What Is Zero-Based Budgeting and Can It Help You Save More Money?

UPDATED: February 25, 2024
PUBLISHED: February 1, 2022
Couple planning their zero-based budget together in their kitchen

If you’re like most Americans, your top financial priority is to save more money. That means if you haven’t already, you need to adopt a saving strategy. Instead of creating a traditional budget, many individuals are opting for an old-school method called “zero-based budgeting.” This sum-total approach to personal finances boasts major savings, but not for free.

What is zero-based budgeting?

Zero-based budgeting is a budgeting technique that requires all expenses to be justified and approved in each new budget period or year, starting from zero. In a nutshell, it assigns a job to every single dollar of your monthly income based on necessity rather than budget history. Using this method, your income minus expenses will equal zero.

For zero-based budgeting to work, its subscribers must be utterly committed to accountability. If you’re not ready to assign a purpose to every dollar you spend, this budget isn’t for you. However, if you’re interested in taking ownership over your financial goals through discipline, this approach can definitely get you there. 

When you assume full responsibility for your finances, a funny thing starts to happen. You begin to embrace your personal agency, and that confidence can ripple out through every area of your life. Instead of things happening to you, you make informed choices that have foreseeable consequences—and that’s a freeing way to live. 

If a zero-based strategy sounds like your speed, then buckle up! It requires more upkeep than a traditional budget, but it also has huge potential for saving. Keep reading to learn about zero-based budgeting, what it takes and how it can change your financial trajectory. 

History of the zero-based budget

Zero-based budgeting is not a new concept. It rose to popularity in the 1970s when President Jimmy Carter promised to use it to balance the federal budget. However, as economic conditions improved, the zero-based model fell out of style. It started to slowly regain popularity around the time of the 2008 recession and is now commonly used for personal finances. 

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As an idea, zero-based budgeting is simple. It is a budget that is built from the ground up, starting at zero. After the budget is set, its user must allocate all income to expenses, savings or debt payoff. Maintaining a zero-based budget is more complex than most traditional budgets, but the potential for savings is much higher.

What makes a budget a zero-based budget?

When people sit down to make traditional budgets (also called incremental budgets), they typically start by listing out their current expenses or by building from the previous year’s budget. These approaches can be problematic because they don’t require the budgeter to ask whether historical expenses are actually necessary to maintain. 

In contrast, when someone sits down to make a zero-based budget, they start by calculating their projected income for the year. With that number in mind, they design expense categories and assign a dollar amount to each. If an expense doesn’t fit within their budget, the expense is cut. All spending must be justified. 

Whereas traditional budgets allow unused income to sit in a checking account, a zero-based budget does not. A zero-based strategy requires every dollar of income to be spent or reallocated. That means if you use this system, you won’t be left wondering where all your money went. 

Zero-based budgeting benefits

If this is your first time hearing about zero-based budgeting, it may sound complex. In truth, it is more difficult than traditional saving strategies because it requires more intentionality. However, if you’re determined to save, that’s not necessarily a bad thing. The zero-based strategy offers many potential benefits, including the following: 

  • Insight: The zero-based model requires you to take a detailed look at your cash flow. If you do this budget correctly, you’ll come face to face with your spending habits. 
  • Intentionality: When you need to be able to justify every expense, you learn how to be more intentional. You’ll have to decide whether a single purchase is worth throwing off your budget and compromising your financial goals. 
  • Efficiency: This budget will expose inefficiencies and obsolete processes. Are you getting charged an avoidable bank fee or still paying for a subscription you never use? Not anymore. 
  • Agency: When you use zero-based budgeting, you’re steering the ship. Current expenses don’t dictate spending habits; your goals and decisions do. 
  • Responsibility: There’s no room to shift blame in the zero-based model. You made the budget, and your decisions will make it succeed or fail. 
  • Savings: When you don’t have a plan for your extra income, it’s amazing how quickly it slips away. In a zero-based system, money you may have spent on a dozen little purchases can accumulate to substantial savings. 

Ultimately, adopting a zero-based strategy allows you to design your own financial destiny. Instead of waiting to see what you can and can’t afford, you can decide what you want to afford.  

Downsides of zero-based budgeting

Before you start designing your zero-based budget, you should know it’s not for everyone. For people who thrive with a lot of structure and discipline, it can be a godsend. For other individuals, it can be downright miserable. As with any other money allocation system, zero-based budgeting has its flaws. Here are some of its potential downsides

  • Time: Depending on your finances, maintaining this budget—or even setting it up—can eat up a lot of time. If you can’t commit to regular accounting sessions, it may not work. 
  • Incompatibility: This budget doesn’t play well with unpredictable income. If you’re a freelancer or work on commission, zero-based budgeting may be impossible.
  • Rigidity: Whereas traditional budgets primarily serve to monitor spending, zero-based strategies assign an objective to every dollar of income. That means there’s no room for  unjustified spending. For some people, that level of rigidity can be stressful. 
  • Variability: Your definition of a need may not be like everyone else’s. For example, you may classify a massage as a monthly need, whereas others may see it as frivolous spending. A highly subjective budget won’t produce ideal results for all individuals. 

There’s no shame in saying you’re not ready for a zero-based budget; it isn’t ideal for everyone. Luckily, it’s not your only option. The key to spending responsibly and controlling your finances is finding a system that works for you. 

Choosing the right budget for you

There’s more than one way to create a budget and save for the future. Although the zero-based budget is the right fit for some people, you may want to explore alternatives like the 50/20/30 strategy, priority-based budgeting or the “pay yourself first” budget. You can also start slow by dedicating a percentage of each paycheck to savings. 

There’s no denying that people who budget are more likely to create wealth and experience financial security than people who don’t. Regardless of what type of budget you choose, sticking to it is a relatively easy way to protect yourself from income fluctuation and unforeseen expenses. If you’ve got some extra time on your hands, or even if you don’t, it’s time to take ownership of your finances by creating a budget today. 

This article was updated February 2024. Photo by wavebreakmedia/Shutterstock.com

Rae Fitzgerald

Rae Fitzgerald is a freelance writer, fly-fishing enthusiast and musician on the Austin, TX-label Keeled Scales. She received her BFA in Creative Writing from Truman State University.