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What Is Zero Based Budgeting?

Looking to manage your money better? Zero-based budgeting may be the answer. Learn more in this Cleo blog.

What Is Zero Based Budgeting?

Yeah, we know, your parents go on about budgeting while rolling their eyes at your new fit. But hear us out. Budgeting doesn’t have to give you a visceral reaction. 

While budgeting may sound dreadful, it’s a great way to stay on top of your finances and meet your goals. Zero-based budgeting (ZBB) ensures every dollar has a purpose. 

Whether your goals are buying a house, saving for a new phone, or simply trying all 588 pizza restaurants in your city, ZBB can work for you 🍕

Ready to learn more about spending all your money every month?

Zero-Based Budgeting Explained

Zero-based budgeting is pretty simple. The goal is to allocate all your money during the month, so you end on $0. While you set limits in traditional budgeting, zero-based budgeting essentially encourages you to spend all your money. Sounds fun, right? 

And if you’re going, “Hey, I’m already doing zero-based budgeting, check me out 🤙” that’s awesome. We’ll generously assume you’re meeting your financial goals every month and not just emptying your bank account on Depop and UberEats 👀

Let’s get into a quick how-to, pros, and cons. 

How Does Zero Based Budgeting Work?

Wondering how to create a zero-based budget? We’ve got you 💅

First, you’ll need to know your income. If you’re on an irregular income (we see you, gig workers 💙), it’s a little more complex, but not impossible. You’ll need to save a month’s income first as a buffer for your budget. ZBB also works fine with low incomes

Go through your expenses so you know exactly where your money’s going. It’s a great time to see if you can streamline any areas. Do you really need four app subscriptions and another phone upgrade? 

Now, categorize those expenses under headers like bills, entertainment, groceries, debt repayments, etc. Triple-check you’ve accounted for your most essential expenses. (That doesn’t include takeout, sorry.)

Let’s see what that looks like in practice with an example income of $3,000.

  • Rent: $1,300
  • Groceries: $410
  • Bills (like water, utilities, internet): $250
  • Gas: $250
  • Insurance: $100
  • Debt repayments: $250
  • Takeout: $70
  • Entertainment (like streaming services): $70
  • Clothing: $50
  • Retirement fund (lmao, let’s try more than $20 p/m): $100
  • Emergency fund: $150

And your total at the end of the month should be $0. The key to zero based budgeting is that you do this again every month. That’s right, every month you need to start from scratch so that you don’t put your spending on auto-pilot. 

It keeps your spending habits front of mind, and makes sure you’re always double checking whether you really need (and want) to spend your cash on everything on your list. 

What are the Benefits of Zero Based Budgeting?

Besides making you feel like an actual, real life ✨adult✨, ZBB can improve your finances. 

Advantages include:

Increased financial awareness

Knowing where your money is going means no more head in the sand. 

Yep, it can be nice to ignore how much your rent, gas, and general survival costs you every month. But checking your account is gut-wrenching, and just thinking about money fills you with dread. No more of that with ZBB 💙

Better spending habits

Monthly allocated funds mean you know exactly where every cent is going. 

If you use more than your takeout fund, you have to make sacrifices elsewhere. So it’s that new vegan restaurant you wanna try or that new fit. ZBB encourages you to be ✨ sensible ✨ and build the future you want. While having a lil fun. 

Alignment with financial goals

As a zero-based budget allows you to allocate your cash to everything from current wants to future needs, you’re always working toward your goals. 

Whether you have lofty house-owning goals or just want a month without stressing over money, ZBB could be the answer. 

Less stress

Knowing that all your expenses are accounted for with your budget can help with financial stress. Especially as it allows fun. (Take that, boomers.)

If you use ZBB correctly, you won’t have to turn down your BFFs’ monthly movie and pizza night. Instead, you’ll factor it in. Now for the important question: Does pineapple go on pizza? 

What Are The Disadvantages Of Zero Based Budgeting?

As with everything good in life, ZBB has some disadvantages to consider:


It also takes up a lot of time. The initial setup and monitoring aren’t the easiest. And if you’re short on time or easily bored, it’ll be harder to stick to. (But if you use a budgeting app like Cleo, she’ll do the work for you.) 

Tricky for unstable incomes

If you’re a gig worker, like 36% of Americans, you might find ZBB a hassle to set up. Your income is likely irregular, so you’ll need to save up a month’s buffer before starting a zero-based budget. And that’s not always easy in this financial climate 🙃

Doesn’t easily cover irregular expenses

Need to travel across the country? Perhaps one of your bills was more than expected. Zero-based budgeting doesn’t really build in irregular expenses, but you can set up a category for these. Kinda like an emergency fund.

Can be tempting to allocate more funds to fun

Like traditional budgets, you still need to stick to your zero-based budget and not have a crazy spend sesh every month. 

While you may have the best intentions going into it, if you accidentally go over your budget in one category, you may be tempted to say, “Ah, screw it, what’s one takeout?” (We’ve all been there 👀)

Well, the budget for one takeout has to come from somewhere. And if you sacrifice emergency fund savings for sushi, this could bite you in the future. 

Cleo’s Final Thoughts

Zero-based budgeting can be a great tool if you have the time and patience to set it up and continually monitor it. Who doesn’t wanna spend all their money every month and hit their goals? Financial independence is so close you can almost feel it. 

You’ll need a healthy dose of accountability and self-control, and that’s not always easy when you need a cheeseburger after dealing with Karens in your retail job. 

Does a budget sound like too much hassle? How about an AI-powered budget? 😉

Cleo’s budget planner takes the hard work out of managing your money, and you get an AI budget AI-powered Budgeting App | Budget Planning & Tracking | Cleo assistant. With payment reminders, overdraft alerts, and a spending tracker, you’ll be on top of your finances like never before 💙


Finally, a budgeting app that understands your real essentials—iced coffee.

Build yours with AI
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