The ULTIMATE Money Hack – Unlock Financial Freedom with Zero Based Budgeting in Three Simple Steps

Is it a struggle each month to get ahead financially? Are you tired of not having enough to do the things you want? Or maybe investing for the future feels out of reach? If so, this article is for you! I’m about to share the ultimate money hack—Zero Based Budgeting—that will help you unlock a better and less stressful future in three simple steps.

I’m here to help you unlock your wealth potential by teaching you how zero-based budgeting can fundamentally change your life and allow you to take control of your finances. This is not just another “money hack” that’s all talk and no substance – it’s a proven strategy that will set you on the path to saving money and reaching financial freedom. So stay till the end, where in Step 3, I share an example that will change your perspective on the way you spend forever. So let’s dive right in!


Zero based budgeting is a powerful financial tool that helps individuals, households, and businesses to ensure their income covers their expenses and allows them to plan for the future. 

The idea behind zero based budgeting is simple: you must allocate every dollar of your budget with an assigned purpose or expense.

The foundation of zero based budgeting begins with creating a spending plan by listing all expected sources of income along with all expected expenses such as rent or mortgage, utilities, transportation costs, food, insurance premiums, and savings contributions. You then subtract your expenses from your income to ensure the total is balanced. You can allocate any money left over towards savings or discretionary spending goals. 


Zero based budgeting is beneficial because it helps ensure you live within your means and track where each dollar is spent, allowing you to plan for future expenses, emergency funds, and investments. 

Additionally, it encourages individuals to think critically about their budgets and make more informed decisions about spending their money. It is also an excellent way to start discerning between NEEDS (rent/food/transportation) and WANTS (travel/entertainment) within your budget.

Zero based budgeting is a powerful tool for creating financial stability by ensuring no money goes unspent or unaccounted for. Also, by actively managing finances, zero based budgeting can help individuals reach their short-term and long-term financial goals by creating an actionable ROADMAP for their money. 

But how is zero based budgeting different from a standard budget?


Zero based budgeting starts to get interesting because once laid out, it clearly paints a protective box around your budget, keeping you financially solvent and working toward your goals.

A fundamental principle of zero based budgeting is that if you want to grow one line item in the budget, then you have three options: 

(1) reduce another category, 

(2) increase your income, or 

(3) go into debt.

With a change in line item spending choices, the overall budget doesn’t change unless you increase income. You simply change the plan for other allocations as you want the result of INCOME – EXPENSES – SAVINGS GOALS to equal ZERO. This method is powerful because it provides a tool to make your choices more intentional. 

It can also uncover the areas where you are going against the plan because you can see what buckets you are moving money in and out of. This can help you create more realistic category allocations or an action plan around habit change to ensure you reach your goals. 

Zero based budgeting can also show you why your savings goals are being dashed every month because that often becomes the pirated category to cover overages. The advice to ‘pay yourself first’ (or put money in your savings goals first) was born because it is very easy to spend money not in use or allocated for the future when needs or wants exist today. 


Here is an example of how zero based budgeting is intended to work when a deviation from the plan (or budget) occurs. 

For this example, we’ll assume your water heater has just failed and needs to be replaced for $1,200, and you only have $800 in your emergency fund. In this case, we must determine where the other $400 ($1,200-$800) will be funded. 

Generally, you will first look at your ‘want’ or savings categories, selecting a bucket with time to recover before that specific cost hits. Here you try to avoid pulling from a ‘needs’ category, like groceries for the month. If there isn’t somewhere to draw from, this is where you may incur a debt (no savings to pull from). 

Now, let’s walk through an example to show you this powerful feature of zero based budgeting on a more day-to-day basis. And stay with me until the end, where I share an example that will fundamentally change your approach to spending.


If any overspending in a given category occurs, you will follow the same process as the emergency example. You must select the category or categories you will pull to cover the extra expense. An often overlooked superpower of the zero base budgeting system is that you want to make these decisions BEFORE you spend.

Say you are having a dinner party, and you know that will push you over your grocery budget for the month. This is the point where you need to make a decision. Before going to the store, you decide which other budget category this overrun will come from. 

PROACTIVELY choosing the cost shift uncovers what is most important in your budget. For example, do you pull from your travel fund for the dinner party or the new pair of shoes you are saving for? It can also give you the reflection point to say you don’t want to overrun your current budget category because the only place you can cover this cost is with debt or a ‘need’ within your budget, and you curb your overspending. 

After selecting not to overspend, but still wanting to host your dinner party, this is where you might move the dinner party to a potluck and still have the experience but reduce costs. These realizations often happen when we identify we only have ‘needs’ categories to cover ‘wanted’ expenses.


As I alluded to before, the most common mistake people make when using zero based budgets (or really any budget) is spending WITHOUT looking at the bucket they should or could pull from. Instead, they only decide which category will cover the extra expense after they spend or even go into debt to cover the overspending. This reactive method defeats the purpose of giving every dollar a purpose and is contrary to the plan created, ultimately undermining their zero based budget.

The best way to implement this method is by creating a habit of looking at your budget BEFORE spending. You can use a simple spreadsheet for this, or I use a program called YNAB (You Need A Budget) to help me manage this process, so I can access my information anywhere I go and make informed and proactive decisions.

There are other methods to force the decisions needed in zero based budgeting, including the cash envelope system or using an electronic cash envelope method like Qube Money. I’ve included links to these resources below this article, along with a link to my article, where I discuss the pros and cons of these different software applications.


As you get time and practice working in your zero based budget, both of these scenarios will help you start identifying the vampires that are stealing from your goals and forward progress each month. It can also help you learn where to change your behaviors to support your plan.

Examples of positive habit change would be to start an emergency fund to cover unexpected items. Or simply create an ‘I forget to budget for this’ line item. However, I would encourage you to dive deep into that category as time goes on to actually budget in the future for those things you initially forgot to include.

When used correctly, this budgeting method helps you proactively keep things in line and offers the flexibility to roll with the variability that life throws at you.

Now, I’ll share an even more impactful, little-used secret of zero based budgeting that can change your life. 


Zero based budgeting gets really powerful when investigating every line item in your budget for its right size. And before you groan about how much work this could take, hear me out because learning the impact of this method completely changed my mindset and life.

This secret lies in the origins of zero based budgeting. This system was developed in the 1970s by Peter Phyrr, a manager at Texas Instruments, for businesses, eliminating the process where existing budgets are just continued year-to-year without questioning existing spending and just adding costs to the top. 

With zero based budgeting, each dollar requested for the fiscal year had to be justified, forcing leaders to look hard at the necessity of spending any dollar, old or new. As a result, it became a popular financial planning tool for companies looking to eliminate unnecessary expenses and better allocate resources. It has since been successfully adapted for personal finance use.

Using this method for our personal budget, we want to ‘right size’ our budget line items questioning all expenditures to ensure they meet OUR goals, not just an assumption of what we SHOULD do. This deep dive of analysis can be on an annual or monthly basis.

Before you discount the power of this method because of the work or cutting you think is involved, listen to the following example. I promise it will change how you look at your budget and needs. 


Let me work through an example that affects everyone – housing. 

Your life may be at a stage where you want more room at home. You are working from home, recently married, or your family is expanding. Or you want a bigger place to host Saturday football get-togethers or your famous dinner parties. I get it. We all need some elbow room – adulting is hard! 

Let’s look at the impact of moving from a 1-bedroom to a 2-bedroom apartment.

Since I am in Denver, we’ll use the current averages here:

  • Ave. Rent on a 1-Bedroom apartment – $1,702
  • Ave. Rent on a 2-Bedroom apartment – $2,337
  • The delta is $635/mo or $7,620/year

I don’t know about you, but that’s a huge cost increase per year.

If you were able to save that $635/mo and just put it in an interest-bearing savings account earning 3.5% (yes, these do exist – see here and here or the list of links below the article), you would have $7,755 in your account in just one year. 

If you put that calculation out five years, using the same assumptions and a 3% rent increase year over year,  you could save $44K in just five years. 


Okay, maybe you’re past the time for renting and want to buy. Maybe you are looking at an extra room for guests or an office to accommodate you working from home. 

Again, for this example, I’ll use the Denver market costs.

The median listing home price per square foot in Denver in Spring 2023 is $367 (yes, I’m in a high-cost-of-living area 😛). 

If you assume a standard bedroom size is 11’x11’ = 121 sf = $44,407 for this extra room.

So if you have to take out an additional $44,400 in mortgage to get an additional bedroom (not counting any circulation, hallways, etc. to get there), the extra cost on a 30-year mortgage at a 6.5% interest rate would be a total of $101,506 ($44,400 loan, $57,106 interest). Or an additional monthly payment of $280. 

So this is significantly less than renting, but it certainly has a big impact with interest over the 30 years.

Looking at the full financial impact of this example, if you had put this $280/mo in a savings account earning just 3.5% each month for those 30 years, you would have $178,320.70 ($77,521 increase in value).

If you put that $280/mo away in an investment account earning 7%/year, that reinvests the earnings (compound interest), for those 30 years, then you would have $343,897 ($243,097 increase in value or interest) after the 30 years. 

So the total for this ‘extra’ room over the 30 years is almost half a million dollars! ($101,506 + $343,897 = $445,403)


So small changes can make a huge difference in your life over time.


So, how do you go about looking at your housing costs with purpose? 

Here is where you need to start with the basic living assessment. You need a place to sleep, a small kitchen, a bathroom, and add in a small living space. This might not be what you are used to, but don’t assume what you have is what you really need. 

From here, you will want to evaluate what you will use the additional spaces for and how often. Do you need that extra bedroom if you only have house guests a few times per year? If it is a space you can use daily as a home office and work elsewhere the few times a year you have guests, maybe that space is worth the added expense.

You can make this same evaluation on living near the people or activities you like to go to. If living near family means you are in a very high-cost-of-living area, and you only see them a few times a year, maybe living in a low-cost-of-living area could mean your overall budget is lower. Also, allowing you to afford to see your family a few times a year by traveling. 

Again, the goal is to right-size our budget line items to meet our overall goals more quickly. 

When doing these deep dive evaluations, your time is best spent on the big-impact items like housing, transportation (vehicle cost, leases, maintenance, fuel, parking, etc.), and food. Any area in your budget that takes up more than 20% of your budget is an excellent place to start. 

It’s also important to not let society, guilt, or thoughts of what you should do get in the way but decide what is right for YOU.


To overview how you unlock financial freedom using the zero based budgeting method, follow these three simple steps:

  1. Set up your budget so zero dollars are unallocated at the end of the month.
  2. Make proactive decisions before you spend. 
  3. Right-size each line item in your budget, investigating the needs based on your current situation. 

These steps might take some time, and you don’t have to have it all perfect on day one, but take the biggest impact items first or the things that are easy to change and work from there. 

It’s essential to remember that budgeting is an ongoing process and requires regular monitoring and adjustments to stay on track. With dedication and effort, zero based budgeting can be a helpful tool for achieving financial independence.

Thanks for reading about my ultimate money hack, zero based budgeting in three simple steps, to help you take control of your finances, build wealth, and unlock financial freedom! 


Article – The Best Budgeting Software (And Why You Need It)! –
QUBE Money
Budget Template
Ally Bank
High Yield Savings Account Tracker
Compound Interest Calculator
Mortgage Calculator

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