Personal Insights

How zero-based budgeting can improve your finances

Zero based budgeting is a budgeting method that accounts for every dollar of your monthly income and prioritizes savings by treating it as a required expense and not an afterthought. Each dollar is assigned to spending, saving, or debt so no money is left unaccounted for. The budget is recreated each month based on expected income and expenses, with income minus expenses equaling zero.

Key takeaways

• Zero based budgeting means your income minus expenses equals zero. Every dollar is assigned a specific purpose, whether for spending, saving, or debt repayment.
• Zero based budgeting works for both fixed and variable incomes. Creating a new budget each month helps adjust for income changes and improves accuracy.
• Tracking spending is essential to zero based budgeting. Reviewing receipts, statements, and monthly expenses helps identify patterns and opportunities to reallocate money.
• Zero‑based budgeting creates clarity by helping you categorize expenses. Grouping needs, wants, debt, emergency savings, and financial goals makes priorities easier to see and manage.
• Zero‑based budgeting builds savings into your budget from the start. Unlike traditional budgets, savings are allocated before spending begins.

Whether you’ve managed your money for years or you’re a budgeting novice, learn how zero-based budgeting can help you make every dollar count.

When money is tight, your budget should be even tighter. Whether you’re budgeting with a variable or fixed income, simply trying to get a better grip on your personal spending, or need to adjust your budget after job loss, zero-based budgeting can help you ensure that you make the most out of every dollar.

How does zero-based budgeting work?

A budgeting method that encourages you to account for every dollar of your monthly income, zero-based budgeting starts from scratch and creates a new budget each month. Using the previous month can help you estimate where your income may go in the next and identify potential savings opportunities. For example, if you spent less than anticipated on groceries last month, you can move those dollars into your savings account.

While it’s a great budgeting tactic for financial hardship, zero-based budgeting is also particularly helpful for anyone with a variable income, or those who may simply need to take a closer look at their personal spending habits.

A step-by-step guide to zero-based budgeting

Before implementing a zero-based budget, you’ll need to take an honest look at your financial situation. This can be an intimidating task but breaking it down into the following steps can help.

1. Calculate income. Start by adding up your sources of monthly income. Be sure to include paychecks for full-time or part-time jobs plus any additional income from a side hustle. Also include any benefits such as alimony and/or child support. For those with variable income, this is where zero-based budgeting comes in handy. When you start fresh each month, you can base your budget on estimated monthly income to create a more accurate projection.
2. Track spending. If you haven’t kept a close eye on your spending in the past, it can be tough to understand where your money really goes. Start by reviewing receipts or card statements and note how you spend your money. From there, closely track your expenses for a few months. You may find it helpful to use a personal spending tracker worksheet. As you tune into your spending habits, look for places where you can cut back and areas where you’d like to dedicate more money, like an emergency fund.
3. Categorize expenses. Zero-based budgeting can help you allocate every dollar of your income, but before you begin that allocation, you’ll need to create expense buckets. Identify all expenses including debt payments, needs and wants, an emergency fund, and any savings goals. If you want to save for a new car, for example, add a dedicated savings bucket to your monthly budget to make that happen.
4. Stay on track with savings. In traditional budgeting, people often save if there’s money left. With zero based budgeting you can determine how much to save first. That amount is already allocated before spending happens. Once you’ve allocated your money into buckets, including pre-determined savings, use the remainder to boost your emergency fund or contribute additional dollars to a retirement or college savings account.

You can build a zero-based budget with an app or through Regions’ budgeting and planning tools. Available in the Regions app and online banking, these allow you to automatically categorize transactions, set spending targets and allow for cash-flow forecasting. You can also use Regions’ free spending plan worksheet or old school pen and paper. The most important thing is to choose a method that works well for you and is easy for you to maintain.

Is zero-based budgeting right for me?

While zero-based budgeting requires more attention than simple budgeting methods, it offers unmatched insight and control, especially for people whose income or expenses change month to month.

If you find that your monthly expenses vary significantly, zero-based budgeting could be trickier to implement. One solution could be to set aside money specifically for variable expenses, so you won’t find yourself shortchanged.

If you decide to give zero-based budgeting a try, it may take a month or two to adjust. Be patient and, most importantly, hold yourself accountable for every dollar you can.

Take the next step

• Visit a Regions branch or go online to learn how a personalized Regions Greenprint® plan can help you reach your financial goals.
• Check out our Better Budgeting podcast series for tips, tricks, and insights to help you achieve your money management goals.