Zero-based budgeting means every dollar gets a job. Income minus expenses equals exactly zero - not because you spend everything, but because you assign everything, including savings. Nothing slips through unaccounted.
The Monthly Budget Template works with zero-based methodology. Enter income, assign to categories, balance to zero.
The Core Idea
The formula is simple: Income minus Expenses equals Zero. But “expenses” in this context includes everything - bills, savings, fun money, future expenses. When the math equals zero, you know exactly where every dollar goes.
YNAB popularized this as “give every dollar a job.” Whether that job is “pay rent” or “sit in emergency savings” or “buy concert tickets,” the dollar has a purpose before it’s spent. The key insight is that unassigned money tends to disappear. Zero-based budgeting eliminates the mysterious gaps.
Setting Up Your Budget
Start with your total income at the top - salary (after tax), side income, any regular money coming in. This is the pool you’re working with. Everything flows from this number.
Below income, list all your categories grouped by type. Fixed expenses are the predictable ones: rent, car payment, insurance, phone, subscriptions. Variable expenses change month to month: groceries, gas, utilities, dining out, entertainment. Savings and debt covers future security: emergency fund, retirement, extra debt payments. Irregular expenses are the sneaky ones: car maintenance, medical, gifts. Divide annual costs by 12 and save monthly so these don’t surprise you.
At the bottom, your formula is Total Income minus Total Budgeted equals Remaining. Adjust categories until “Remaining” equals exactly zero. If it’s positive, you have unassigned money that needs a job. If it’s negative, you’ve over-assigned and need to trim somewhere. Finally, add an “Actual” column next to “Budgeted” to track what really happens.
Example Budget
Here’s what a complete zero-based budget looks like with $4,800 monthly income:
| Category | Amount |
|---|---|
| Rent | $1,400 |
| Utilities | $120 |
| Groceries | $450 |
| Transportation | $500 |
| Insurance | $200 |
| Phone/Internet | $140 |
| Dining Out | $150 |
| Entertainment | $100 |
| Emergency Fund | $300 |
| Retirement | $200 |
| Sinking Funds | $200 |
| Buffer | $70 |
| Total | $4,800 |
$4,800 income minus $4,800 assigned equals zero. Every dollar has a job. Nothing is left floating around hoping to be useful.
During the Month
The budget isn’t rigid - that’s a common misconception about zero-based budgeting. When groceries run over, move money from entertainment or dining out. The total stays at zero, money just moves between jobs. Life doesn’t follow a spreadsheet perfectly, and that’s fine.
Including a small “buffer” category ($50-100) helps absorb minor unexpected needs without disrupting the whole system. Think of it as a miscellaneous fund for the small stuff that doesn’t fit neatly into other categories.
Variable Income
Variable income makes zero-based budgeting trickier, but three approaches work well. Budget last month’s income is the cleanest - use money earned last month to fund this month. You’re always budgeting money you actually have, not money you hope to receive.
Budget your lowest month works if income varies widely. Use your minimum typical income as baseline. When more arrives, the surplus goes to savings or debt. Priority allocation takes a different approach - create a prioritized list and fund categories in order until money runs out. Essential expenses come first, nice-to-haves last.
Zero-Based vs. 50/30/20
Both approaches work. They just operate at different levels of detail. Zero-based specifies every category, giving maximum control but requiring more time. The 50/30/20 method uses three broad buckets, offering a simpler framework with less granularity.
Some people combine them - using percentages as targets while applying zero-based principles within each percentage. There’s no rule saying you pick one forever. The goal is a system that works for how you actually think about money.
Common Questions
What if I have money left at month end? Assign the leftovers in next month’s budget toward savings or irregular expenses.
How do I handle unexpected expenses? Move money from other categories. If nothing can flex, use the buffer or emergency fund.
How long until it feels natural? Usually 2-3 months - the first month is mostly experimental.
Get Started
The Monthly Budget Template works with zero-based methodology. Set income, assign categories, balance to zero. The template handles the calculations automatically - just enter your numbers and adjust until the remaining amount equals zero.
Related
- Annual Budget Template - zero-based budgeting across a full year
- Monthly Budget Template - monthly zero-based tracking
- 50/30/20 Budgeting Guide