Zero-Based Budget: Example and Template

What a zero-based budget is

Most budgets track what was spent after the month is over. A zero-based budget decides where the money goes before the month starts. Every dollar of take-home pay is allocated to a category, including savings and extra debt payments, so the amount left unallocated is zero.

Zero does not mean spending everything. Money for savings is allocated too; it just has a named purpose, such as an emergency fund or a car repair next spring, instead of sitting in the checking account where it tends to disappear.

The 50/30/20 check

The 50/30/20 rule, popularised by Elizabeth Warren, is a benchmark for the split of take-home pay:

It is a check, not a target. A household with expensive debt should put more than 20% into savings and debt for a while; a household in a high-rent city may run above 50% on needs. The point is to see the split and decide on it.

How to build one in six steps

1. Use take-home pay, not salary

Take-home pay is what reaches your account after tax, retirement contributions and benefits. That is the number you allocate.

2. Measure three months of actual spending

Export three months of bank and card transactions and sort them into categories. The gap between what people think they spend and what they do spend is usually largest in eating out and shopping.

3. Allocate needs first

Rent, utilities, groceries, transport, insurance and every minimum payment.

4. Allocate savings and debt before wants

Emergency fund, sinking funds (monthly savings for predictable irregular costs, such as gifts or car repairs), and extra payments on the most expensive debt.

5. Give wants what is left

Set each want category from real spending, cut where you choose, and cancel subscriptions you do not use.

6. Check it weekly

Compare actual spending with the plan every week. A category that is over by the second week can still be corrected; at month end it cannot.

Worked example: Priya

This is the zero-based budget that replaced it. Every dollar of the $6,850 is allocated, and $0 is left over.

Wants fell from $2,867 to $950: eating out from $840 to $400, shopping from $1,160 to $180, fun from $580 to $179, and five subscriptions cancelled. Gifts and travel now come from sinking funds. Savings and debt at 32% is above the 20% benchmark, deliberately, while the card costs 24.99%. Needs at 54% are slightly above 50% because rent is $2,050.

Where the debt payment goes

The APR (annual percentage rate) is the yearly cost of borrowing. Priya had three debts: the card at 24.99%, a student loan at 5.5% and phone financing at 0%. Two standard methods decide which one gets the extra money:

• The avalanche method puts every extra dollar on the highest APR first. It costs the least interest.
• The snowball method pays the smallest balance first. It clears accounts sooner, which some people find easier to keep going.

Paying only the card’s minimum would have taken 283 months and cost $21,736 in interest. With the avalanche method at $1,100 a month, rising to $1,800 once the starter emergency fund was reached and its $700 moved to the card, the card is cleared in May 2027 with $1,192 of interest. The snowball method would have cleared it in the same month for $120 more.

Try it: a shortened Prompt 03

This is a shortened version of Prompt 03 from the Personal Finance pack, set up to run on its own. Paste it into ChatGPT, Claude or Gemini and fill in the brackets.

You are a former financial planner who builds household budgets from bank statements, not from estimates. A zero-based budget allocates every dollar of take-home pay before the month starts, so take-home pay minus allocations equals zero, and savings and debt payments are allocated before wants.

YOUR MONEY:
- Take-home pay per month, after tax and deductions: [amount]
- Three months of spending by category: [paste totals, or a transaction export]
- Debts: [each with balance, APR and minimum payment]
- Savings today, and what you are saving for: [amounts and goals]

YOUR CHOICES:
- What you want this budget to achieve: [e.g. clear a card, build an emergency fund]
- Spending you will not cut: [categories]

Produce:

1. WHERE THE MONEY WENT. Three-month average by category, against take-home pay, and the monthly surplus or shortfall.

2. THE BUDGET. Every dollar allocated to needs, savings and debt, then wants, with $0 unallocated.

3. THE 50/30/20 CHECK. The split as dollars and percentages, and why it differs from the benchmark.

4. THE WEEKLY CHECK. The two or three categories most likely to go over, and the weekly amount for each.

Use only my figures. Flag any cut of more than half in a category, with what would make it realistic. This is not financial advice; say where a professional should be consulted.

The full Prompt 03 has eight parts rather than four. In Claude it also builds the budget as a working Excel spreadsheet, and it reads the Money Brief built by prompts 01 and 02, so it starts from the net-worth statement and the spending audit already done.

Checks each week

• Take-home pay minus allocations still equals zero.
• Each category’s spending to date is within its weekly share.
• Savings and extra debt payments went out on the day they were planned.
• Any irregular cost came from its sinking fund, not the card.

Questions

Written by a former Gartner Managing Partner and investment banking SVP

The guides and the prompt templates on this site come from a career spent building these documents: board decks, forecasts, business cases and hiring decisions, as Managing Partner at Gartner, SVP in investment banking and Country Manager at international subsidiaries. The worked examples are published in full on each product page. Browse the Prompt Library.