The term ‘zero-based budget’ might sound quite intimidating, but it’s really not. Simply put, a zero-based budget means that every penny of your income is accounted for and given a job to do.
It’s been a popular way for businesses to manage their finances for a long time. On a larger scale, lots of lost pennies might add up to thousands or even millions of pounds’ worth of lost revenue. However, many people find it helpful in managing their personal finances, too.
A zero-based budget might be good for you if you constantly wonder where your money is going. Even if you find yourself consistently living just a little bit beyond your means, it’s something to consider.
The advantages of a zero-based budget
Many people swear by a zero-based budget as the key to financial control, and it’s easy to see why. The visibility of every tiny bit of your income is great for your peace of mind. Plus, it’s easy to keep track of because your end balance should always be zero.
It’s also easy to see where you might hit stumbling blocks well in advance, so you can try to avoid them. If your end balance is negative when you’re planning your budget, you know that you need to either increase your income or reduce your outgoings in order to balance the books.
How to set up your zero-based budget
Once you get the hang of it, this is a super simple way to run your personal or household finances.
Just follow these steps:
- List all of your income streams to get a total monthly income for yourself or your household
- Identify all of your monthly outgoings, including debt repayments and savings contributions. It can be helpful to list them from largest amount to smallest so that it’s easier to make cuts if you need to.
- Compare your money in vs money out. If you have a surplus, give that money a job to do. You might want to allocate it to debt, so that you pay off your balance more quickly, add it to your savings or invest it.
- Keep going, and stick with it!
Need a little help setting up your budget? Try our free budget planner.
A few extra tips
There are a few things that you can do to make your zero-based budgeting journey a little easier:
- Start at the beginning of a new month, rather than halfway through.
- Get to grips with which of your monthly expenses are essential, and which are ‘luxury’.
- Make sure you allocate some of your income for things you enjoy where possible – it’ll make your budget much easier to stick to long-term.
- A zero-based budget isn’t just great practice for businesses – it can help you with your personal finances, too.
- It’s all about accounting for every penny that comes in and out of your account.
- A zero-based budget is simple to use and gives you maximum visibility and control of your finances.