Zero based budgeting is something that is often used by companies and businesses when managing their accounts, but it can work just as well for your personal finances.
The idea with zero based budgeting is that you start each month with nothing in your bank and you end it in the same way. This doesn’t mean that you’ve got no income, but rather that you’ve balanced your income and outgoings perfectly. In practice this means when you get paid, you allocate every single penny you earn to a specific purpose so that by the end of the month, you’ll be back to zero.
It might sound a little complicated, and while it takes a little more thought than the 50-20-30 budget, it’s actually pretty straightforward.
To start a zero based budget, you’ll need to take your monthly income and divide it between a range of set expenses. These expenses are whatever you spend your money on, which will usually include things like housing costs, bills, savings, food and eating out. It’s entirely up to you how you allocate your money, and you can go as broad or as granular as you like with the detail, but the goal is the same, at the end of each month, you want your main bank account to have £0 in it so you can start afresh.
To give an example, if you earn £2,000 a month, you might decide to allocate it in the following way:
Mortgage / Rent
Car / travel costs
This style of budgeting can be really useful for understanding how you actually use your money, and you can adapt it to suit your own lifestyle. For example, if you set a budget and realise at the end of the month that one of your pots still has a lot left in it, then you can think about putting less into that pot next month and more into another.
Some banks and apps will allow you to set this all up digitally, with providers such as Monzo allowing you to detail how much you’d like to spend in each category, which you can then track throughout the month.