How to Start Zero-Based Budgeting

This guide is for anyone who wants a clear, hands-on budget that shows exactly where their money is going. You will learn how zero-based budgeting works, how to build your first monthly plan from scratch, how to track it through the month and how to handle irregular costs and changing income. General information, not professional advice.

How Zero-Based Budgeting Works

In a zero-based budget, you plan where every unit of your income will go before the month starts, until the amount left unassigned is zero. That does not mean spending everything. Savings, debt payments and money set aside for future bills all count as jobs. The point is that nothing is left floating without a purpose, because unplanned money tends to disappear on unplanned spending.

The basic formula is simple: income minus everything you have assigned equals zero. If you have money left over, you give it a job, such as extra savings. If you have assigned more than you earn, you cut back somewhere until the plan balances.

Get Ready Before You Build

A little preparation makes your first budget far more accurate. Set aside an hour and gather the information you will need.

• Payslips or records of all income for the last two or three months
• Bank and credit card statements for the same period
• A list of bills with amounts and due dates
• Details of all debts, including minimum payments
• Any annual or irregular costs you know are coming up
• A tool to work in: notebook, spreadsheet or budgeting app

Choose a tool you will actually use. Paper works well for many people because it is quick and visible. A spreadsheet adds up the figures for you. Budgeting apps can link to your accounts, but check any app's privacy and security information and costs before you connect your bank details.

Decide which month you are budgeting for. Most people budget the calendar month, but if you are paid on a set date, budgeting from one payday to the next can be easier, because the money you are planning is already in your account.