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How to Make Your First Zero-Based Budget

When you first start budgeting, I recommend being as detailed as possible. This is how to make your first zero-based budget.

Different Forms of Budgeting

If you’re new to the budgeting world, you may be surprised to find out that multiple types of budgeting exist!

Many people think of budgeting as a very relaxed way of handling your money: first paying all the bills, getting groceries, and taking care of all the essentials; then, save whatever is leftover. There isn’t a written plan, and you don’t know how much money is actually going where.

This lifestyle may work for some people, but this simple system provides no accountability. Savings and other financial goals are often left on the back burner, and it can be easy to overspend.

My husband and I “budgeted” like this for the first year and a half of our marriage. We would hope that there would be money leftover for savings at the end of the month. However, we often ran out of money to put towards financial goals because we didn’t plan it. Does that sound like your situation?

Budgeting Reduces Stress

Not having a budget also created a lot of stress for my husband and I because we had a low income. We didn’t want to overspend, so we would avoid spending money. Not being able to splurge a little here and there can feel very constraining. Without knowing how much money we had to spend, we would overuse our credit card when we did want to buy something extra.

After so long of not using a budget, I finally had enough of never knowing where all of our money was going. I started googling how to budget, and I’m thankful that I learned about the concept of zero-based budgeting. Dave Ramsey and numerous other financial gurus use this approach, and I can attest to its effectiveness as well.

What Is a Zero-Based Budget?

Zero-based budgeting is a system of budgeting in which you allocate every single cent of income to a budget category, and you have budget categories for EVERYTHING. You don’t leave anything for guessing or hoping.

You can have a budget category for electricity, groceries, Netflix, date nights, tithe, savings, etc. Literally ANYTHING you want to put money towards, you will include in your budget as a category. Also, these budget categories are called “expenses.” You may feel weird calling your savings account an “expense” in your budget, but think of it as an allocation of your income.

You have finished creating your budgeting when your budgeting income equals your budgeted expenses. Another way to think of a zero-based budget is all of your income minus all of your expenses equals zero.

Zero-Based Budget Example

Let’s look at my example budget:

zero based budget example shows total income equals total expenses

Under Income, I entered one paycheck of $2000. It’s possible to have multiple forms of income, though.

Under Expenses, I recorded my expenses until they equaled $2000. This results in an extremely detailed budget that doesn’t leave anything for guessing. I even listed what I might spend on a hair cut.

By writing out our budget, we can see ways we can save more AND spend more. In this budget, I allocated money for bills and debt, as well as fun things like eating out.

How to Make Your First Budget

Now that I’ve explained what type of budget you should make, let’s break down how to create your own zero-based budget step by step:

  1. Choose a time frame to budget. Some people like to stick with the typical monthly budget, while others prefer to budget each individual paycheck. You can choose whatever time frame works best for your situation.
  2. Choose a way to record your budget. This is where you can be creative and have fun! You can write down your budget in a bullet journal, use an app or website like Every Dollar, or enter it into a spreadsheet. Check out my budget shop for simple budget spreadsheets that automatically calculate totals for you.
  3. Write down the income you expect to earn during this time frame. Record any paychecks, passive income, side hustle income, etc. (See how to budget irregular income in Extra Tips below).
  4. Write down the expenses you plan to have during this time frame. How are you going to spend the money that you earned? Break down your spending into specific categories, such as your bills, sinking funds, deposits into savings accounts, and fun spending.
  5. Adjust the expenses until the amount of the expenses equals the amount of your income. First, take care of all of the important expenses, such as rent, electricity, and groceries. Then, whatever is flexible or optional, adjust so that the expenses equal the income earned.
  6. Track your spending throughout the month. Now that you have established the budget, keep track of your spending throughout the month using a transaction log, and stick to your budget as best as possible!
  7. Review. Finally, review how well you stuck to your budget, and create a new one for the next month or pay period. Budgets naturally evolve, so you shouldn’t use the same one month after month.

Extra Tips for Beginners

  1. If your income is irregular, estimate your income as best as you can. If you really have no idea what your income will be, plan for your earnings to be on the lower side.
  2. Give yourself AT LEAST three months of budgeting to really get the hang of it.
  3. Watch budgeting videos on YouTube if you are a visual learner. There is a huge budgeting community on YouTube.
  4. If your income feels really tight right now, read my post on how to budget when you don’t make enough money.
  5. As important as making the budget itself is, keeping an expense tracker or transaction log to keep track of your spending and to help review every month is just as essential to see true results!!

Get a FREE Transaction Log!

There is a transaction log included in the spreadsheets available in my shop, but I wanted to also make this free printable available for you to help you get started right away! Enter in your email, and I will send you a printable that you can download and print off every single month to help you log your income and expenses.

How to Use a Transaction Log or Expense Tracker

You may hear other financial influencers use the term expense tracker, but I prefer to say transaction log. An expense tracker is used solely to record your expenses, whereas a transaction log is used to record all transactions, including income. It is similar to looking at your bank statement; you see deposits and withdrawals.

To use a transaction log, first log the date of the transaction. The first transaction may be your or your husband’s paycheck.

Next, write down the category. This category should correspond to the category used within your budget, whether that’s “My paycheck” or “Hair cut” or “Netflix.”

Add an optional description if it helps you understand the income or expense. For example, if the category is groceries, you may want to record in the description which store you bought it from or why you bought it.

Finally, write down the amount. It may be helpful to add a plus sign for income and a minus sign for expenses before writing the amount. Another way to help you identify the income from the expenses is to highlight the income green.

Some budget nerds love to color code their entire transaction log by different categories. The Budget Mom has some great examples of this!

You Can Do This!

Budgets have a bad rap for being very restrictive, but the opposite is true. With knowledge comes power! If you know your money situation, you have the power to harness it and make it work towards your financial goals.

I know facing the numbers can be scary, too, especially if you have been avoiding your bank account for awhile. Trust me, I have been there many, many times, and sometimes, I find myself there even now! It’s easy to brush your finances under the rug, but that doesn’t make it go away. I encourage you to dust off your calculator, make a budget, and get control over your finances today.

Now that you understand the method of zero-based budgeting, set up your first budget with one of my budget templates to make creating your first zero-based budget EASY and SIMPLE! It will feel so good to know exactly where your money is going, and you will be amazed at how much quicker you can reach your financial goals.

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