Why You Need a Zero-Based Budget to Get Out of Debt

This page may contain affiliate links. I may be compensated for any purchases you make through these links. I always try to share products and services my readers will love and I hope you enjoy them!

Wanting to save up for your dreams or get out of a debt? A zero-based budget is the very best strategy you can follow!

What is a zero-based budget?

In a nutshell, a zero-based budget gives every dollar you earn a job or a home. You plan for every purchase you make in a given month!

How is this different from other systems?

A lot of folks will let their paycheck deposit, spend based on whatever they have in their account at the time, and try to save here and there.

A zero-based budget is like putting your money in battle mode. You give every single dollar a job and know exactly where it is going! You also set specific spending amounts for different categories each month, like groceries, dining out, clothing, etc.

Zero-based budgets really became popular with Dave Ramsey, who advocates a very specific type of zero-based budgeting often referred to as “the envelope method.”

how to start a zero-based budget

What is the envelope method of budgeting?

In the envelope method, you actually withdraw all the cash you will need for different categories of spending each month and sort them into envelopes. When you shop, you pay for your expenses with the cash from the envelope for that category.

For example, you may have a $200 grocery budget. In your grocery envelope, you add $200 in cash at the beginning of the month or after your pay day.

When you shop at the store, you pay by using the cash in that envelope. When the cash in that envelope is gone, you have no more money in that category to spend unless you borrow from another envelope that has money leftover.

Read: Planning for Christmas on a Budget

Why would someone want to use the envelope method?

This method is extremely popular because it forces you to limit your spending. If you only have $200 in your envelope, you can only spend $200.

With the envelope method, you are not using credit cards at all. You are not going into debt. You are only paying for items with money you have right now. That’s extremely powerful!

Research also shows that people spend less when they have cash versus a card. That’s extremely true for me. For some reason, I have no problem swiping my credit card for $50 or $100 because “I need it” or “it’s a good investment.” Those purchases add up so quickly!

When I have cash in hand, I buy generics, try to find a way to do without, and avoid buying things I don’t need. I’m extremely stingy with cash!

Zero-Based Budgeting and Debt Repayment

Generally, most people I meet doing the zero-based budget method do so because of debt. They want to completely remove debt from their lives! Especially in the Dave Ramsey community, people want to live debt-free so they can live the sort of life they dream of. Consumer debt can drastically limit our options and happiness.

If your debt requires you to work in a job you hate or stress every month to cover your expenses, are you thriving or surviving?

Zero-based budgeting is also perfect for the Debt Snowball!

What is a debt snowball?

There are two main ideas behind paying off your debts as fast as possible. In the Debt Snowball, you start by paying off your debt with the smallest balance.

After your smallest balance is paid off, apply that old payment amount to your next smallest balance! Now, you’re paying your minimum payment to the second debt, PLUS the minimum payment you were sending to the first debt.

In this mode, it is highly recommended to send additional money to your snowball, but not necessary. If you have a tight budget, you may only be able to pay an extra $10 to $20 over your minimum payment each month. Apply that extra snowball amount to your debt each month until the debt is completely paid off.

Since you’re rolling those extra funds to the next debt, it will be paid off really quickly and you’ll be able to do the same thing to all your other debts.

Debt Snowball Alternative: Debt Avalanche

Personally, I prefer the Debt Avalance to the Debt Snowball! In this situation, you focus on the loan with the highest interest rate, not the smallest balance.

I find this situation to be the best if you’re dealing with multiple accounts, especially ones with high-interest rates like credit cards.

Which is better for beginners: the Debt Snowball or the Debt Avalanche?

The Debt Snowball is great for that initial thrill of paying off debts! It’s very good if you need the motivation to keep going. Seeing debt after debt getting paid off will help you see progress from your efforts!

You can always worry about the specific tweaks you want to make in the long-run later. For now, just pick a strategy and get started! If you are a beginner at budgeting, I recommend starting with the Debt Snowball.

Ready to get into the details? This is my favorite Debt Snowball/Debt Avalanche calculator! Use this tool to see which plan is right for you.

How do I start a zero-based budget?

There are SO many budgeting tools out there and many of them are excellent! The trick is finding a system that works for you.

I’ve tried a variety of apps, but I am generally reluctant to pay for any that charge me a fee per month or year.

For me, I like to create a general overview of my budget on Google Sheets or with pen and paper. Then, I manage my monthly spending through Simple.

Want to use the same budgeting file I use? I created a blank template for you to track your income, expenses, debts, holiday spending, and more!

A budget is simply a way of tracking your income and expenses to ensure your money is doing what you want it to do. It doesn’t need to be complicated or fancy!

How to create a basic budget

Step 1

First, calculate your income. If your job pays once a week, biweekly, weekly, or sporadically, get a number for your total income and write it down.

Step 2

Then, list out all of your required monthly expenses. Focus on the big stuff first: housing, vehicle, utilities, debts, etc. These are your Fixed Expenses.

Subtract these from your total income.

Step 3

Next, write down how much you usually spend per month on the rest of your discretionary expenses. These typically vary and are things you really have some control over.

Subtract these discretionary or variable expenses from the amount left over when you subtract your fixed expenses from your income.

how to create a basic budget

Assessing your initial budget

Do you have any money left over? Great! That needs to be saved or used on debt repayment each month.

If you do not have money left over, we need to revisit the variable expenses to see what we can reduce.

If you still cannot balance the numbers, you may need to try one of these strategies:

  • Find a way to earn more money
  • Negotiate your utility rates to reduce expenses
  • Bring in a renter or someone to help offset expenses
  • Make a BIG change – trade-in your car for something more affordable, move somewhere less expensive, etc.

Budgeting apps that support zero-based budgeting

My favorite budgeting apps I’ve tried are EveryDollar, which includes a Debt Snowball/Avalanche tool and is from the Dave Ramsey team, and You Need a Budget. Both are robust tools that will certainly help you manage your budget!

However, the only apps I use for budgeting are Google Sheets and Simple (an online bank).

Tracking your zero-based budget digitally

Although I have tried a variety of different tools to implement my zero-based budget, none of them have worked nearly as smoothly as Simple.

When I tried using all cash, I still had to make some card purchases for online expenses, etc. Then, I got stuck trying to figure out how to balance card and cash purchases and that didn’t work for me.

I tried just charging everything on my credit card and paying it off at the end of the month. Although this certainly did work, I had a hard time tracking my monthly spending until the end of the month. This meant that I wasn’t really monitoring my category spending and did not use my money as well as I could have.

My favorite digital budgeting tool: Simple

I decided to go back to using Simple as my primary budgeting tool. I have literally every single bill and automated payment directly to my Simple card so I can track all of my expenses in one place!

Simple is an online bank backed by BBVA. They offer a basic checking account with robust budgeting and saving tools that I’ll explain below. Simple also now offers a protected savings goal with a high-interest rate and currently offer CDs. They do not offer any credit cards or loans so it is impossible to go in debt with Simple!

How to use Simple for zero-based budgeting

Simple offers a basic checking account. Within that account, they offer two extremely useful tools: Goals and Expenses.

Simple Goals

Goals are how you can plan for the future. Let’s say your sister is getting married next year and you know you’ll need $2,000. Create a goal, add the amount you need to save, and Simple will help you either know how much to save per month or help you make little transfers each day so you can reach your total.

I used to use goals exclusively for my budgeting until they introduced Expenses, which are IDEAL for those recurring bills and categories! This is where I plug in my “envelope” categories.

Simple Expenses

Think of Expenses on Simple as your envelopes. I have a bunch of Expenses on Simple: groceries, clothing, pets, car maintenance, etc. I love that Simple has options to tweak everything about Expenses. They solved the issues with goals that I did not like before!

When you make a purchase on Simple, you can choose how to fund that purchase. I find that Simple can often tell what sort of place I was shopping and can do this automatically. You can also set up rules so it always knows to categorize Costco as groceries, etc.

Click on any purchase in your Activity feed and select which goal, expense, or fund you want to use.
My favorite Expenses features

Basically, with Expenses, you can decide if you want to fund the Expense automatically with a specific funding schedule (like you get paid on the 12th so you want to automatically transfer funds into your Expenses that day) or manually.

You can decide whether your Expense should ever have more than the basic amount or not. For example, I have a grocery budget of $300. Using the expense features, I can tell Simple what to do if I have any money left in this category at the end of the month.

If I only ever want a maximum of $300 in this category, I can set my expense as “reach target balance.” However, since I like to buy in bulk, I want any leftover money to roll over to the next month’s budget. So, I set this expense as “set aside target amount.” You can tweak this setting on any expense to make it work for you!

Other benefits of using Simple for your zero-based budget

I’ve always appreciated that Simple has a straightforward, easy-to-use app allowing you to monitor your spending all at once. They now have fingerprint sign-in, which is so user-friendly!

Simple only offers Visa cards, which means I can use my card to shop at Costco!

There are no monthly fees or charges whatsoever. Simple also only lets you spend money you have on hand and if somehow you did overdraft, they do not charge NSF fees. Click here to see their full fee schedule.

They offer each account holder a Protected Goals account with a current interest rate of 0.79%. This is a great rate and is higher than my Ally savings account right now will all the rate drops due to the 2020 financial crisis.

I keep trying to decide the best way to use that account and I’m currently using it as where I send my Christmas saving amounts so I can earn a little interest before I start my holiday shopping. It would be an excellent place to send my Car Maintenance money as I intentionally save each month to prepare for wiper blades, oil changes, and other work.

They also offer round-up savings boosters, so you can increase the amount you save each month automatically!

Simple started Shared Accounts a while ago and my husband and I are finally getting ours set up! We will have our regular white Simple cards for our primary accounts and blue ones for our shared account. That in itself will be helpful to keep track!

We can’t wait to get this set up so we can be 100% on the same page for household spending like groceries and pet expenses.

What’s the right zero-based budgeting system for you?

There is no one right solution for everyone! However, if you’ve tried a cash-based system before and it did not work for you, I recommend trying Simple. It truly has the versatility of a powerful budgeting app like You Need a Budget or EveryDollar, but it’s totally free AND embedded within your banking software. You don’t need 2 apps anymore: just one.

I really like the convenience of using Expenses as my monthly “envelopes” and the Goals are so helpful when saving up for big-ticket items!

I personally think Simple is an ideal situation for most people, but definitely check it out for yourself. If you have a system that works well for you, then that’s all that matters!

What’s your favorite budgeting system? Do you use a zero-based budget? Tell us below in the comments!

We love to share with other bloggers! This post was shared at one of these great linky parties!


Rachael is a schoolteacher who loves to grow her own produce in her backyard garden, cook from scratch, and update vintage furniture for her farmhouse look. She lives in Western Washington with her husband and her cat.

You may also like...

0 0 votes
Article Rating
Notify of
Newest Most Voted
Inline Feedbacks
View all comments
Cherelle | The Inspired Prairie

Great tips on budgeting! I love using cash for everything as much as possible, as it helps me keep track of how much I spend. I even made little “envelope-ish folder dividers”, so my wallet so I can place the cash in each dedicated spot.

Thanks for sharing your post with us at our Embracing Home and Family link up party!