8 Simple Steps to Make a Plan for Every Dollar

A budget gives us control over where our money is going, and a zero-based budget gives us a plan for every dollar.

8 steps to create a zero-based budget

1.  Remember what's essential.

If you're struggling to make ends meet, you need to focus on your bare essentials.  These are:

• food – You need to keep food in your belly.
• shelter – You need a roof over your head.
• utilities – You need to keep the light and heat on and the water running.
• personal maintenance – You need to keep yourself and your home clean.
• transportation – You need to be able to get to work.
• communication – You need to be able to keep in touch with work and loved ones.

2.  Know your priorities.

Every human being has the same essential needs, but our dreams and desires differ.  For my husband and I, living on one salary so I could stay home and teach our children was a priority.  For others, retiring before age 50 might be what matters most.  Maybe you really want to keep a horse, or you've always wanted a big, beautiful house with a swimming pool in the back yard.  Only you know what will be most fulfilling to you.  

Keeping your priorities front and center lets you pare away expenses that keep you living paycheck to paycheck, unable to achieve what matters most to you.

3.  Write down your income.

Include paychecks, side hustles, child support – whatever comes into your bank account every month.  If you work on commission or as a free-lancer, base your budget on the least amount you can expect to earn.

4.  Write down your monthly expenses.

Start with your bare essentials, then add things like credit card bills, car payments, gym memberships, restaurant meals, manicures, new clothes, etc.  Include a small "miscellaneous" category for those unexpected things that always come up, like the baby shower you get invited to.  Include your saving and giving categories near the top of the list.  If you don't make them important, you won't do them.

5.  Write down your seasonal expenses.

Christmas comes every December, so there's no reason for it to sneak up on you.  You'll probably want to take a vacation at some point.  And don't forget quarterly or yearly bills like insurance.

The trick to these is simple.  Determine how much you want or need to spend and divide it by twelve.  That's how much you need to budget for and save each month.

6.  Add a budget line for fun.

Sometimes you need a treat, especially if your budget is very lean while you deal with debt or save for your Caribbean cruise.  But you don't want to derail your money goals or go on a spending binge.  Fun money isn't an excuse to be wasteful – it's another way to stick to your budget.

7.  Subtract your expenses from your income to equal zero.

SPOILER ALERT:  You might end up with a negative number!  If you're like a lot of people, you've been spending more than you earn, and now you can see that in black and white.  But don't give up!  You can figure out ways to earn more money, start trimming your expenses, or both.

• Fund bare essentials first.  This is the one rule you can't break.

• List other expenses in order of importance.  When you run out of money, that's it.  If things are really tight, the items toward the bottom of the list don't get funded.

• Removing debt must become your priority.  Not having enough money and paying for things with a credit card is like jumping into a hole and digging it deeper and deeper.  

• Earn more money by selling something or by starting a side hustle.

• Cut expenses.  Buy generic, carpool, cancel subscriptions, make coffee at home, go longer between salon appointments or do it yourself, buy clothes at the consignment shop, etc.

8.  Take the long view.

Okay – deep breath.  If you've had to make a lot of changes in order to balance your expenses with your income, you might not be too happy right now.  

I know it's hard to make sacrifices.  But if you can't live within your means now, you won't be able to do it when you're earning more money.  It doesn't matter how much you make if you're busy spending it all.

When you're focused on making ends meet each month, it's hard to think about the future.  But that's why you want to know your priorities.  Paying off debt may need to take center stage for now, but once you remove it, you free up money that you can use for other things.  At that point, you can start funding your true priorities.

If you enjoyed this post, you'll love my book, Simple Money.*  Not only do I give more details about creating and living with a zero-based budget, I also write about how your money beliefs influence your financial decisions, how to buy less and demolish debt, how to feel empowered (rather than poor) as you control your spending, and a lot more!

* This blog is reader-supported.  If you buy through my links, I may earn a small commission.

Updated April 2023