Zero-based budgeting is a way to manage your finances whereby every penny of your income is assigned to a specific category. The goal is that by the end of the month, your income minus your expenses equals zero. This doesn’t mean you spend it all, but you just allocate it all somewhere.
How this works in three easy steps
- List your income for the month, this is everything coming in including salary, bonuses, commission, pensions and benefits.
- Assign every pound a job, divide your income into categories such as housing costs, bills, groceries, savings, debt repayments, and entertainment.
- Adjust as needed, if your expenses are higher than your income, cut back in certain areas. If you have extra, put it towards savings, investments or debt repayment.
Zero-based budgeting works as it gives you control, you know exactly where your money is going. If you leave your money unallocated, it’s easy to spend it without thinking. But with zero-based budgeting, you decide ahead of time where it’s going. If you want a buffer, you can create a category called ‘Emergency fund, or Buffer’ and assign an amount to it. That way it’s still accounted for but available if needed.
Zero-based budgeting prevents overspending, no more wondering where your money disappears to each month.
It helps you save, making saving a priority rather than an afterthought.
It can be adapted to any income level.
An example of zero-based budgeting:
Let’s say you earn £2500 a month, your budget may look like this:
Rent/Mortgage: £800
Bills: £300
Groceries: £250
Transport:£150
Debt repayments: £200
Savings: £400
Fun money: £200
Total – £2500 (zero balance!)
By making a plan for every pound, you stay on track and avoid financial stress.
Zero-based budgeting isn’t about restricting yourself, it’s about making your money work for you. Once you get the hang of it, you’ll feel more confident and in control of your finances.
Ready to try it? Grab a notebook or use my budgeting tool.
