How to Implement a Zero-Based Budget with a Family

Implementing a Zero-based budget is an effective way to take control of your household finances. By tracking your income and estimating your future expenses, you can plan for the upcoming month. By starting each month with a plan for our money, we can spend less, save more, and invest for the future.

Zero-based budgeting is also commonly referred to as a zero-sum or every dollar budget. The idea is simple, to have a purpose for every dollar of our income. Rarely will you be that accurate, but you may find that you’re able to save hundreds or thousands more each month.

Similar to utilizing a beginner fitness program, the zero-based budgeting method can be used to build proficiency and can be tailored to meet the individual needs of your household.

What is Zero-Based Budgeting?

Zero-based budgeting (ZBB) is a business concept of budgeting in which all expenses must be justified for each new period. As a household, we can justify our expenses by applying an equal amount of income.

If we run out of income to apply to the expense for the period, we cannot justify that expense. We must then find other places in the budget to reduce or eliminate in order to justify the additional expense.

ZBB can teach us to prioritize our spending. If we have a set amount of money to allocate each month, we will quickly learn that the highest priority expenses (food, water, shelter, bills, debts, etc…) will go into the budget first. Followed by our other “needs” then finally, “wants.”

Simply put, ZBB has you list out all of your estimated expenses for the month and justify these expenses with an equal amount of income. The goal of Zero-based budgeting is that your income less your expenditures equals zero by the end of the month. In other words, a balanced budget.

The Zero-Based Budget Formula

As with other aspects of personal finance, the philosophy is simple, but the execution is difficult. The formula for implementing a zero-based budget is as follows:

Income - Expenses* = Zero

*Expenses include savings, investing, giving, etc…

The most difficult aspect to understand about ZBB is that expenses are any place you’re allocating your money to. This may include your emergency savings account, your investment account, a charitable cause, etc…

For example, if your household income is $9,000 per month, you have $9,000 to allocate. Just as Warren Buffett is the world’s greatest allocator, you are running your own little empire.

Implementing a Zero-Based Budget

When it comes time to implementing your zero-based budget, you must understand how much income you earn.

Tracking your income is easy, you simply need to log into your bank account and see the deposits made by your employer. You can also check your old pay-stubs to get a more clear picture.

It’s important to realize, your ZBB is based on your net income (the income actually deposited into your bank account).

Zero-Based Budget example.JPG

You don’t have to track your expenses to create your ZBB, but you do need a good understanding of what you’re expenses look like currently. If you’re not already budgeting or tracking your expenses, start with our Budgeting Basics page.

As you can see in the example zero-based budget image, the 9,000 is allocated out to different categories. In the software we use, each category has many additional line items. This is just a summary.

The investing and sinking funds category are considered expenses for the purpose of a zero-based budget. These categories serve to show that the word “expense” isn’t a dirty word. It’s simply a label we assign when our money is flowing out of our checking account.

Allocating Our Income

By looking at the zero-based budget example, we can easily tell where our financial priorities are. We first want to allocate income to our “fixed cost” categories.

Fixed costs are expenses that we can expect each and every month. These costs are typically stable and consistent from month to month.

Fixed cost examples: Housing, childcare, insurance, utilities, etc…

Secondly, we want to allocate income to our “variable cost” categories.

Variable cost examples: Food, Gas, Clothing, Entertainment, etc…

The remaining income should be allocated to your emergency savings, investment account or to pay off debt. Most of our budget items are fixed costs. Even food, gas, entertainment, etc…

Pro Tip: We spend close to the exact same each and every month in the majority of our budget categories. I recommend you work towards the same goal. The less “variable” and more “fixed” you can make your budget, the easier it will be to maintain.

Adjust For Your Goals

When you create your first Zero-based budget, you might discover your priorities are a little mixed up. If your intention is to save 15% of your net income, but you only have 5% leftover, then you need to make some adjustments.

Reducing variable expenses is the easiest place to start reducing. For us, reducing our restaurant budget really helped free up some cash. Other categories that are easy to reduce are clothing and entertainment.

Fixed costs can be reduced, but often are easier to be removed altogether. This is common with “cord-cutters.” People interested in canceling cable and landline phone service to save the monthly bill each month. There are many alternatives to expenses cable and satellite services. We use Hulu + Live TV and that is plenty for us (and half the price).

Pro Tip: We like to keep a buffer in our checking account of $500-$1,000. This ensures that if for some reason, we’re wildly off on our assumption of expenses, we won’t overdraft our account. This isn’t freedom to spend that buffer however you please, but it can be stressful to look at your checking account and see if approaching zero with days to spare in the month.

Getting Everyone to Participate

This is one of the hardest aspects of implementing any financial practice. If your partner does not participate, then keeping a balanced budget can be difficult. We didn’t jump right into ZBB from the get-go. This has been an evolution over 10-years of marriage.

Consider introducing your partner slowly to the concepts of personal finance. Getting buy-in to save an extra $100 a month is better than ruining your chances of ever getting them to participate. You may find our Money Marriage Checklist to be a valuable resource to improve financial discussions in your relationship.

Luckily, financial communication has always come naturally to us. We combined our finances at a young age are both focused on building the financial future of our dreams rather than spending it as fast as we can earn it. It also helps that we have an above-average household income.

Advantages of Zero-Based Budgeting

Implementing a zero-based budget is a very intelligent, intentional financial decision to make for your household. The benefits far outweigh the cost.


A zero-based budget provides financial transparency. At any time, my wife or I can check our budgeting software and get a very clear picture of what we’re doing with our money each month.

Financial Communication

Budgeting has been the single greatest action my wife and I have taken for our marriage. We communicate openly about our finances and it really feels like we’re on the same team.

Financial Control

Being intentional with your finances is so important. Rather than being a victim of your own spending habits, you are a master allocator that dictates where your money goes each month. This is a wonderful feeling and has greatly reduced stress in our household.

Flexible Budgeting System

ZBB is a flexible budgeting system. It allows for adjustments to be made ahead of time or on the fly. We like to update our budget as the month progresses. This fine-tuning allows us to end the month with a very accurate picture of where our money went, vs where we wanted it to go.

Similar Process Used by Businesses Globally

It’s a common business practice to implement some version of a zero-based budget strategy. Obviously a fortune 500 company has many different expenses and financial requirements, but the principle can be applied to a simple household budget.

ZBB Focused Software Solutions

Because ZBB is so effective, there are numerous software solutions available today that focus on ZBB. We personally use Dave Ramsey’s every dollar budgeting app and it’s saved us thousands. For us, the software needs to be accessible on desktop as well as mobile and needs to be simple, accurate, and remain connected to our bank accounts.

Disadvantages of Zero-Based Budgeting

No financial planning concept is without is disadvantages. Zero-based budgeting is not for everyone or every financial situation.

Promotes Perfectionism

We have found ourselves falling prey to budgeting perfectionism. Setting unrealistic expectations for your budget is a recipe for increased financial stress and anxiety. This is exactly why we’re budgeting in the first place, to reduce the stress that comes with poor financial planning.

Give yourself a break and understand that you may not hit your number perfectly each month, but you can learn from it and do better the next month.

Variable Expenses Require a Margin of Safety

In the beginning, your variable expenses may be more variable. As time progresses and budgeting becomes a way of life, you may find your variable expenses become more predictable. This is when budgeting gets much easier.

Because variable expenses can fluctuate each month or appear out of the blue, we want to ensure to keep a buffer in our checking account as a margin of safety. Maybe that means not transferring all of your expected savings until the end of the month when you have a better picture of how much you’re actually saving.

Difficult for Variable Incomes

Zero-based budgeting is more difficult if your income is variable each month. For example, I’m paid on a salary + commission bases. It works out to be about a 40/60 split. My income can vary by over $1,000 from month to month.

In this situation, we simply go with the flow and I always underestimate my income until I actually see it in our checking account. This way we’re not overestimating how much we can spend each month.


Zero-based budgeting is a money management philosophy that trains you to become a master money allocator. Each month, you choose what categories you spend your income. By prioritizing your spending, you can improve many aspects of your financial health.

ZBB might not be for everyone, but it’s worth trying if you are new to budgeting. Similar to finding a beginner’s fitness program until you’re proficient enough to venture out on your own. You can tailor the ZBB philosophy to meet the individual needs of your family. This article simply serves as a template.

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