How to Make a Zero-Based Budget in 5 Simple Steps

A zero-based budget can help you ‘zero in’ on exactly where your money is going, so you can stay on track towards your savings goals. Here’s how to get started.
Zero-Based Budgeting

Do you keep track of every penny going in and out of your bank account? Although many of us like to think we can will our way into being more frugal, the reality is that most of us tend to underestimate how much we need to live each month—and start to stress when it comes time to pay our bills.

In order to reach their savings goals and avoid going into debt, most people need a stricter budget in order to maintain control of their money—and ideally, a system that makes it less tedious than literally counting every penny. That’s where the zero-based budget comes in handy.

Wondering how zero-based budgeting actually works? Here’s how to set a zero-based budgeting system up in your Simple Account!

What is zero-based budgeting?

Simply put, a zero-based budget means that your income minus your expenditures equals zero at the end of every month.

That means that you account for every dollar you earn, as well as every expense, every debt payment, and every penny you put into savings, so you know exactly where your money is going each month.

Following a zero-based budget is certainly stringent, but it can be life-changing for people who are used tos feeling like their money is out of their control. And although keeping track of every penny might sound tedious, using the right banking and budgeting tools—like Simple Expenses and Goals—can make it easier to get started, and simpler to maintain.

A few things to note:

  • The goal is to have your total income, minus your total expenses (including debt repayment, monthly bills, savings contributions, etc.), equal zero.
  • If you come up with a negative balance at the end of the month, you’ll need to find ways to increase your income or reduce your expenses in order to get on track. If you have a positive balance, you’ll want to find somewhere to allocate that money (might we recommend an Emergency Fund?).
  • Zero-based budgeting requires you to track every penny in order to be accurate, so you’ll want to revisit your budget every month to adjust for any planned changes to your income or expenses.
  • Analyzing past spending is helpful for understanding how much you usually spend in each category, but once you’ve done that, focus on managing the current month’s income and expenses and developing new, better habits instead of simply maintaining the status quo.
  • Using one bank account to manage all your incoming and outgoing transactions is a great way to ensure that you’re sticking to your zero-based budget.

Step 1: List all your income sources

We’ll share how to input your money in and money out into Simple—but if you’re just getting started with zero-based budgeting, it can be helpful to see the big picture written out on paper (or a spreadsheet, if that’s your thing).

Decide when you want to start following your zero-based budget. It can sometimes be tricky to start in the middle of a month, and it can be helpful to give yourself some time to get organized before jumping in. If you know you pay your mortgage or rent at the beginning or end of the month, that can be a good time to officially kick off your new budget.

Once you’ve picked your starting month, it’s time to start planning out your budget! Wherever you’re taking your notes, create two columns: In the first column you’ll add your income sources. Sit down and write out every penny coming into your bank account for the month. This includes paychecks, residual income, child support, money from side jobs, predicted interest on savings, and even that dependable $50 birthday check from your grandma. If it’s going to see the inside of your checking account, it goes on the list.

Step 2: Identify all your monthly expenses (including debt repayment and savings contributions)

Now, on the other column you want to list all of your expenses for the month you selected. You’ll need to write down every penny you plan on paying out: If you’re paying off student loans or credit card debt, those will go here too. As does your rent or mortgage payments. Same goes for any savings goals you might have—whether you’re contributing to an emergency fund or saving up for a fresh new pair of shoes.

Start from large to small, from your mortgage or rent payment down to your monthly Netflix bill. It can be helpful to look at your recent transactions in your bank account to see exactly where your money has been going, and to make sure you aren’t forgetting anything (like that monthly $9.99 charge for extra iCloud storage for all your dog photos).

You can group related categories together, but don’t generalize your expenses to the point where it’s hard to keep track of what’s what. Grouping Netflix, Hulu, and Spotify together under ‘Entertainment’? Sure. Lumping together groceries (which sometimes includes household items), date nights at restaurants, and drinks out with friends? Could get tricky.

Looking at sample budgets online can be helpful (Pinterest is great for this), but remember to tailor your expense categories based on your reality. If there are specific things you tend to overspend on, it’s probably worth creating a specific expense category just for that: Whether it’s video games, music equipment, or seasonal attire for your furry friend.

Step 3: Compare money in and money out

Remember, the goal is to have a total of exactly zero. So, if you find that you managed to have a surplus of $200 for the month instead of a deficit, that’s great, but you need to assign it to something. Give that $200 a purpose. We recommend moving it into the savings or debt repayment portion of your expense list.

If your income and expenses don’t equal out once you’ve tallied both sides up, that means you’ll need to find ways to reduce your expenses or increase your income (or both). Check out these tips to help you save more money each month for inspiration.

Step 4: Set it up in Simple

Once you’ve figured out how to balance out your income and expenses, it’s time to get it all into Simple! Having your income and expenses all in one place makes it a lot easier to stay on track with zero-based budgeting.

If you don’t already, make sure you have a direct deposit set up so that your paychecks automatically deposit into your Simple Account. From there, you can start creating ‘envelopes’ for each of your expense categories with Simple Expenses. When creating your Expenses, you can set up Funding Schedules that align with your paydays so that your Expenses are automatically funded whenever you get paid.

Learn how to set up direct deposit here.

You can use Expenses for those fixed, recurring expenses like your monthly rent payment, as well as variable expenses, like groceries. You can also use Expenses to set aside the money you need for debt repayment, so you don’t accidentally spend it on anything else.

When you create your Expenses, you can select specific ‘Money Out’ categories to help us categorize your purchases automatically—like making sure that your water bill comes out of your ‘Utilities’ Expense. Get into the habit of checking your Simple account regularly, so you can make sure that each of your transactions is being spent from the correct Expense.

You can also ‘teach’ your Simple account to automatically assign certain purchases to the correct Expense: Whenever you use your account to make a purchase, a category is attached to the transaction. The category is determined by the merchant. When a transaction comes through on your account, you have a choice. You can choose to spend the funds from one of your Expenses yourself, or you can set up your Expenses so that specific transaction categories automatically pull funds from Expenses, automating your budget. We call this Auto-spend.

Learn more about funding and spending from Expenses!

This will help you see how much you’ve spent, and how much you have left to spend in each category, so you don’t go over budget.

For the money you’re saving up over time, you’ll want to use Goals. Since part of zero-based budgeting involves planning out your saving, you can set up a Funding Schedule for your Goals so you actually set aside the money you plan to save—before you have a chance to spend it.

Safe-to-Spend is a Simple feature that can help you make sure you’re following a zero-based budgeting system. If you’re following a zero-based budget, your Safe-to-Spend should remain at or close to $0 (because all your money will have a purpose and be stashed in Expenses or Goals).

Step 5: Adjust your budget monthly

At the end of each month, take a look at each of your Expenses to see how close you got to $0. If you have money leftover in any of your Expenses, you can transfer it to one of your debt repayment or savings goals, or if you take no action, it will stay in that Expense to be used the following month.

Examining and adjusting your budget monthly is a helpful habit for two reasons:

  1. Many people find sticking to a strict budget extremely difficult. Taking it month by month means that you can account for the little things that would usually get your budget off track—like flowers for your mom’s birthday, the buy-in for your fantasy football league, or something special for your Valentine.
  2. It gives you a chance to reflect on your habits each month, and make small improvements to help you get closer to your goals.

Is zero-based budgeting right for you?

Zero-based budgeting seems pretty simple, right? That’s kind of the whole point! It’s a proven, reliable way to get you to zero in on your spending and establish a system that encourages you to plan ahead.

Once you feel good about your system and you’ve made some progress on your financial goals, you can either continue to use it or switch to something that allows a little more freedom if you think you’re ready for it.

If zero-based budgeting doesn’t feel right to you, consider looking into the 50/30/20 method or envelope budgeting. Use them together or select your favorite strategy for budget success!

Get more top budgeting tips!

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: We do our best to make sure information is accurate as of the date of publication, but things do change quickly sometimes. Any outbound links in this post will take you away from, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. Individual situations will differ; consult your favorite finance, tax or legal professional for specific advice. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.

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