Skip nav to main content.

Make Zero Your Budget Hero

February 9, 2024

Monthly Budget

Have you resolved to stick to a new budget, but you’re not sure where to start? We recently highlighted the envelope technique, an easy, effective way to start a new budget. Here’s another method you can try: zero-based budgeting.

That’s right, the goal is getting to zero! Each month, you assign your income to cover 100% of your expenses and savings goals, so that your budget lands on zero.

This simple three-step process provides a useful framework for developing an intentional spending and saving plan. It can help prevent you from spending more money than you have and ensure every dollar you earn is going to a good purpose.

Step one: Calculate your monthly income.

If you’ve got a predictable salary, that’s easy. If you’ve got variable pay, say from contract jobs or seasonal gig work, you’ll want to review the last several months and do your best to estimate a realistic income for the months ahead.

Step two: Calculate all your monthly expenses.

This includes rent, groceries, gas, utilities, and other bills, as well as smaller, frequent purchases, such as coffee at your local café. These add up over time. If you’re saving for a specific financial goal, like a vacation or down payment on a house, you should treat that as a monthly expense. This is particularly helpful for people who are not natural savers.

Step three: Subtract your monthly expenses from your monthly income.

Ideally, the result will be zero, meaning all your financial needs are covered.

If the result is a positive number, great news! You’ve got extra income to use however you choose—whether that’s a fun movie night or building an emergency fund. If it’s a negative number, that means you’re overspending. You’ll need to reassess your monthly expenses and see where you can cut back to get to zero. Or you can look for opportunities to increase your income to achieve a zero-based budget.

By understanding your income and expenses—and focusing on zero—you can be the hero of your financial journey.

Visit RCU’s Financial Education Center to find more useful resources.