How to Be Successful in Creating Budgets Using Zero Based Method

Budgeting may sound scary especially if you haven’t tried it yet, or if you hate numbers. Sometimes, people don’t want to budget because they think they don’t have anything to budget anyway, or they have too many expenses to pay and budgeting gives them stress. 

Well, it can really be daunting at times, but this is something that must be done especially if there are debts to pay. Monitoring where your money goes is crucial, and budgeting can help you be in better control of your finances. You don’t want to wake up one day and wonder where your money went, right?

And don’t worry, we can help you start budgeting by providing you the basics below. The budget method that we will try is called “Zero-based budgeting” popularized by Dave Ramsay and The Total Money Makeover.


What is zero-based budgeting

Zero-based budgeting simply means you assign all your income to different savings and expense categories until the end result is zero. So in formula, it is:

Income – (savings + expenses) = zero

Note: You might find in other blogs that the formula is “Income – expenses = zero”. But because savings is not necessarily an expense, we decided to separate it to minimize confusion that all you need to budget is the expense and there’s no need to save.


Here is a simple presentation on how it looks like:



























As you can see, the savings/expenses in this budget are equal to the income, hence the result is zero. In zero-based budgeting, you must assign all of your income to your savings and expenses that nothing is left, or zero. 


Here are the expense categories recommended by Dave Ramsay, and some quick explanations on what they are:

You can use these categories as a guide to know what you will put in your budget. Feel free to add more as necessary.

1. Giving/Charity

These are tithes you give to charitable organizations or church, or other places where you can donate money to help. Why should we include this in the budget? It’s because the more you give, the more blessings you receive as well.  

2. Savings

This can be your emergency fund, retirement fund, investment fund, educational fund, or travel. You can also create several categories within this to be more organized, so you know how much you have allocated to your different savings fund.

For example:

Savings                                                              500

Emergency fund   200

Investment            200

Travel                     100


3. Housing

This can be rent, maintenance, property taxes

4. Utilities

This comprises of electricity, water, cable, internet, gas, trash, phone, and other related expenses.

5. Food

Groceries, eating out, coffee, snacks, restaurants, fast food

6. Transportation

Car related expenses like maintenance, fuel, car insurance, bus and train passes and the like

7. Clothing

Outer and inner wear, shoes, accessories

8. Health/medical

Health insurance, medical bills, gym memberships, vitamins

9. Personal

Personal discretionary expenses like hobby related costs, miscellaneous spending

10. Recreation

Movies, travel, sport events, etc

11. Debt

Credit cards, mortgages.

Additional categories that you can include:

12. School

School related expenses like tuition fees, school supplies, uniforms, school bus, etc

13. Pocket money

You can actually take the pocket money funding from your Food and Transportation categories (depending on where you will spend the money when you’re at work). For ease of budgeting though, you can set aside an amount that you can use for the whole month.

14. Miscellaneous

This is funding for unforeseen circumstances that you weren’t able to include in the budget.


Now let’s get into action! Here are the steps on how to create budget using zero-based method

1. You need to know how much you will receive in the coming months.

If you have fixed income, you can check your payslips and see how much you are earning, net of income taxes and other mandatory deductions, if any. What you will write in the “Income” category is your net income, not your gross.

If you do not have a fixed income, you can have an estimate on how much you will earn, or maybe the average income you get every month.

The “Income” we are talking about here comprises of all sources; payroll, freelance income, online selling, etc. You can also add your spouse’ income if you combine your resources to pay the bills.

Now, add them all up and write them beside “Income”

2. List down all the expenses you are incurring every month.

This is when you will decide where your every dollar goes. You will list down all the bills you are paying, including how much you can give to your savings account. You really don’t have to make it 100% accurate, like for example, electricity bills, since this is variable. You can write an estimate instead on how much you will pay this month.

For fixed expenses like rent, you know how much this is so listing it in its actual amount is the best. Be sure to consider everything, including your pocket money.

List down your seasonal expenses as well, like insurance payments, and when you are due to pay them. You can use this data on your next monthly budgets.

3. After finishing your list, make sure the net result is zero.

Subtract your income from expenses to equal zero. To achieve zero net, you will need to make adjustments in some categories. Feel free to do so until you are satisfied, just don’t forget to keep some for savings.

As you go on every month too, you will find out if you have over budgeted or under budgeted some items. If expenses have exceeded your income, that means you have to reduce your expenses. For example, you can delay gratification or cooking at home to reduce grocery costs.

If the expenses are less than your income, then put your excess on your savings account if you don’t have any urgent thing to purchase.

4. Track, check and adjust

After creating the budget, track how much you have actually spent in the month. This is very crucial, as this is when you will find out if your actual spending is right with the plan. This is when you see in reality where your money is going, and you will have more control over how you should spend it.

Additional tip:

Sometimes you might find it tiresome to track your spending everytime you withdraw money and keep track of expenses. What you can do instead is get into the envelope system.

The envelope system is when you keep cash in different envelopes and use it to pay for certain expenses. For example, for the first envelope, you can label it as “groceries” then stash your budgeted cash in it. For others, you can label it as “utilities”, “pocket money”, “gas” etc. The purpose of this is for you not to exceed your budget and you can see immediately if you are out of cash (or out of budget). You can keep the receipts there as well for your tracking later.

how to create budget zero based budget

You can also allocate your expense money to a separate bank account or atm if you are not the type to keep cash in your home.

Where should you create your budget

There’s no fixed rule on what tool to use to create your budget. You can write it down using pen and paper,  use spreadsheets, or use online apps like Mint. The important thing is to just start 🙂


So there’s our budget post! We hope this can help you get organized with your finances and get rid of debt. If you need help with debt you can call us for free below!