How to Budget Using Zero-Based Budgeting

Yay budgeting! I know, not the most exciting thing in the world. But when I say that zero-based budgeting was the very first step I took, and likely the most crucial step I took on my financial journey (back in the day when I had $60k of student loan debt), I mean it!

It took me many many years to actually start budgeting. I had heard about it, of course, but just never wanted to do it. I didn’t want to spend my precious time doing it, and what if my budget held me back from doing all the things I wanted to do? Like buying new clothes, going out with my friends and getting bagels on the weekends. Or worse, what if making a budget shed light on a bleak financial reality that I wasn’t ready to face… no thanks.

The thing is, once I finally took the plunge and created my very first budget, the opposite happened: I actually began to stress less and have MORE money for the things I wanted. How? Prioritization. Budgeting helped me set money aside for the things that I wanted most, while also making sure I covered my bills and remained mindful of my saving and investing goals.  

With budgeting, you’ll understand how much money you have coming in and where it’s going. This allows you to be intentional with your money, instead of just winging it and hoping it all works out.

If used correctly, your budget can be the thing that alleviates your financial stress over time. It did for me, anyway.

Now, about 6 years later and debt free, I still budget every paycheck. Zero-based budgeting keeps me in line with my spending and my financial goals, and I can go to sleep each night knowing there is a plan for my money. 

But fair warning – if you are looking for a pretty budgeting system, this is not the blog post for you! 😀 What works for me is very basic – I use a Google Sheet with a little bit of data because I’ve never seen a need for anything fancier! If that’ll work for you, too, let’s dive in.

 

This post is all about zero-based budgeting and how you can make your own zero-based budget.

how to budget using zero-based budgeting

 

How I Use a Zero-Based Budget

I create my budget in Google Sheets. I downloaded the Google Sheets app on my iPhone so that I can easily check my budget whenever I need to.

I used to do my budget in Microsoft Excel but I found that not being able to access it when needed was hindering me.

We will dive into the details soon, but here’s an example of what my budget looks like in Google Sheets. I changed some of the numbers for privacy.

zero-based budgeting example

 

Pay Frequency

I get paid the same amount every other Friday. 

On payday, I see what bills I have to pay over the course of the next two weeks, until I get paid again. I do that by determining what bills are due between payday and the next time I get paid.

For example: I got paid on Friday, July 22, so I will look to see what bills are due between July 22 and August 5 (which is when I get paid next). My paycheck on July 22 needs to cover all of my bills that are due until I get paid again on August 5. 

 

Two types of expenses/bills that you have:

Fixed Expenses: Fixed Expenses are your expenses that don’t change month after month. Things like your rent or mortgage, any subscriptions you might have (e.g. Netflix or Spotify), your car insurance, any memberships (e.g. gym) or your minimum student loan payments are all examples of fixed expenses. If you can’t remember how much one of your Fixed Expenses costs, take a look at your past bank statements.

Variable Expenses: Variable expenses are your expenses that do change month after month. Things like groceries, gas for your car and your water bill are all examples of variable expenses. 

 

Zero-Based Budgeting Example

Now that you know about the two different types of expenses, here’s a more detailed example of my budget for July 22 through August 5. 

zero-based budgeting personal finance

Simply: I take my paycheck ($1,400) and subtract all the bills until my next paycheck. This rarely equals zero, so I am often fudging the numbers so that the math works out.

For example, in the picture above, when I subtracted all of my bills starting at “Baileys Gym” through “Gas for Car” from my $1,400 paycheck, I had $40 left over. That’s why I could add a bucket for “Savings”, and set $40 in there. This way, my zero-based budget equals zero (paycheck minus bills equals $0.00) AND I’m able to put money aside for savings!

If, on the other hand, my bills outweigh my paycheck, I have to lower some of my variable expenses if possible. The first ones I lower are usually my “Fun” category and “Groceries”. For example, I might lower my “Fun” category from $150 to $75.

Keep it simple! Your paycheck minus your bills should equal $0.00.  If it doesn’t, you’ll have to adjust some of your expenses.

 

What I do when I spend money

So what do I do when I actually start spending the money from my paycheck? Here’s an example.

Let’s say it’s July 27th and I have paid for Baileys Gym, Hulu, Internet, and the Alive App. That’s a total of $100. What I will do is mark those expenses in Orange (no good reason why, it’s just what I do haha) to let myself know that those bills have already been paid. Then, I will deduct $100 from my paycheck since I no longer have that money anymore ($1,400 minus $100 = $1,300). This way, my zero-based budget is updated and still intact in that the difference comes out to $0.00.

I will keep updating my budget like this (by crossing out things I’ve paid for and making sure my zero-based budget equals $0.00) until my next paycheck.

Here’s what that updated budget will look like:

 

Here’s Another Zero-Based Budgeting Example

This is a mocked up example of what my next budget might look like. 

zero-based budget example

You can see that some of the bills are a little different than my last budget. 

For example, I don’t have to pay Rent during this paycheck, so I have a little bit more money to “play” with. That means I can add more money to my “Fun” budget category, maybe spend a little bit more on “Groceries” if I’d like, and put some more money toward my “Savings”. 

No matter what, with every budget I make, I create a category for “Fun”, “Gas for Car” and “Groceries” because I always need money for these things. 

 

Buffer Category

I also added a category called “Buffer” which I sometimes do. Because I had $132 leftover after subtracting my bills from my paycheck, I decided to create a “Buffer” category with that money. Here’s why: let’s say I spend more than I intended to on “Fun” during this paycheck and I spent $300 instead of $250. Because I made a “Buffer” category, I can deduct $50 from there, instead of going negative on my “Fun” category, so that I’m still on budget. 

The “Buffer” category is really just a safeguard in case I spend more than I meant to, or a surprise bill pops up.

 

Some frequently asked questions (FAQs):

  • What if my expenses exceed my income? (e.g. Your bills add up to more than your paycheck)

If your expenses exceed your income, then you need to either increase your income or trim your expenses. Can you get a part-time job? Cancel any subscriptions? What about getting a roommate to lower the cost of your rent or cancelling your gym membership? There are countless ways to increase your income and decrease your expenses – you might have to be willing to do some extra work to make more money, or give up a few things in order to lower your expenses.

  • What if my expenses are less than my income? (e.g. Your bills add up to less than your paycheck and there’s money left over)

If your zero-based budget shows that your expenses add up to less than your income, you are in a great spot. You can put that leftover money toward your debt, use it for fun, use it for a buffer, save it or invest it – whatever you want! 

  • What if my income equals my expenses, and I don’t have any money left over for other things like savings?

You’ll have to find ways to increase your income, decrease your expenses, or both. Either will help you free up some of your income for the things that matter to you most.

  • What if I get paid monthly, weekly or inconsistently?

If you get paid monthly, determine how much money you make each month, then list all of your monthly expenses under that. Ensure the difference comes out to zero (i.e. monthly income – monthly expenses = $0.00).

If you are paid weekly, the situation is similar. Determine how much money you get paid each week, then deduct from that amount the bills that you have due that same week. For example, if you get paid on Fridays, you will deduct from your paycheck all of the bills you have due or the things that you have to pay for from Friday until the next time you get paid.

If you are paid inconsistently, it might be a good idea to start keeping an extra cushion of cash in your checking account (or whichever account most of your money flows into and out of). This way, if you have less money one week but a lot of bills and expenses to pay for, you can use that extra cushion of cash if needed.

No matter how frequently you get paid, zero-based budgeting should work for you. Just remember to subtract your bills and expenses from your paycheck and ensure that that number comes out to $0.00. Adjust your budget categories (mainly your variable expenses since your fixed expenses can’t change) as needed.

  • What if I overspent in one of my budget categories and I don’t have a “Buffer” category to use?

In this case, you can either find a way to make more money quickly (can you sell something on eBay or sell a few clothing pieces on Poshmark?) or lessen the amount you allocated in one of your other categories. For example, if you have a “Fun” category, maybe you can decrease that by however much you overspent in your other budget category. This means you won’t be able to spend as much on “Fun” this paycheck, but it also means you’ll be able to keep your budget intact!

  • How often do you update your budget?

When I first started budgeting, I tried to update my budget every time I spent money. So let’s say, for example, that I spent $50 getting my nails done. Afterward, I would deduct $50 from the “paycheck” section (because I no longer have that money) and then deduct $50 from my “Fun” section. This way, my paycheck minus my expenses still comes out to a difference of $0.00.

Nowadays, I update my budget once a week or so. I am pretty familiar with my bills and how much money I have to spend since I’ve been budgeting for about 5 years; it’s second nature now.

  • What do you do if you completely blow your budget?

Sometimes this happens. If I overspend and completely blow my budget, I will dip into my savings account or my emergency fund. I will pull this money from my savings into my checking account so that I don’t get an overdraft fee, and so I can pay any remaining bills in cash until I get paid again. Then I ask myself: why did this happen and can it be avoided in the future? I try to learn from times like these. And then, moving forward, I do what I can to build my savings back up to where it was before I dipped into it.

  • Will budgeting get easier the more I do it?

It took me a few months before zero-based budgeting got easier for me. Try not to give up in the early stages- you will get used to it and become much more familiar with your money and your bills over time.

 

This post was all about zero-based budgeting and how you can make your own zero-based budget.

 

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About Taylor

About Taylor

A few years after graduating college, Taylor made it her mission to become debt free. After paying off all $60k of debt, she began to blog about what she's really passionate about: personal development. Nowadays, Taylor blogs about the topics of Mindset, Money, Health, and Career for women.

"It's Per$onal" is a super popular and anonymous blog series about the personal lives and finances of women all over the world. Check it out!

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