If you’ve ever wondered where your money goes every month, you’re not alone.
Many people earn a decent income but still struggle to save because their spending lacks a clear plan or vision.

That’s where zero-based budgeting comes in as a great method.

Zero-based budgeting is one of the most effective personal finance strategies because it forces you to assign every coin a specific purpose before the month begins. Instead of wondering where your money went, you decide exactly where it will go. They’re all workers inside your little money-factory. Every expense should be justified.

In this guide, you’ll learn:

• What zero-based budgeting is
• Why it’s so effective
• How to create your own zero-based budget
• A practical example
• Common mistakes you should avoid

By the end of this article, you’ll know exactly how to use zero-based budgeting to gain control over your finances and yolofy your life!

What Is Zero-Based Budgeting?

Zero-based budgeting is a budgeting method where your every expense should be justified and income minus expenses equals zero.

This does not mean spending all the money that comes in.

Instead, it means every euro receives a job, such as:

• Housing
• Groceries
• Savings
• Investing
• Insurance
• Entertainment

At the end of the budgeting process:

Income – Expenses = €0

I give here the example in the European currency, but it’s the same principle for money in general.

Example:

Monthly income: €3,000

Total = €3,000

Every euro has been intentionally allocated and put to work. Money that goes to saving (emergency fund) and investing can work for your future and compound. If you’re unsure about a framework, you can try the 50-30-20 budgeting framework, which is very simple and straightforward.

Why Zero-Based Budgeting Is So Effective

1. Every Coin Has a Purpose

Without a budget, small expenses can add up very fast. Money is abundant in your brain and easier to access. It’s not wrong to make small expenses, but it shouldn’t be a threat to your financial situation. That’s where an emergency fund can provide you with stability.

Some examples:

• Online purchases like the newest toys for your kid, that new video game or shirt from your favourite sports team
• Food delivery, you want that lovely stone-baked pizza delivered to your door
• Subscriptions like Netflix, HBO for the latest of Game of Thrones
• Impulse spending like: I feel good, I’ll buy the newest Tommy Hilfiger while you can wait for promotions later in the year

A zero-based budget eliminates this problem because every euro is assigned before you can spend it.

2. It Prevents Lifestyle Inflation

When income increases, spending usually increases as well.

This phenomenon is known as lifestyle inflation. I’m not a very big fan of this. I’ll give an example of my own situation: I work in the administration and receive a monthly salary. When certain indexes have been reached, 3 months later, I’ll receive an index on my salary. Inflation is something that can be easily manipulated. The fact that I received this 3 months later means I’ve already adapted to the inflated products in the store. I don’t need to spend much more. Of course, you have extreme examples, but that’s the point of it all.

Zero-based budgeting forces you to decide in advance how to use extra income. In my situation above, I’ll put most of it in the category of savings or investing. Of course, never forget to reward yourself for your efforts because it can keep you going on this track.

Example:

Salary increase after years of good work: €400 per month.

You decide to divide it into the following baskets or categories:

• €200 towards investments and let money compound
• €100 emergency fund for your financial stability
• €100 lifestyle spending to reward yourself

Instead of disappearing, the extra money strengthens your finances and your mental and financial stability. Lastly, don’t forget to reward yourself for putting in the monthly volume of work. This is a very important aspect of The Yolofied Monkey and keep rewarding yourself “on the road” because only this way, it will become an automatic drill.

3. It Helps You Save and Invest More

Because saving and investing are planned categories, they become automatic priorities.

Many people discover they can save far more than they expected once they start budgeting intentionally; they can even get addicted to it and go extreme. There’s nothing wrong with saving extremely, living in a very frugal way. Never forget yourself and your loved ones in the process.

A lot of people don’t have enough on the side to cover 1 month of fixed expenses, that’s why saving and an emergency fund are key. After these steps, you can allocate more to investing because you’ll have to avoid the need to sell to cover some expenses, taking losses on your investments in the process.

How to Create a Zero-Based Budget (Step-by-Step)

Step 1: Calculate Your Monthly Income

Start by determining your total after-tax monthly income.

This can include:

• Salary
• Side hustle income
• Freelance income
• Passive income
• Rental income

Example:

Salary: €3,200
Side income: €300

Total income: €3,500

It can be hard to make this exercise work from the start. Make sure your main sources, the biggest ones, are listed. If you add new sources of income in the future, just decide to allocate them like the example above: the biggest part to investing, lower parts to emergency fund and your lifestyle, so you can reward and yolofy yourself.

Step 2: List Your Fixed Expenses

Fixed expenses are costs that remain relatively stable each month. They’re there every month, mostly, but there are also expenses that are paid one time in a year, don’t forget those as well, divide those by 12 and add them to your fixed expenses.

Examples:

• Mortgage or rent
• Utilities
• Insurance
• Transportation
• Phone plan
• Internet

Example:

Total: €1,925

It doesn’t matter how many categories you have in fixed expenses, some people like to add a lot of subcategories, I don’t. I like to keep things very simple. Think of it as riding a car, you don’t need a lot of info when driving: if there’s an icon and a red lamp, you know you’re in trouble. Don’t overdo or overthink it.

Step 3: Budget Variable Expenses

Variable expenses change each month, depending on certain conditions.

Examples of categories:

• Groceries
• Restaurants
• Entertainment
• Shopping
• Hobbies

Example in euros:

Groceries: €400
Restaurants: €120
Entertainment: €80
Hobbies: €70

Total amount of variable expenses: €670

Total amount of fixed and variable expenses in our example: €1,925 + €670 = €2,595

Some of us may overthink this and consider saving and investering as a variable or fixed expense, but they belong in separate categories. You can use the 50-30-20 budgeting framework to start.

Step 4: Allocate Money for Financial Goals

Now assign money to your financial priorities. In our example, we’ve made €3,500 per month and have already €2,595 in expenses, meaning we have to allocate €605. Now we need to give each one these euros a certain job.

Here’s a list of possible priorities:

• Emergency fund: a buffer of 6 months fixed expenses provides stability
• Retirement investing: make sure you can reitre and keep quality of your life
• ETF investing: let money work for you in simple trackers, no need to know all of the stocks
• Debt repayment: tackle your debts first (don’t include your mortgage in this)
• Travel savings: save for a good trip each year

Example:

Investments: €750
Emergency fund: €155

So, our example is complete, and every euro has been assigned to work in its category for you, while other euros are simply gone (expenses). Do you get it now? Just keep track on a high level and make sure you reward yourself on the road, let the savings and investing categories grow and improve your networth and let compounding do the rest, this way you’re set up for a great life. Try and find a great balance between saving and investing.

Step 5: Make the Budget Equal Zero

This step sums it up as when you subtract your expenses, savings and investments (financial priorities), the result should be zero.

Your total spending should equal your monthly income.

If money remains, assign it to:

• savings
• investing
• extra mortgage payments
• fun spending

The goal is:

Income – Expenses = 0

Summary Example of a Zero-Based Budget

Monthly income: €3,500

Total = €3,500

Best Tools for Zero-Based Budgeting

You can implement this budgeting method using several tools, always use one you like the most. You don’t have to use an Excel because the writer of this blog post likes a simple spreadsheet.

Spreadsheets

A simple Excel or Google Sheets spreadsheet works perfectly.

Advantages:

• Free
• Fully customizable
• Easy to update monthly

Budgeting Apps

Apps designed for zero-based budgeting include:

• YNAB
• EveryDollar
• Goodbudget

These tools automate budgeting and expense tracking. There paid versions as well. You don’t need paid versions to track down your expenses and control your personal finances.

Pen and paper

While some of us are more digital, a household book and a pen can also do the work for you, writing everything down. There are multiple ways to the destination, the important thing is you get there and reach the final destination: yolofying life.

Common Zero-Based Budgeting Mistakes

Unrealistic Budgets

Budgets must reflect real spending patterns.

Review your last 3 months of bank statements to estimate accurate numbers.

Forgetting Irregular Expenses

Some expenses occur only once or twice per year.

Examples:

• Car maintenance
• Insurance premiums
• Holiday gifts
• Vacations

The solution is creating sinking funds.

Example:

Car maintenance: €600/year
Monthly budget: €50

Being Too Strict

Budgets should be flexible.

If you overspend in one category, simply reduce spending elsewhere. This is the only way to make it last, reward yourself and leave room for flexibility. You can add a certain amount each month, that’s all fine, just keep going with it and don’t overthink it.

Zero-Based Budgeting vs Traditional Budgeting

Traditional budgeting often looks like this:

1. Spend money during the month
2. Check expenses afterwards
3. Hope the total isn’t too high

Zero-based budgeting reverses this process.

1. Plan spending before the month starts
2. Assign every euro a purpose
3. Track spending intentionally

This proactive approach is why many financial experts recommend zero-based budgeting.

Final Thoughts

Zero-based budgeting is one of the most effective ways to gain control over your finances.

By assigning every euro a job, you can:

• eliminate unnecessary spending
• increase savings
• invest more consistently
• achieve long-term financial goals

The formula is simple:

Income – Expenses = Zero

But the results can be transformative.

If you want to improve your financial situation, try using zero-based budgeting for the next three months and see how much clarity it brings to your money.

F.A.Q.

What is zero-based budgeting?

Zero-based budgeting is a budgeting method where every euro of income is assigned a specific purpose until the remaining balance equals zero.

Is zero-based budgeting good for beginners?

Yes. Zero-based budgeting is one of the most effective budgeting systems for beginners because it clearly shows where every euro goes.

What is an example of zero-based budgeting?

If you earn €3,500 per month, you allocate that money across categories like housing, food, investing, and entertainment until the total equals €3,500.

What is the difference between zero-based budgeting and traditional budgeting?

Traditional budgeting reviews spending after it happens, while zero-based budgeting plans every expense before the month begins.