How to Do a Zero-Based Budget

Money comes in; money goes out. And by the end of the month, you’re not quite sure where it all went. If that sounds familiar, you aren’t alone. More people than ever are living paycheck-to-paycheck, according to data from the Bank of America Institute. Nearly 1 in 4 households live paycheck to paycheck, spending more than 95% of their income on necessities. Among lower-income households, it climbs to nearly 30%.

What Is a Zero-Based Budget?

A zero-based budget is when you assign every dollar in your monthly income a job. For every dollar that comes in, you give it a purpose until your spending, saving, and debt payments equal zero.

This doesn’t mean you drain your bank account to zero. Really, when you give every dollar a purpose, it means no money goes unassigned. Saving and paying down debt also count as jobs.

Building a zero-based budget requires more preparation and attention than other budgeting methods. If you have tried the 50/30/20 method and it felt too loose, this one gives you tighter control.

How to Build a Zero-Based Budget

1. Add up your monthly income. Count every dollar you expect this month from paychecks, side gigs, benefits, and child support. Use your take-home pay — this is the amount that actually lands in your account.
   

2. List every expense. Pull up your bank and card statements for the last 1-2 months. Sort your costs into three groups: 

   1. fixed bills that stay the same (rent, phone) 

   2. variable costs that change (groceries, gas)

   3. expenses that come only now and then (car registration, back-to-school shopping)
      

3. Give every dollar a job. Assign your income across your expenses, plus savings and debt, until you reach zero. If you have money left over, move it around to another expense. If you come up short, trim an expendable category.
   

4. Track as you spend. Check in once a week. When one category runs high, move a few dollars from another. The plan is yours to adjust.
   

5. Start fresh each month. Your life changes month to month, and your budget should, too. If there isn’t any change, you can roll over from last month. But try to keep it fresh so you can keep giving every dollar a job.

Let’s say your take-home pay is $2,600 a month. Your money assignments may look like:

• $1,200 to rent

• $400 to groceries

• $300 to a car payment

• $400 to utilities and bills

• $150 to debt

• $150 to savings

Here, every dollar has a job. Maybe one month your electricity bill went down, so you have a little extra money to put toward savings or paying down debt. Maybe another month your grocery bill is lower, so you have some cash to stash away for a major purchase or a vacation. Even though every dollar has a job, the zero-based budget still gives you the flexibility to move money around as needed.

When Your Income Isn’t the Same Every Month

If you’re a gig worker, earn tips, or work seasonal shifts, a fixed monthly plan may not feel like the best fit. But there’s more room to make adjustments than it may seem.

Build your baseline budget on a low, realistic income. Use what you earn in a slow month rather than a busy one. Make sure to cover your essentials, like housing, food, utilities, and transportation. Then, make a short “next dollars” list that tells extra income where to go when a good month comes. Do this in the order you prefer. For instance, fill any gaps, build a small buffer, then move toward your goals.

Even a small cushion of cash can hold you over during the lean weeks, so one slow paycheck doesn’t throw off the whole plan. Budgeting with an up-and-down income is harder, and it’s fair to feel like you’re doing more work. Having a conservative baseline takes some of the guesswork out and helps with irregular income.

Free Up Dollars With Help You Have Earned

Some of your budget lines can shrink, which frees money for other jobs. Government assistance programs are earned benefits, not handouts, and they exist to help you stretch what you have. 

LIHEAP helps pay heating and cooling bills. Benefits and rules vary by state. For instance, in Pennsylvania, cash grants run from $200 to $1,000 based on household size, income, and fuel type. That can shrink your utility bill and free money for savings or debt.

Lifeline is a federal program that lowers the cost of phone or internet service by up to $9.25 a month (up to $34.25 on Tribal lands) for households at or below 135% of the federal poverty guidelines, or those in programs like SNAP or Medicaid.

There are also ways you can find extra money in your existing zero-based budget. Arbor can find you a lower, fixed electric supply rate through your existing utility line. You can save nearly $600 a year without interrupting your current service.

You can also use Upside to get cash back on gas, groceries, and dining you already buy. You claim an offer, pay as usual, and the cash back lands in your account. This becomes money that goes right back into your budget.

The Bottom Line

With a zero-based budget, you see exactly where your money goes, you spend on purpose, and you can bend the plan as life changes. But this budgeting method can be more time-consuming to set up and stay on top of. If you have irregular income, you can use the baseline approach to build out a minimum budget.

You can build a zero-based budget with a notebook, a spreadsheet, or an app. Giving every dollar a job puts you in charge of your money, instead of the other way around. Use the WorkMoney template to start building out your zero-based budget.

Start small, adjust each month, and build the budgeting habit so it feels easier. Your money already has a place to go, so decide where it goes.

Budgets are tight, prices are high, and payday can feel like it disappears before the money hits your bank account. But it might be time to try the zero-based budget method. WorkMoney has your guide to zero-based budgeting and how to make it stick when other budget styles haven’t worked.