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August 31, 2021 | By: Doris Asiedu

Zero-Based Budgeting Explained: What Is It?


If you’ve been researching ways to optimize your money management and shrink your debt, you may have come across the term “zero-based budget.” However, without some kind of explanation, it may not be readily apparent what a zero-based budgeting approach means.

Could this approach to managing your monthly expenses be a good fit for your budgeting needs?

Before we answer this question, what is zero-based budgeting, exactly? In this blog, we’ll explain some of the basics about what this money management strategy is, what the benefits of zero-based budgeting are, and how you can use it.

What Is Zero-Based Budgeting?

Zero-based budgeting is a money management strategy often used by businesses. In this strategy, the business justifies all of its expense items from a “zero base.” Some people may mistakenly assume that it means working with a non-existent budget. However, this is incorrect.

Here’s a zero budgeting definition from Canadian Budget Binder: “Making a zero-based budget doesn’t mean that you don’t have any money in the bank which plenty of people worry about… It simply means you’ve lined up what money you had and distributed it where it belongs.”

In other words, you’re putting your money to work—every last dollar—on the items that you need to make sure are taken care of. This includes things like paying existing debts, monthly bills, setting aside money for retirement, or anything else you would spend money on. In a zero-based budget, every dollar is spoken for!

Zero-based budgeting is more useful for staying out of debt or for slowly getting out of mild debt. If you’re really struggling with making your monthly minimums or dealing with collection calls, it’s important to investigate some formal debt relief programs.

Benefits of Zero-Based Budgeting

So, what are the benefits of zero-based budgeting? Despite being created to meet the needs of corporations instead of individuals, sticking to a zero-based budget strategy can prove helpful for you in a few different ways:

  • Helping You Avoid Temptation. Everyone faces some temptation when trying to stick to a budget. There’re always thoughts like “oh, I could eat out just this once” or “man, I want to get that thing Peter just got, it looks awesome.” In a zero-based budget, however, you’ve already earmarked the money for other purposes. Knowing that you have a plan for every dollar can help reduce the temptation to waste that money on nonessential things, since you know it will mean giving up on something else. That being said, it’s important to include a discretionary fund in your budget for impulse purchases because everyone needs to unwind every now and again.
  • Ensuring Your Most Critical Needs Are Met First. The zero-based budgeting approach helps keep you consistent when it comes to covering all of your critical needs. You know how much money you need to set aside to take care of critical expenses each month so you don’t miss important bills.
  • Making It Easy to See When You’re Behind. When setting up a zero-based budget, it is often very easy to see if you’re upside down on your bills vs your income since you’re setting aside the money immediately. For example, if you have a monthly salary of $2,500, but you have a $1,200 rent bill, $125 in utilities, a $300 monthly car payment, a $500 student loan obligation, $150 in vehicle insurance, and $75 in monthly fuel consumption, that leaves you with just $150 to take care of every other expense you might incur during any given month. This simply isn’t enough money to live on and is a strong indication that you might need to look for debt counselling services. Though, in a zero-based budget, you would take that remaining $150 and find some use for it if there were no other potential expenses for things like food—such as setting aside the money in a retirement fund.
  • Helping You Build Good Money Management Habits and Discipline. If you can stick to the zero-based budgeting approach, it can help you develop good money management habits—particularly the discipline to ask yourself “do I really need this?” before spending money.

How to Implement Zero-Based Budgeting

How can you get started with this money management method? The basic task involved (accounting for every dollar you earn and setting a plan for how that money will be used) can seem pretty intimidating. After all, companies that do this have specialized accountants and financial experts to do it for them.

However, you don’t have to figure it out alone. Here are some tips on how to implement zero-based budgeting for yourself:

  • Use a Budget Calculator. Before you can engage in zero-based budgeting in earnest, it’s important to have a complete picture of your monthly income vs all of your routine expenses. If there’s an item missing from your budget, it could throw things off. A budget calculator helps you track your income and expenses so that nothing is missed. Using one makes it much easier to create and keep to a zero-based budget.
  • Keep Your Projected Expenses in Mind. You may have some irregular expenses that you don’t incur every month, but once a season or once a year instead. It’s important to save up for these projected expenses in mind when creating your budget for your zero-based strategy. Otherwise, you may encounter a shortfall when those expenses do come up.
  • Checking Your Budget Any Time There’s a Change. One of the difficulties of keeping up with zero-based budgeting is that income and expenses aren’t always predictable. For example, if you work hourly and your boss changes your schedule, that could impact your budget. Or, the standard rate for your utilities, property tax, auto insurance, life insurance, or other monthly bills might fluctuate from time to time. Plus, inflation can mean that your other basic expenses might grow. Any of these events will require you to adjust your budget. Here, having a table of expenses (like an Excel sheet or similar table software) can help you log your month-to-month costs so you can adjust more easily and track trends in your expenses.

Need More Advice? Check out a blog with some more money management tips!

Zero-Based Budgeting Example for Your Personal Finances

Okay, we’ve discussed some basic advice for setting up a zero-based budgeting strategy, but what would a zero-based budget actually look like?

Here’s an example of how you could lay out your monthly budget under a zero-based system:

Budget Plan Items









Insurance (Home & Auto)












Debt Repayments






You may have noticed that the “total” for both rows is $0—this is appropriate for a zero-based budget plan! When the expenses in each month fluctuated slightly, the leftover that would have remained was put towards debt repayments because this would help the budgeter get out of debt faster.

Of course, the above table is hardly comprehensive. There could be any number of additional fields to use depending on your situation. For example, there may be months where you need an oil change, tire replacements, or other maintenance on your car. These irregular expenses could add significantly to the budget in any given month. So, setting aside a few dollars a month for “vehicle maintenance” could be necessary to cover those costs when they come up.

Need Help Managing Debt?

While zero-based budgeting can help you stay out of debt or even pay off moderate debt, it isn’t a replacement for the services of a Canadian debt agency. If you’re drowning in debt and need help, reach out to Credit Canada.

Our certified Credit Counsellors are here to help you—providing judgement-free service and support to help you get out of debt so you can get on with your life. Why wait? Call us at 1.800.267.2272 to get started!

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