Book an appointment with one of our advisers today to discuss a tailor-made financial plan that’s right for you and your individual circumstances

Everything you need to know about the rise of zero-based budgeting

Category: News

The continuing cost of living crisis – exacerbated by stealth taxes and frozen allowances – means that many UK households are struggling to make ends meet. And families of all incomes are affected.

Having a firm grip on your household budget is key to ensuring that your needs are sufficiently covered for you to enjoy the present while also saving for the future. But with so many budgeting techniques to choose between, how do you know which is the right one for you?

You might consider “zero-based budgeting”. A 50-year-old technique from the US, it’s currently gaining adherents at home thanks to a surge in popularity on social media.

Keep reading for everything you need to know about zero-based budgeting and how it could help you and your family.

Every penny has a purpose with zero-based budgeting but you’ll need to be meticulous

Originally coined by an American accountant in the 1970s, zero-based budgeting is so-called because it’s based on the principle that your income minus your expenditure should equal zero.

Rather than looking at your expenditure from the previous month, it suggests you take the time to log (and analyse) every spend. If an expense can be cut, do so.

The technique has become so popular on social media that you can now buy spreadsheets, zero-based budget planners, and apps that can help you adopt the strategy. Its mantra is “every penny has a purpose”, but how does that work in practice?

Here are five simple steps to help you try the technique out for yourself.

Step 1 – Calculate your monthly income

First, you’ll need to work out your household’s net monthly income. This might include combined salaries, dividend payments, and rent from buy-to-let properties.

Say this amounts to £5,000. That means that your expenses for the next month – including wants, needs, and future savings – should equal £5,000.

In this way, you allocate a purpose to every penny you spend and finish the month at zero.

Step 2 – List your anticipated expenses

Some expenses, like mortgage payments or private school fees, can be logged accurately. Others might fluctuate and will need to be considered more carefully.

Breaking your expenses down into categories can help.


Your mortgage, energy bills, weekly grocery shop, and child’s school fees are “needs” so be sure to list these first.


New clothes, meals out, and cultural activities like the theatre, will probably fit into the “wants” section, but be sure to list items in whatever way feels right for you.

Your gym membership, for example, might provide physical exercise, emotional support, and social interactions that make it a need rather than a luxury.

The important thing is that all outgoings are acknowledged and budgeted for.


As with any budgeting technique, paying your future self is vital.

Make a note of your current pension contributions and consider upping your payments if you can afford to. Check in with your insurance providers too, to confirm how much you’re paying and that you have the financial protection you and your family need.

Don’t neglect your emergency fund either. The last few years of high inflation might’ve diminished its real-terms value so make sure it remains fit for purpose.

Step 3 – Minus your expenses from your income

Once you have a list of your outgoings, subtract these from your income and try to reach zero.

This means all your funds are allocated and every penny has a purpose. If your calculations result in a minus figure, you’ll need to revisit your “wants” category to see what can be cut.

Step 4 – Track your expenses throughout the month

As the month progresses, check in with your list regularly to see if your list of anticipated expenses is accurate. You can use a pen and paper, a spreadsheet, or apps like YNAB (You Need a Budget) and HyperJar.

If you find you’re nearing zero too early in the month, make sure you cut back on meals out or other luxuries, rather than sacrificing pension contributions or savings.

Step 5 – Focus on the long-term to keep your budgeting on track

Budgeting isn’t a one-time process. It needs to be ongoing. If you reach zero in your budget planning stage and in the real-world month that follows, that’s great, but you need to keep that up.

Working hard to stay on track and remember that a long-term focus is key to living your desired lifestyle after work, and providing your children with the legacy you hope for.

If you can afford to tweak your budget to increase savings and investment, consider doing so. And, if you have any questions, speak to the experts.

Get in touch

If you have any questions about your present budget or your long-term retirement plans, speak to us now. Get in touch by emailing or calling 03452 100 100.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

    Privacy Policy