reggie. They have a beagle named Bo and spend lots of time with their grandkids. They’ve gotten into the habit of spending money when they want to, but feel like their money disappears on purchases they don’t need. They found some tips to organize finances online and considered creating a budget. Because the couple has a fixed income, they want to ensure they can make it last through the month while still planning for fun things that happen throughout the year. They decided putting all their money to work was the best option for them.

Randy and Reggie’s goals are to save for emergencies but also enjoy life. They host the family Christmas gathering every year and need to set money aside for that big event. They also enjoy buying birthday gifts for friends and spoiling their four grandkids, so they need to allocate money each month for those purchases.

To make their budget, the couple sat down with a trusty pen, paper and calculator and listed their expenses in order of importance. They started with a mandatory category for bills, food and transportation, then went down the list of priorities and things that are nice to have. They gave a certain amount of money to each item until they exhausted all their income. This is what their budget looked like:





Social Security






Total Income











Property Taxes






Chevrolet Traverse Payment



Auto Insurance












Phone Bill



Bo the Beagle







Amount Remaining

















Emergency Fund






Home Improvement




Amount Remaining







Nice to Have

Eating Out






Personal Care










Amount Remaining







Randy and Reggie do their best each month to spend all the money allotted for each category. If they haven’t spent all their eating out money, they’ll go to the buffet on the last weekend of the month to make sure they spend it all. This budget has helped keep them organized and gives them peace of mind knowing they aren’t “losing” any money.

The zero-based budget is just one solution to help you meet your financial goals. There are other methods out there that can help you prioritize your spending, set aside savings and help you keep track of expenses. If you’re interested in learning about other budgets, check out the 60-40 budget rule, envelope budgeting, the line-item budget and the pay yourself first method.

Nicole Mayer
By Nicole Mayer, GM Financial

Nicole Mayer is a whisk-taker with a fondness for desserts. From baking to organizing, she’s motivated by trying new things and sharing her knowledge. When she’s not in the kitchen rocking out to ‘80s music, you’ll find her serving up aces on the tennis court.


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