July 15, 2021

How to Be Successful in Creating Budgets Using Zero Based Method

How to Be Successful in Creating Budgets Using Zero Based Method

Budgeting may sound scary, especially if you haven’t tried it yet or hate dealing with numbers. Sometimes, people don’t want to budget because they think they don’t have anything to budget for. They have too many expenses, and budgeting gives them stress. Whilst it can be daunting at times, budgeting is crucial, especially if there are debts to pay. However, monitoring where your money goes can help you gain better control of your finances. You don’t want to wake up one day and wonder where your money went, right? So – don’t worry; we can help you start budgeting by teaching you the basics below. The budget method that we recommend is called Zero-based budgeting popularized by Dave Ramsay and The Total Money Makeover.

What is zero-based budgeting?

Zero-based budgeting simply means you assign all your income to dedicated savings and expense categories until the end result is zero. So, the formula is: Income - (savings + expenses) = zero. Note: You might find in other blogs that the formula is income - expenses = zero. But because savings is not necessarily an expense, we decided to separate it to minimize confusion and to emphasize the importance of saving.

Here is a simple presentation on what a Zero-Based budget looks like:


INCOME - 3,250

Less: SAVINGS – 400




GAS – 300



GYM – 50

MISC  500



As you can see, the savings/expenses in this budget are equal to the income. Hence the end result is zero.

Here are the budgeting expense categories recommended by Dave Ramsay, and some quick explanations on what they are:

You can use these categories to guide your own budget - feel free to add more as necessary.

1. Giving/Charity

These are tithes you give to charitable organizations, your church, or other places where you can donate money to help. Why should we include this in the budget? It’s because the more you give, the more blessings you receive as well.  

2. Savings

This can be your emergency fund, retirement fund, investment fund, educational fund, or travel. You can also create several categories within this to be more organized, so you know how much you have allocated to each different fund. 

For example: 

Savings - 500

Emergency fund – 200

Investment – 200

Travel – 100

3. Housing

This can be rent, maintenance, property taxes and your mortgage.

4. Utilities

This comprises electricity, water, cable, internet, gas, phone, rates, and other related expenses.

5. Food

Groceries, eating out, coffee, snacks, restaurants, fast food.

6. Transportation

Car-related expenses like maintenance, fuel, car insurance, flights, bus/train passes etc.

7. Clothing

Outer and inner wear, shoes, accessories<

8. Health/medical

Health insurance, medical bills, gym memberships, sports, vitamins etc. 

9. Personal

Discretionary expenses like hobbies, gifts, and miscellaneous spending.

10. Recreation

Movies, travel, events, etc.

11. Debt

Credit cards, mortgages.

Additional categories you can include in your budget are:

12. School

School-related expenses like tuition fees, school supplies, uniforms, school bus fees, school camps and excursions, etc.

13. Pocket Money

To teach your children about personal finance, budgeting, saving, and spending!

14. Emergency Fund

This is funding for unforeseen circumstances that you weren’t able to include in the budget. Think of it as your own personal financial insurance policy.

Now let’s get into action!

Here are the steps to create your budget using the zero-based method

1. List your Income

If you have a fixed income, you can check your pay slips to see how much you are earning after tax. What you write in the income category should be your net income. What you get in your bank account each pay cycle (not the gross amount your employer pays, including taxes and super). If you do not have a fixed income, estimate how much you earn to calculate the average amount of money you get every month. If your average income is inconsistent, be conservative with your estimate. Understate what you make so you don’t overestimate the amount of money you actually have to play with each budget cycle. When listing your income, you should note all sources, including payroll, freelance income, online selling, etc. It also makes sense to include your spouse’s income into the budget if you combine your resources to pay the bills. 

2. List down all the expenses you incur every month.

This is where you will decide where every dollar goes. List down all the bills you are paying, including how much you can afford to put into your savings account. For bills that vary each time (i.e., electricity or fuel), you can budget for a generous estimate of how much it would typically cost you. When the bill does come in, you don’t have to stress because you will have more than enough saved to cover it. For fixed expenses, simply list down the cost. List down your seasonal expenses such as insurance payments, vehicle registration, licensing etc. This way, you will already have a pool of money saved up by the time you are due to pay them. It’s important to consider everything in your budget, so you aren’t caught out by surprise expenses. However, when it comes to budgeting, financial road bumps are inevitable – so be prepared to be flexible and budget in a buffer, too!

3. After finishing your budget categories, make sure the net result is zero. 

Subtract your income from expenses to equal zero. To achieve zero net, you will need to make adjustments in some categories. Feel free to do so until you are satisfied, and don’t forget to keep some for savings. Each month you review your spending, you will determine whether you have over-budgeted or under-budgeted some items as you go on every month. If expenses have exceeded your income, this means you have to reduce your costs. For example, you can delay gratification by cooking at home to lower grocery costs. Suppose your expenses are less than your income. In that case, you can budget the excess towards your savings account or emergency fund. 

4. Track, check and adjust

After creating the budget, track how much you have actually spent in the month. This step is crucial and the best way to determine whether your actual spending went according to plan. When you track where you spend every dollar, you get more insight into your actual spending tendencies. This, therefore, allows you to adjust and take actions to tweak your future budget.

Additional tip – the envelope or bucket method:

Sometimes you might find it tiresome to track your spending every time you withdraw money. What you can do instead is try the envelope (bucket) system. This system works by keeping cash in different envelopes (buckets) and using these pre-allocated funds to pay for certain expenses. For example, you can label “groceries” as the first envelope and then stash your budgeted cash in it. For others, you can mark them as “utilities”, “pocket money”, “gas”, etc. The purpose of this is for you not to exceed your budget, as you can see immediately if you are out of cash. You can conveniently keep the receipts in these envelopes too, which makes your budget review much easier! You can also apply this principle digitally by creating multiple online savings accounts.

Where should you create your budget?

There’s no fixed rule about which tool to use to create your budget. You can write it down using pen and paper, use a spreadsheet, or even with an app such as PocketBook. The important thing is to just start. So – that’s how to do a zero-based budget to stay on top of your finances! We hope this can help you get organized to get rid of debt and put yourself in a better financial position. However, if you find that even with budgeting, you still can’t seem to get out of debt, call us on 1300 003 328, and our friendly team of debt advisors can help you find a debt solution!

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