Zero-Based Budget Explained

One hand holding money a second hand working a calculator

April 4, 2022


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I – E = 0.

Did you learn that formula in school? Me neither, but I use it all the time now. This formula stands for Income minus Expenses equals Zero. It is the way I budget, also known as the zero-based budgeting system. When you budget this way you have to account for every dollar of your money that comes in.

Did you know that having zero at the end of your budget is a good thing? You don’t want there to be money left over after you have done your budget. Why is that? Don’t we want extra money? Well, if there is money that is just lying around with no purpose it tends to disappear. So while you want there to be extra money, you need to go ahead and decide where it is going to go before you even get it. Kind of like how when you are trying to eat healthier, you have to make a plan ahead of time about what you are going to eat at your friend’s party. Otherwise, you may turn around and find yourself holding a half-eaten plate of pizza rolls, cheese balls and brownies.


Where does the extra go?

If you are intentional about where your money is going, it will be much easier to reach your financial goals. So where can you put the extra money? I encourage everyone, even teenagers, to have an emergency fund. They may not have as many or as big an emergency as an adult, but it does happen. Something like a cell phone breakage could stress them out so they might want to aim for keeping one or two hundred dollars set aside for an emergency. Other places they might want to stash that extra cash could be could be a sinking fund for a future purchase that they know is coming up or to beef up their savings for a car or college.


A Zero-Based Teen Budget Example

Ashley is fifteen and gets a salary of $150 every month from her parents. Here is what she has decided her budget to be:

Charity                        $15

Savings                       $15

Clothing                      $50

Toiletries                     $10

Sports (food)              $60


She also has a part-time job working 10-15 hours a week and expects to bring home an extra $500 this month. She has decided to budget this extra money this way:


Charity                         $50

Savings                        $300

Dinner with friends   $25

New book                    $15

Emergency Fund        $50

Fun Fund                     $50

Coffee                          $10


She has decided to start funding a fun fund because sometimes unexpected fun opportunities come up. They are really not emergencies, but she would like to be able to have the choice to do them. This is a great budget. She is savings towards her first car, planning ahead and also allowing herself to have some fun. Because she is being intentional with her money even before she receives it with the zero-based budget, she will know exactly how much she can spend.



I have created a free monthly budget worksheet that you can use to calculate your budget. You can also use a free app. I am a huge fan of apps that are based on the envelope system. Money is divided into envelopes (categories) and spend out of them, instead of having it all in one big pot.

My favorite app for adults is Qube.  It is actually so much more than an app. It’s a banking and budgeting system. Money is deposited into your Qube account either through direct deposit or bank transfer. Qube sends you a debit card, and you place your money into different categories or qubes. This system makes you mindful of your purchases and keeps you from spending money that you don’t have, and you don’t have to keep up with cash. Qube is currently working on a family plan which will enable you to have two parent accounts and up to ten minor accounts.

Until Qube comes out with the family plan, the free versions of EveryDollar or Goodbudget are good options for your teen to use to keep track on their phone of their budget and spending. It’s kind of handy to be able to carry your budget everywhere and not have to remember what you have written on your paper.

Having a zero at the bottom of your budget is a good thing! It doesn’t mean you have zero dollars in your account, it means that you have given every dollar a job!

If you want to learn more about how to teach your kids about money by turning over parts of the family budget to them, check out my book, I Am Not Your ATM. 


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