What Is Zero-Based Budgeting And Can It Work For You?

Having a budget is so important, but there are so many different budgeting methods out there. For my personal spending, I use zero-based budgeting as it works best for me. There’s also 50/30/20 budgeting, reverse budgeting, priority budgeting and so many more options.

What is zero-based budgeting?

This method of budgeting encourages you to use every penny of your income. So when you have completed your budget your income and total spent figures match.

This doesn’t mean blowing all your money on shopping to spend it, but it means every penny is accounted for somewhere including savings, sinking funds and debt payments.

Zero-based budgeting is designed to give every pound a purchase. For me, it works because I know where my money is being used and it discourages absent-minded spending.

How to start with zero-based budgeting

To start with you need to note down your income for each month and the recurring fixed essential spending that comes from that income. I use a good old Google Sheet for this, but you can use an app like Good Budget, or Monzo Pots to show how much money goes into each category.

If your take-home income is £2,000 in a month and £800 covers all your essential fixed costs including rent/ mortgage and bills then you split out the difference between other areas. This includes:

• essential non-fixed costs such as groceries and transport
• savings pots
• investments
• debt payments
• spending such as entertainment, shopping etc

You carry on this way until you have allocated out the whole £2,000 income. An example of the above split may be:

• £800 mortgage and fixed bills
• £80 car costs including insurance and savings for tax/ MOT
• £50 other non-essential bills including mobile, subscriptions etc
• £200 food
• £150 transport
• £300 savings
• £50 sinking funds for Christmas/ birthdays
• £100 investments
• £170 entertainment/ going out
• £100 shopping

Splitting out your money

If you don’t know how to split up your money you could just have a single pot for everything outside of fixed costs and savings/ investments. So in this exchange food, transport, shopping and entertainment/ going out would come from a single pot of money. Then you can monitor your spending to see where you’re spending so you can separate your budget in the right way.

Each month you can review your expenses and change things up if needed. If one month you don’t need to allocate as much to transport as you’re working from home you can up your budget in another area. Or the month you don’t pay council tax you could allocate that money into another category. It’s the same concept as cash stuffing which involves distributing cash for different expense categories into envelopes.

The pros and cons

Like every budgeting method, there will be pros and cons, and it’s very personal to find out what works best for you.

A big pro is knowing exactly where every penny is being used, and it can prevent you from spending money you don’t have, or ending up having to pinch more later in the month.

Another pro is being able to focus on your savings goals. If you account for every penny you know where everything is going so you can be very targeted with your savings.

One of the big cons is it can feel a little restrictive to people and you have to hold yourself accountable to set up and maintain zero-based budgeting. For me, this helps me feel in control, but it won’t be for everyone.

Another con may come in when there are variable expenses that you can’t or don’t account for. If this happens you can create an emergency fund/ sinking fund to cover this, but you may not be able to afford to do so.

How I get zero-based budgeting to work for me

We have one set bank account that covers all of our recurring costs ranging from essential ones like the mortgage and council tax right through to subscriptions and monthly savings towards car insurance. These costs are always fixed and technically work in a zero-based way as there’s always a set amount in there per month to cover these costs.

I have weekly spending money to cover all my general spending and personal savings costs and I operate a zero-based budgeting method on this. For me, a Google Sheet works best and I have every Monday down in a column with a column for things happening that week (meals out/ London trips etc) and my budget.

Each week I know how much is going to hit my account so I can work out how I want to spend each week’s money. Usually, I work a month in advance, but if I know I have things planned I’ll mark that budget.

For example the week I wrote this post I had £100 to play with and this was split into

• £5 payment for Monzo plus
• £30 into a savings pot towards a tattoo appointment
• £8 to finish paying off a Monzo Flex payment
• £20 for dinner out with a friend that week
• £15 to book a train for a trip to London
• £10 aside for lunch on an office day
• £12 into a sinking fund

As soon as the money entered my account on Monday I spent two minutes moving the money into pots ready for the week ahead. By doing this I can help plan in advance and if I have a busy week coming up I can start putting money aside for it in an earlier week.

What budgeting method do you use?

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