What is a zero-based budget?
Take the money you have to budget, subtract everything you've assigned, and the answer should be zero. Not because it's all spent, but because it's all decided. Money you want to keep is assigned to savings. Money for a bill in March is assigned to that bill now.
There are two ways to count the money. A classic zero-based budget plans next month's expected income. Envelope budgeting, the version UrBudget uses, assigns only money already in your accounts. The arithmetic is the same, but the envelope version can't be thrown off by a paycheck that's late or smaller than planned.
A worked example month
Two paychecks of $2,100 arrive, so there's $4,200 to assign. Here's every dollar of it:
| Group | Assigned | Categories |
|---|---|---|
| Bills and basics | $2,380 | Rent $1,350, groceries $520, gas and transit $180, utilities $160, phone and internet $95, household $75 |
| Yearly and irregular | $265 | Car insurance $90, gifts $75, car repairs $60, clothing $40 |
| Debt | $430 | Student loan payment $230, extra on the credit card $200 |
| Savings | $750 | Emergency fund $300, retirement $250, July trip $200 |
| Fun | $375 | Dining out $180, fun money $150, subscriptions $45 |
| Assigned | $4,200 | |
| Left to assign | $0 |
The yearly and irregular group is the car insurance, gifts and other costs that don't come monthly, divided into monthly amounts: $1,080 a year of insurance is $90 a month. See sinking funds.
During the month
Groceries runs to $560, $40 over. Dining out gives up $40 and has $140 left. The total assigned is still $4,200, and left to assign is still zero: moving money doesn't change the total, only the plan.
At the end of the month, Fun money has $30 left and Dining out $25. They stay where they are and carry into next month. Zero-based doesn't mean emptying the categories when the month ends. It means every dollar has a job, and next month's new money gets jobs too.
Zero-based budgeting vs 50/30/20
The 50/30/20 rule splits take-home pay three ways: 50% for needs, 30% for wants and 20% for savings. On $4,200 that's $2,100, $1,260 and $840. It's a guide to the mix, not a plan for each dollar: it won't tell you whether the car insurance is covered.
Here's the example month sorted the 50/30/20 way:
| Share | Example month | 50/30/20 guide |
|---|---|---|
| Needs: bills, basics, yearly costs and the loan payment | $2,875 (68%) | $2,100 (50%) |
| Wants: dining out, fun money and subscriptions | $375 (9%) | $1,260 (30%) |
| Savings and extra debt payments | $950 (23%) | $840 (20%) |
By the rule, this month is heavy on needs, probably because rent is high, and light on wants. That's worth knowing. But only the zero-based plan says where each dollar goes. The two work well together: plan zero-based, and use 50/30/20 now and then as a check on the mix.
Zero-based budgeting vs tracking apps
Many money apps pull in your transactions and sort them into categories after you spend. That shows where money went. It doesn't show what's left for what, or whether the money for March's insurance is still there. On the 20th, a tracking app can show you under your usual spending while next month's bill has already been spent.
A zero-based budget decides first and records after. You still record every transaction; the difference is that each one comes out of money you set aside for it.
| Question | Zero-based (envelopes) | 50/30/20 | Tracking only |
|---|---|---|---|
| What you decide | A job for every dollar you have | Three percentages | Nothing in advance; categories after you spend |
| Yearly bills | Saved for monthly, each in its own category | Part of needs, with no plan for when they're due | Seen when they're paid |
| Can I afford this? | Look at the category's available amount | Roughly, from what's left of the 30% | Compare with past spending |
| Regular work | Assign money when it arrives; record spending weekly | Set up once, check now and then | Check the categories transactions were sorted into |
Common mistakes
- Budgeting money you don't have yet. Assign the next paycheck when it arrives, not before. If bills keep coming before the money, aim to get a month ahead.
- Leaving out irregular costs. Yearly bills are where most budgets break. Give each one a sinking fund.
- Treating zero as “spend it all”. Savings and debt payments are jobs. A zero-based budget with nothing for savings is a plan to save nothing.
- Giving up after the first overspend. Every budget is wrong for the first few months. Move money to cover it, and fix the amounts next month. See what to do when you overspend.
- Too many categories. If you can't remember what a category is for, merge it into another one.
- Forgetting the credit card. A card purchase is spending the moment you make it, from a category. See credit cards in an envelope budget.
In UrBudget
UrBudget is a zero-based budgeting app for Windows and Mac that keeps the budget in a file on your computer. New to the method? Getting started sets up a first budget step by step, and the free envelope budget template lets you try it in a spreadsheet first. In the app:
- Unassigned shows what's left. It sits at the top of the budget. Type amounts in the Assigned column until it reaches zero and says All of it is assigned. If you assign too much, it goes negative and says More is assigned than you have.
- Amounts can be math. Typing 1080/12 in the Assigned column assigns a twelfth of a yearly bill.
- Quick assign. Assigned last month or Average assigned repeats a past month in one step, and Underfunded fills your targets. Each option shows its changes before you apply it, and you can undo it.
- Moving money. Select any Available amount to move money to or from another category. The month's assignments and moves are listed under Recent changes.
- Rollover. What's left in a category carries into next month, shown as Carried over.
- Groups. Put categories in groups and drag them into the order you assign in.
Give every dollar a job
UrBudget is free for 30 days on Windows and macOS, then $9 once. No account, no card and no bank login.