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How to Make a Zero-Based Budget That Actually Works

Welcome to adulthood without knowing how to make a zero-based budget:

  • Work for a week
  • See money in your account
  • Sort of feel a little rich
  • Pay bills
  • Always feel poor
  • Repeat until you die

Chances are we all know someone stuck in this rat race. Maybe it’s a family member, a close friend, or that good lookin’ soul on the other side of the mirror. Either way, this is one vicious cycle that’s become uncomfortably comfortable. No one wants to live paycheck to paycheck, and no one should have to. The right motivation, discipline, and the know-how of making a zero-based monthly budget will give you the freedom you desire not to be a slave to the green paper.

What Do You Need to Make a Zero-Based Monthly Budget

All you need to do is click here to grab our monthly budget template bundle, and you’re all set! With this bundle, you’ll receive the following files:

  1. The PDF file of our monthly budget template with fillable form fields that can be filled in and updated on your computer.
  2. The Microsoft Excel file for those who aren’t afraid of plugging in some addition and subtraction formulas into the appropriate cells—this is the one Angela and I use every month.
  3. A blank PDF file of our monthly budget template for penciling in after printing.

I get it—a few bucks is a few bucks. If you’d prefer to take the frugal route, you can sign up on our little yellow form here, and we’ll send you the blank copy of our monthly budget template for free. Pair this blank copy of our template with your favorite No. 2 pencil, and you’ll be good to go!

The rest of what you need is discipline—discipline to take the time to plan out your finances and keep up with the money as it flies out of your bank account.

Our zero-based monthly budget template is simple, which I credit to none of us having time to learn how to be our own certified personal accountant. Many of us have busy careers that we have to keep up with, so we need to strive for simplicity. I will spend the rest of this post going over how to make a zero-based budget using our template.

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Before we get too far into this journey together, I’d like to point out that we are not certified, financial professionals. We’re just a married couple figuring out what works for us and sharing our process with you. If you’re in severe financial trouble, then please consider seeking out a professional. 

Now let’s get started!

I’m not going to tell you what percent you should be spending on your phone bill every month. Honestly, I don’t even know the answer to that question. I know this: we’re all grown adults, and we can use some common sense when it comes to those types of decisions. Common sense tells us being on the hook for a $300 phone bill each month for only two lines probably isn’t necessary for most situations. For reference, Angela and I currently pay roughly $160 per month for two new phones.

If you’re a percentage nut and crunching numbers is your thing, then you can click here to head over to NerdWallet, where they give an idea of how much you should allocate for each category. We’re a family of 7 on a single income—we don’t come anywhere near the 50/30/20 rule. We do what works for us while keeping us within our budget, and that’s perfectly fine.

Image of a person's torso with paper and pencil on a table as they learn how to make a zero-based monthly budget.

How to Make a Zero-Based Budget

Like I said, our monthly budget template is simple. Believe me when I say the benefit far outweighs the time. Angela and I update our budget about once a week, typically on Friday evening, after putting all our kids in bed. Doing so gives us a good understanding of exactly where we stand and provides us with a chance to red flag areas where we need to be mindful. When you’re first learning how to make a zero-based budget, it would be beneficial to update daily.

No one wants to live paycheck to paycheck, and no one should have to. The right motivation, discipline, and the know-how of making a zero-based monthly budget will give you the freedom you desire not to be a slave to the green paper. Click to Tweet

The BUDGETED Column

1. Budgeted Income

In the Budgeted column, plug in how much you intend to make for the month. Make sure to enter your income amounts after taxes. Some financial folks care about gross income, but not us. What matters to our family is what goes into our bank account that we can use to pay the bills—tax money doesn’t pay your bills.

If you work off of commission, no problem! Everyone can learn how to make a zero-based budget, isn’t that great? Use your monthly average amounts based on previous months. When you have a fatter than usual paycheck one month and bring home more than average, put that extra money aside to cover when you have a skinny month.

We blended in the “Pay Yourself First” budgeting system with our zero-based monthly budget, so the income section’s last row is reserved for upfront savings. No matter how tight your situation, you should ALWAYS pay yourself first to build your savings continually. Maybe this is $100 each month, or perhaps this is just $10 each month. Many recommend this amount should be 10% of your paycheck. Either way, be sure to plug something in here!

2. Fixed Expenses

Fixed expenses are expenses like home internet, vehicle payments, auto insurance, cell phone bill, and other bills that are relatively the same every month. Create a list of your fixed expenses, look at the corresponding bill statements from previous months, and then jot in the budgeted dollars you need to allocate for those expenses each month.

A person holding one hundred dollar bills in front of their face as the bills burn on fire.

3. Variable Expenses

Variable expenses fluctuate month to month—like eating out, groceries, and your electricity bill. Coming up with a budget estimated for variable costs isn’t too tricky. You can look at previous bill statements to get a reasonable amount. For items like gas in your tank, think about how many times you fill up each month.

Example: I usually have to fill up our car two times each month, and Angela fills up the van about once a month. Our car holds 18 gallons, and our van holds 20 gallons (thank you, Google). Gas in our area runs around $2.15 per gallon right now, so we budget about $120 each month.

See, learning how to keep a zero-based budget is easy! Applying some more logical thinking will help you develop budgeted amounts for the rest of the items on the list of your variable expenses.

4. Totals

Total up your budgeted income, fixed expenses, and variable expenses and place their totals under each corresponding section.

IMPORTANT: If you opted to take the frugal route with our free blank monthly budget template, you need to subtract your budgeted upfront savings from your budgeted income to figure out your total budgeted income amount.

If you’ve changed your mind, you can snag our bundle below.

Applying the Zero-Based Budgeting Concept

Follow the formula under the Zero-Based section at the bottom of our template once you have your budgeted total amounts for all three areas. The goal here is for your budgeted amounts to add up to zero. You likely won’t arrive at zero on your first round, so some tweaking might be necessary.

Suppose your budgeted amounts add up to a positive number, then set that amount aside as carryover. DO NOT add it back into your budget. That extra $$$ is more that you can add to your savings at the end of the month—which is FANTASTIC! That extra $$$ can also help offset a blown budget. More on that later.

Up pops a giant red flag if your budgeted amounts add up to a negative. A negative number here means you plan to spend more money for the month than you will make.

All aboard the debt train! CHOO! CHOOOO!

Picture of a train chugging up the tracks symbolizing the debt train.

In case you’re wondering, the answer is no.

The debt train is not a profitable train to board.

Aside from going out and getting a better paying job, there’s nothing you can do to change your budgeted income. Move along and take a look at your fixed expenses. Ask yourself, “Where can I cut back?” Do you really need that TV streaming service? Maybe you could instead keep busy with some excellent free family activities and cut back on watching TV.

Do you really need an unlimited data plan for your phones? Angela and I have found that we can get by just fine on just a shared 4GB plan—we usually have carryover data. One of the main goals while learning how to make a zero-based budget is to learn how to find which expenses are necessary and those expenses that can be either reduced or flat out removed.

Next, look over your variable expenses. This section is where you can really hone in and cut back if need be. Ask yourself the same question. Do you really need to budget over a hundred bucks for dining out each month? Maybe it’s time to shop around for cheaper auto insurance. Perhaps you could even cut back some of that entertainment budget by having a date night at home instead of an expensive night out on the town!

Living outside of your means should never be an option, so work your budget until you change that negative number to a big, fat ZERO! Scale back in some areas. When you find a way to add to your income, you can add them back. When you can add them back in, you might not even miss them and find yourself choosing to save even more instead.

Congratulations! You’ve worked your way to zero—who knew zero could be such a significant number. You’re well on your way to learning how to make a zero-based budget, and you now have your budget for the month! This budget column is mostly a big Ctrl+C Ctrl+V, a.k.a. copy and paste, for the coming months.

People raising their arms from behind in celebration after learning how to make a zero-based monthly budget.

The ACTUAL Column

The actual column is simple, but it takes discipline. Pick a day to sit down with your budget once a week—Angela and I typically do this on Friday evenings after we’ve put our kids to bed for the night. My paycheck deposits every Thursday, so the first thing we update is our income for the month. If we set our Upfront Savings for the month to be $100, we transfer $25 each week into our savings.

Next, we move along to our expenses. Because we use plastic for everything to take advantage of cashback options, we’re able to pull up our bank account, scroll through our charges for the week, and add each charge to its corresponding expense.

We usually have a good idea on the third Friday how our month will fall, and we make any necessary adjustments to keep our budget in line. Example: We budgeted $100 for eating out, and on the third Friday, we find our actual expenses for eating out are $93.87 to date. That’s it! There’s no more eating out for the month—absolutely no excuses!

Crosswalk hand signal with red hand light for stop to symbolize not spending more money.

Tally up your actual column totals after the month is over the same as you did when you added your budget amounts. Follow the formula under the monthly section at the very bottom of our template once you have your budgeted total amounts for all three sections—total actual income – total actual fixed expenses – total actual variable expenses.

If the sum adds to zero, you deserve a high five for 100% percent sticking to your budget! A zero here rarely happens when first learning how to make a zero-based monthly budget. Like most everything else in life, practice makes perfect.

If the sum is a positive number, then there’s nothing better than that! Add this extra $$$ to your savings account. If you like a good challenge, increase your upfront savings by this amount for next month. Example: We come in $100 under our budget at the end of the month. When we start our next monthly budget, we can budget our upfront savings amount to be $200 rather than $100 and try to come in under budget again!

Another option is to use this extra money to start building your emergency fund if you don’t already have one, but I hope you do! Having an emergency fund plays a crucial role in keeping the debt train from chugging down your tracks.

Picture of a train chugging up the tracks in the fog to symbolize the debt train coming after you.

The DIFFERENCE Column

Your monthly budget has run its course now, and there’s always room for improvement. For each row, subtract the ending dollars in the actual column from the budgeted column’s dollars. Place the sum of the two under the difference column. Once complete, you will be able to see how you fared in each category.

Hopefully, you have no negative numbers under the difference column, but I can hear you now.

“That’s not real life, Joe.”

I know.

Our goal is to do whatever we can to stay within our budget, and we’re usually successful. Every now and again, though, life happens. There’s a good chance it will blow our budget when it does.

Our oldest decided to go off-roading on his bike down a hill. His front tire hit a newly dropped black walnut sneakily lying in wait in the grass, which violently threw him over his handlebars. He wiped out, and something—we believe his bike pedal—unapologetically ripped a hole in his leg down to his bone.

We eventually made it home that night—along with 13 stitches in his leg and a beautifully fat medical bill to boot. We were setting aside a monthly budget of $150 for medical bills at that time—we severely blew our budget for that month in a single afternoon. See for yourself—and this was just for the stitches! Such a large chunk of skin was left in the grass somewhere that caused him to have to visit the Wound Care Unit six times over the following couple of months to cauterize the edges so his wound would heal properly—each trip ran around $200.

Our medical bill showing our blown monthly budget.

I said I’d come back to that extra $$$ that you might have found after you set your budget. If you listened, then you put it aside. Now you can use it to help offset your blown budget. If that still doesn’t cover it, then hopefully, you have an emergency fund to cover the offset. Remember? Emergency funds are crucial! You’ll start hearing the whistle of the debt train if you, unfortunately, have not built up an emergency fund. Most folks offer payment options at this point that you will need to account for in your next several monthly budgets.

Revisit Your Previously Completed Budgets

Angela and I learned how to make a zero-based monthly budget years ago. By doing so, we can figure historical averages to really tighten up our monthly budget amounts. At the end of each year, we revisit all 12 of our monthly budgets, add up each expense, and divide by 12.

Doing this gives us a good idea of what we should be putting aside for our expenses—like our medical bill expense. We’ve found our family of 7 averaged roughly $250 per month in medical bills, so we will increase our monthly budgeted amount for medical bills from $150 to $250 and hunt out other areas where reductions can be made to offset the added $100 to medical expenses.

Your biggest wealth-building tool is your income, and the best way to harness the power of your income is the monthly budget.

Dave Ramsey

Final Thoughts…

It’s so essential not to spend more money than you make regardless of your monthly income. Only one thing will come from spending more each month than you bring in each month, and that one thing will be the debt train! Continuing to spend more than you bring in month after month after month will cause your debt to grow, grow, and grow. Before you know it—and it will happen fast—you will be so far down the hole and left scratching your head, wondering what went wrong.

Brick wall with the words UNTIL DEBT TEAR US APART painted on the wall in all capital letters.

Knowing how to make a zero-based monthly budget allows you to focus on your monthly expenses and set a budget for yourself that actually works—a budget that no one can do better for you than you! Maintaining your monthly budget gives you the freedom to split up your budget how you wish. There will be some expenses that you can’t change much—unless you are into candles and oil lamps. BUT! By keeping a monthly budget, you will see some expenses that you can change, and that change is up to you.

Budgeting your money each month is something to get excited about! It’s exciting to see success, which is hopefully exactly what you will see now that you know how to make a zero-based budget. Budgeting doesn’t have to be something to fight over with our spouse. It can be a fun, challenging game if we let it. I’ve yet to meet someone who doesn’t like to win.

Do you keep a monthly budget? What are some ways you manage your budget? Let me know in the comments below. If you found this article helpful, please share it, pin it, tweet it, and Instagram it to benefit others!

Instagram it?

Is that a thing?

6 thoughts on “How to Make a Zero-Based Budget That Actually Works”

  1. It’s great to look at older budgets and see where you can improve. My husband and I saved hundreds of dollars by going back and cutting out things that we realized were no longer needed or were paying too much for. By cutting out things and scaling back, it makes a huge difference!

  2. Another outstanding blog post Joe. Budgeting is the foundation for all personal finance and you’ve done a great job of breaking down exactly how to do it.

  3. Alyssa Hixenbaugh

    I love your budgeting ideas! It’s so easy to follow your planner, and I’m sure it helps keep everything organized! I am the frugal one in my marriage, so any tips to make budgeting easier is great!

    1. Thank you! I typically manage our family finances, but I keep Angela updated, so she knows what’s going on. Time is such a precious commodity, so We try to keep everything as simple as possible!

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