8 Steps To Creating A Zero-Based Budget Planning System

Updated: April 13, 2023

I first heard about the zero-based budget planning system from the author, Dave Ramsey. During that time years ago, I was already using the Envelope System to manage my expenses.

Upon realizing how similar and complementary the two methods are, I’ve decided to incorporate both systems into my budget planning.

Did you know what happened after around three months of doing this? I became a grumpy saver.

Truth be told, it wasn’t easy telling your friends weekend after weekend that you don’t have the budget to go out with them.

And then there are also those feelings of envy and self-pity whenever you see someone with new clothes or the latest gadget.

However, deep inside, I knew I had to endure. I knew that I have to be patient and believe in the power of delayed gratification.

Sure I was feeling grumpy and sad — but I realized that it was just my mind telling me to feel that way.

In reality, I was doing okay… actually I was doing MORE THAN OKAY.

When I thought about it, I realized that I have full control of my finances. My debts are getting paid and my savings account was growing.

And within a few months, I know I’d have enough money to start investing – and eventually, have enough income to afford luxuries. So from a grumpy saver, I became a “happy bohemian”.

Fast forward to the present. I’m no longer living like a bohemian and I could now afford most of the simple luxuries I wanted.

But interestingly, the way I do my budget planning hasn’t changed. Yes, I still do the “Envelope System / Zero-Based Budget Planning Combo”.

So if you’ve been living from paycheck to paycheck, deep in debt, and without a clear financial future. Then I suggest that you become a saver now before you turn into a financial disaster in the future.

I hope these simple steps on creating a zero-based budget can help.

How to do zero-based budget planning

1. Account for all your income sources in a month. This is simple if you’re an employee. For entrepreneurs and freelancers, simply take the average of your monthly income for the past 3 to 4 months.

2. Track down all your monthly expenses – include everything – then categorize them into three types:

  • Fixed expenses such as rent, mortgage payments, etc.
  • Semi-fixed expenses such as electricity and other utility bills which fluctuate very little every month
  • Variable expenses such as entertainment spendings and other regular expenses whose amount varies each month

3. Assign the exact amount from your income to fixed expenses first. Next, allocate part of your income to your semi-fixed expenses (try using the highest amount from the past three months). And lastly, budget what’s left of your income for your variable expenses.

4. The key here and what your main focus should be is to make sure that all your monthly expenses are covered by your income.

5. What if my income is not enough to cover all the expenses?

6. What if my income is more than enough to cover all the expenses?

  • First, congratulate yourself because you’re actually living below your means.
  • Then, assign the extra money you have to ‘Savings’ or ‘Investment Budget’
  • Lastly, allocate some of it to ‘Luxury Expenses’ (you deserve the reward)

7. Adjust your budget until all your money has been “spent on paper”. Don’t stop until every cent has been assigned – which means your ‘Income’ less your ‘Expenses’ is equal to ‘Zero’ (thus the name of the system).

8. Review your budget status and progress once a week. Constantly work on how you can improve your system until it becomes a habit.

Final Tips

Doing zero-based budgeting will be difficult at first but it gets easier as months go by, trust me. What’s important is to have a healthy mindset about what you’re doing.

Let go of envy and self-pity and have an optimistic attitude. Know that someday, with enough patience and persistence, you will become smarter with how you handle your money.

And best of all, you’ll live without financial worries and be happier than you are today.

BONUS: Download a FREE Budget Worksheet

What to do next: Click here to start your financial journey with IMG Wealth Academy


  1. love this cause at this stage i am still struggling to do any kind of budgeting.

    happy easter!

    tita norma

  2. i try to spend everything right away on what must be paid so I can make do with what i really have left.

    i agree its all in the budgeting, no budget = no control

  3. right after reading this, i created a simple excel file to monitor my daily expenses and that would eventually produced a statement of my monthly income vs. expenses.

    thanks for this post! im now being able to closely monitor my expenses.

    more power! God bless!

  4. Thanks everyone for the comments.

    @tita norma
    Well, it’s always better to have a budgeting plan than nothing at all. It may not be perfect for now but just be persistent with it and you’ll eventually have your budget running smoothly in the end.

    That’s right, no budget = no control. And the great thing about having a budget is that, you tend to have a better grasp of what’s essential and save your money for those. 😀

    Sure, you can share this through email. Just copy the address link of the article on the browser and send it to your friends. I removed the autosharing to email function that I used to have here because it’s slowing down the site. I hope you understand.

    Also, you don’t need a fancy software to monitor your expenses and make a budget. I used to just do that on a small notebook actually. And I agree, using a simple Excel file does the job quite well. Congratulations on your effort!

  5. Yes, budgeting is really essential, the key is also to, find out, improve your talents or start a part time business with residual income to earn more. cause you must have a budget to enjoy life too even if its a once a month or a year activity, cause like if you have kids, you cant enjoy doing some things with them when they are older.

  6. The early phase of this proccess is really the hardest, but if you get used to it and consider saving as a part of your “life system”, you might find that spending is the hard part after all! And you’ll be okay 🙂

  7. Hi Fitz. Lahat ng post mo ay really worth reading. Thanks for the word “sensible belief in the power of delayed gratification”. this always inspire me every now and then. Mabuhay ka!

  8. I’m glad I read this post, it just confirmed that what I did two days ago was right! I’ve also been doing the envelope system for quite a time now, and it’s sometimes “nakakatamad” because at the end of the day, I dont have a a monitoring “tool” to keep track of each cent that I spent. The zero based budgeting is better, IMHO. The spreadsheet divides income, savings and expenses, and by looking at it, i can tell liquid, retirement and investment savings apart, even if these savings are sitting in just 1 account. I don’t mind being called “stingy”, as long as I know that my family’s future is secured. Thanks for the insight, Fitz!

  9. Wow! I have been doing this combo for years, I didn’t know there’s a theory for it pala. In my case, I am able to avoid overspending by supplementing my 0-based budget with the envelope system. Everything to the last Riyal (I’m in Qatar, btw) is accounted for, even our “fun fund”. If naubos na, then sorry, stay at home. Whenever there’s extra money coming in, or in case me na-sobra from any of the items I’ve accounted for, I make sure I adjust it into savings. That’s how I was able to grow my savings from 0% – 15% and hopefully be 20% in the next few months. Even our vacation fund is allocated for on a monthly basis, para hindi magulo ang patas ng monthly budget when it’s vacation time. Only whatever’s been saved for vacation, yon lang ang pde gastusin, no excuses. Kaya months before vacation, naka-plan na rin ang activities and expenses. I call it financial planning, my husband calls it “praning” 🙂

  10. Thanks for sharing this. I heard about your blog when I was listening to Boys Night Out. I’ll try this method. I’m still struggling with my budget & I still have those moments that I envy my officemates because they get to spend on things they want. I guess I have to be patient. Food is the biggest expense for me every month.

  11. Super article. I want remind folks that few if any schools teach financial common sense to young students. May I suggest that all parents take up the challenge to teach matters such as budgeting to their offspring well before they are ready to leave the nest. I think they will thank you for this in later years.

    ” So from a grumpy saver, I became a “happy bohemian” and I thought that I was just a grumpy old man for many years but now I realize I am a very happy saver !!!! Thank you Fitz. This post will certainly be shared with our troops.

  12. […] To create a budget, start by listing all of your sources of income, including your salary, any side hustles or freelance work, and any other sources of income. Then, make a list of all your essential expenses, such as rent or mortgage payments, utilities, groceries, and transportation costs. These expenses should be your top priority as they are necessary for your day-to-day living. […]

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