How to Use a Zero-Based Budget (Step-by-Step Guide)?

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A zero-based budget is the most comprehensive and effective way to care for your financial future self. And is truly WORTH the time and dedication to create and maintain. How do I know this?

Part of me is shy about sharing my story with budgeting since it sounds cheesy and salesy.  But it’s also the truth.  

Using a zero-based budget is how I improved my net worth by $15,000 without any change in income.  When I looked at the numbers, I truly couldn’t believe it.  $15,000 was over 32% of my net business income at the time. And I created that increase in wealth in just 8 months.

A zero-based budget is going to change your life too; if you are willing to put the work in. You need the right budget, and to use it strategically when you are a small business owner with for variable income. Luckily, you’re in just the right place to learn what fits best, and how to use it!

You might be wary of budgets, let alone zero-based ones; so let’s start with an introduction

Graphic that reads your budget is an evolving money plan based on your won precious weirdo life | money coaching and personal finance education for self-employed creatives

What a budget is NOT

It is not a bunch of rules from on high, or a set of rigid spending percentages. It’s not inflexible, unrealistic, or restrictive. And it doesn’t eliminate all fun and joy from your life forever and ever.

What a budget IS

A budget is a plan, based on the unique details of your life, that you make in a given period for all cash that is available to you to spend. 

An effective budget is designed around your life, your priorities, and your preferences. 

It’s an evolving plan based on your own weird, precious, peculiar life. And when you budget, you shine light and love on that peculiar life.  

Budgeting is a practice that offers you awareness, intention, and abundance.  Sounds more like meditation, right?  It kind of is, especially if you use pen and paper.

But no, it’s the practice of regularly budgeting your money. And you may just fall in love with the process the way I have.  

Budgeting is a practice that offers you awareness, intention, and abundance.

What makes a budget zero-based?

Zero-based means that you make an intentional plan for every single dollar available to you.  

If you are in your pre-budgeting stage, you might be guesstimating what you should do with money each week, looking at your bank balance and future income, eye-balling how much you can pay down the credit card bill and still pay rent. Or maybe you’re putting every day expenses on credit cards because you just really craved a lot of sushi over the past month. And tax time is always murder.  

Friendly aside: this is where I mention that this is a no-judgement zone.

No matter your spending habits, pile of unopened bills, or mountain of student loans, you are worthy and loved around here.  Choosing one set of behaviors over another is simply about where they take you.  I’m here to teach you about a new set of behaviors that lead to greater financial freedom than you have experienced to date.

Choosing one set of behaviors over another is simply about where they take you.  I’m here to teach you about a new set that lead to greater financial freedom than you have experienced to date.

When you use a zero-based budget, you assign a specific dollar amount to all expenses, both fixed and general, as well as debt payments and savings. You also consciously decide how much to leave in sitting in your checking accounts as your account buffer against unexpected expenses.

And the magic happens in the process of deciding – in advance – where and how to spend your money.  

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As you decide how much to spend on what, you are offering attention and care to each area your life where you spend money. 

Your values are reflected in your budget.  You might prioritize your family, or your pets, or donations to important causes.  And you are intentional in protecting yourself against future uncertainty (a hard lesson so many learned when the global pandemic hit).

You also make sure to plan for fun in your life.  If you are paying off a big pile of debt, and have a long way to go, your fun category in your budget may be very small, but it needs to be there, and to be cherished.  

If I’m deciding how to spend all cash available to me, doesn’t my checking account go to zero at the end of the budgeting period?  What about unexpected expenses?

No, because part of your strategy is to use an account buffer.  I go more into depth about that in this blog post all bout checking account buffers.

It’s one of several strategies you use when working towards financial freedom using a zero-based budget. Let’s talk about those budgeting strategies now.

On overview of using a zero-based budget as a solo small business owner

  1. You only spend money you already have in the bank
  2. You pay yourself regularly out of your business
  3. You save for future tax obligations.
  4. You create checking account buffers for yourself to handle unexpected expenses and stay away from credit cards.  There are like self-managed overdrafts, but without the fees.
  5. You spend cash for all variable in-person expenses (debit cards are fine until it feels safe to use cash again, thank you Coronavirus)
  6. You use sinking funds to prepare for upcoming life events (holidays, education, etc) and big expenses
  7. You save 3-6 months of business expenses in a business emergency fund.
  8. You save 6-9 months of personal expenses in a personal emergency fund.

I’m feeling overwhelmed! How do I make all those budgeting things happen? 

I will admit, if you’ve never budgeted before, starting the process can be overwhelming.  It takes some time to figure out the right budget amounts for your general expenses and savings. And it can take time to gather all the numbers you need to create your first ever budget.

Before you’ve built up your checking account buffer, you might be short by the end of the week and put some groceries on a credit card again.  For the first couple of months it’s going to be a bit janky as you figure out the process.  

The short answer, is you just start, learn from your mistakes, then keep moving forward. It gets much easier with practice. And with the right guidance, it can go much smoothly. 

Let’s walk through a more detailed description right now to get you started! 

How do you actually use a zero-based budget as a solo small business owner?

Budgeting is a pretty dreamy system – and you know systems are your best solopreneur friend – so follow along with me as I outline the process for creative solopreneurs who are new to budgeting.  

If it seems long and complex, don’t be daunted. The beginning is the hardest.  You will use the same basic template and budget calendar each time.  And once you have the hang of it, the whole weekly budgeting process doesn’t need to take more than 15 minutes at most.  

Important note: Create one budget for your business and one budget for your personal finances.  The process is exactly the same for each, but should be kept separate.  You’ll thank me when tax preparation time comes <3

The Zero-Based Budgeting Process

1. Sit down each week on Saturday or Sunday, get comfy with wine/chocolate/furry companion/funky music, and create your following week’s budget. Read here for why weekly budgeting is best for you.

2. Total all deposits that clear your business checking account this week. This total is your gross income minus any payment processing fees.  The amount could include client payments, membership dues, product sales, anything business income related.  If you are doing your personal budget, skip to step #4 for your income stage.

3. Transfer money to your tax savings account.  Check with your accountant for the exact percentage that’s right for your business.  I put 20% aside as a sole proprietor in my massage practice here in NYC.  

4. List your subtotal (all deposits minus tax savings).  And then list any other income too, such as cash back from a credit card, interest payments, or refunds to your business checking account.

Zero Based Budget

5. Check your current checking account balance (which equals your ‘total funds to spend’). 

6. You calculate your current account buffer which equals your ‘balance’ minus ‘your week’s income after tax savings transfer.’  I like to keep a buffer of $300 in my business checking account and $500 in my personal checking account at all times.  Some of that often gets used during the previous week and needs replenishing when I create the coming week’s budget.

7. Add up your business income, your other income, and your account buffer. This is the amount of available money you are budgeting with this week.

8. Review your monthly budget calendar and make note of any fixed expenses that are due during the week for which you are budgeting.  List and total all those expenses on your budget.  Calculate how much money is left after you’ve budgeted for fixed expenses.

9. Write your variable expense categories in your budget, with the weekly amount you intend to spend for each.  This is your groceries, fun expenses, pets, household supplies, etc.  Total your variable expenses on your budget.  Then calculate how much money is left after you’ve budgeted for variable expenses.

Zero Based Budget

10. List all your sinking funds on your budget, along with the amounts you save for them each week.  Or decide which ones you will or will not fund this week.  Your emergency fund goes here, also tires for your car, or your Christmas fund.  Total your sinking funds on your budget.  Then calculate how much is available after you’ve budgeted for your sinking funds.

In this example, I imagined someone whose emergency fund had reached it’s initial goal level. That’s why it’s only listed in the next section.

Oops!!! Forgot the total in this image. There’s always something I leave out. Let’s put it here: $70 🙂

11. NOW this is where some of the magic happens. Whatever is leftover in your budget, you put towards either extra debt or savings payments.  How you use this this remaining money is determined by where you are with your current top goals as you work towards your longtime vision.  

In this example, I have them add an extra $50 to beef up their emergency fund. And then to put the rest to their most pressing credit card debt.

Zero Based Budget

12. Once your budget for next week is complete, make all necessary bank transfers for tax, savings, and sinking funds.  

  • 13. Make any additional credit card payments on top of minimum payments.  

14. On Monday, spend accordingly.   

15. Track and log expenses through the week.

16. Assess and adapt your budget as you go along.

What if you have money leftover in one of your variable spending categories and you’ve reached the end of the week?   Now you can choose to:

  1. Roll the extra money over to use in the coming week.
  2. Use the extra money for savings.  
  3. Pay down more debt with it.   

Here’s the whole zero-based budget in visual form

When I first started budgeting and using cash envelopes.  I used to feel like I had hit the jackpot when I had $30 or $40 leftover from the week’s budget because I had been careful about restaurant expenses, or spent less on household costs than planned.  

It was such an accomplished feeling to put that money into a sinking fund, or lessen what I needed for next week’s budget so I could pay a credit card down further next week.

Still with me?  Feeling a bit exhausted?

I get that!  Reading about any hard and worthwhile behaviors isn’t necessarily fun, and there is a lot of detail in here.  

You made it this far through this article about zero-based budgeting for a reason.

Something in your life tells you that it’s time to change how you manage your money.  You’re ready to get out of debt for good, or to finally save for a rainy day and create a nest egg. 

And if you’re like so many creatives, artists, and wellness practitioners, the Pandemic kicked your financial butt.  It’s time to learn some new money skills.

Working on your money is a practice.  Any rewarding skill takes time and repetition and intention to develop.

And the beauty of budgeting is that it quickly becomes an easy part of life.

And the beauty of budgeting is that it quickly becomes an easy part of life.  There’s some work to do up front, but then small daily and monthly steps will take you further than you ever dreamed.  At the other end of this learning process is more peace, more contentment, more progress on your goals, less anxiety, and more enjoyment when you actually spend money.

A zero-based budget is the flexible and rigorous way that you bring consciousness into all parts of your finances.  You will find that you will value every cent of business income you make, and bring vibrant intention into your spending and saving


Are you feeling unsure of how to start with budgeting, especially on variable income?  

Come join the Plum Tree Community for guidance, inspiration, challenges, and accountability! 

Membership is free right now, although it won’t always be and – bonus! – the community is not on Facebook with all its distractions. I hope to see you there!

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