The ‘zero option’: budgeting to manage monthly costs and boost your savings

Do you have a pay-day routine? Maybe you treat yourself to a takeaway, buy those shoes you’ve been stalking online or pay off a bit of your credit card debt. Personal finance influencer Beth Fuller takes a different approach. Every month, thousands of people log on to watch the 27-year-old’s “pay-day routine” where she uses a “zero-based budgeting” approach to plot how she will spend her salary.
For many people, punch drunk from a cost-of-living crisis and housing costs, it is a case of crossing their fingers each pay-day and hoping there is more money left at the end of the month than there is month left at the end of the money.
Fuller’s pay-day routine leaves little to chance. Her videos share how much she gets paid and how exactly she is going to spend it. From her mortgage repayment to childcare costs and savings, right down to family birthdays, with zero-based budgeting “every penny has a purpose”.
Fuller credits this approach with enabling her to pay down £8,000 in credit card debt and make repayments on her £300,000 home while also saving. So, could zero-based budgeting help you smooth your spending and boost your savings?
Zero-based budgeting means running your current account as if you’re running a business: you account for every penny that comes in and goes out.
The day your salary drops into your bank account, it’s time to put on your chief financial officer pants, channel your inner minister for finance and get forensic with your money. It means taking account of everything that’s coming in and assigning every penny to an expenditure category.
That includes deciding in advance how much you will spend on things like energy, transport, food, clothes, entertainment and, hopefully, some savings for the future you too.
Done right, zero-based budgeting should mean that all of your income minus all of your predicted spending for that month, including an emergency pot and savings, should add up to zero.
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The concept isn’t new: zero-based budgeting is an accounting technique that’s been around since the 1970s. Much has changed since the decade of disco, however. Paying bills manually has been replaced by automated direct debits, and cash transactions by tapping.
How much does that item cost, how much has it gone up, how much have I spent on lunches this month – who knows? With technology now handling money for us, it’s no wonder we’re losing touch. Preparing a budget can restore a sense of connection between our income and expenditure.
Also, instead of blindly basing your budget for the month ahead on the previous month, or just spending until there is nothing left, zero-based budgeting also means analysing the month ahead and assigning money accordingly.
You can decide whether a category still justifies allocating some of your funds to it, or whether something else may need extra this month. For example, you may be going on holiday next month, or you may need to get your car through the NCT.
By allocating money afresh each month, you can better ensure you’re not caught short. The method can also result in avoiding anything “left over” to be spent mindlessly.
Pay-day is the big day in the zero-based budgeter’s month. Use a blank page, Excel or Google Sheets to list your income – the pay cheque, any self-employed income less tax and any social welfare benefits like children’s allowance, for example.
Then list your outgoings. You probably know how much your rent or mortgage, car repayment, various insurance policies, childcare, phone and broadband cost every month. These expenses are fixed and predictable and they must get paid.
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Some banking apps can give you a helpful history. For example, Bank of Ireland’s Banking 365 app gives a pie chart breakdown of your spending by category each month over the past six months.
Then you have essentials like groceries, energy and bin charges which can vary by month. If you have friends coming to stay, for example, you may need to allocate a bigger predicted amount here.
At that point, you move to predicted discretionary spending such as dining out, entertainment, coffees, birthday gifts and beauty, for example – the non-essentials you usually spend on. Remember, streaming services and gym memberships are discretionary too: does the business case to keep paying them still stack up?
But will you stick to your budget? Unless you are going to manually keep track of your spending, and some do, you could use an app.
Online bank Bunq has a good budgeting feature. Customers of its Easy Bank Pro plan, which costs €9.99 a month, can compartmentalise their money into different “accounts” by expense type. Each has its own dedicated digicard on which you can set a spending limit for that expense type.
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British digital bank Monzo also has a good solution – and we may not have long to wait to get access to it. The fintech has announced that it will open an Irish office this year to enter the EU market. Monzo’s popular “Pots” feature is a place in your account where you can keep money separate from your main balance. You can pay directly from your pots, helping to keep track of whether you are sticking to your budget in that category.
For example, you could have a pot called “Eating out”. Anytime you eat at a merchant in this category, like your favourite restaurant, you’ll pay with the money in this eating out pot.
You could also allocate some money to individual “Savings” pots to smooth out future expenses. That could mean €20 a month to a car or home maintenance pot, a Christmas pot or one for a holiday. You can dip into these pots when needed so that one-off costs, when they arise, don’t blow your budget.
After deciding on your allocations, designate the remaining funds to longer-term savings and investments, like a pension AVC for example.
When you take the expenditure from the income, it should all add up to zero. Tweak your expenditure and add to your savings until it does.
If you are coming up short at the end of every month, or putting more on your credit card, zero-based budgeting can shine a light on where your money is going.
And being organised with money can give you back a sense of control and relieve anxiety, says US finance expert and proponent of zero-based budgeting, Dave Ramsey.
“By not having really good organisation with your money, without everything laid out in a budget, the chaos is eating your dollars for breakfast,” says Ramsey.
Budgeting like this can even help you “find” money, he says. “A detailed, written budget will make you feel like you got a raise.”
Gone are the days of careering through the month, denying yourself a cappuccino one minute and having a blowout night out the next, hoping that it all just balances out.
Zero-based budgeting is a “highly intentional approach” that can feel empowering for some people, says money coach Kel Galavan of @mrssmartmoneyhq. Being more intentional about the month ahead instead of tapping your way through it makes for less guesswork.
The practice takes time and it won’t be sustainable for everyone. “The key is to find a budgeting system that works for your lifestyle and financial goals – but more importantly, one that makes sense to you that you can stick with,” says Galavan.
The more flexible 50/30/20 approach, where you allocate 50 per cent to needs, 30 per cent wants and 20 per cent to savings or investments might offer more of a balance between structure and ease of use, says Galavan.
Good budgeting is about more than just getting through the month, however, says Galavan. There needs to be a bigger plan too.
“Allocating funds towards the ‘future you’, whether it’s building an emergency fund, contributing to a pension or investing in stocks, can help you grow wealth over time,” says Galavan. “It’s important to see budgeting as a tool not just for managing day-to-day expenses, but for creating future financial freedom.”
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An advantage of zero-based budgeting is questioning everything, every month, says Ralph Benson, head of financial advice at Moneycube.ie.
“‘If I started again, would I need that cost?’ That’s what’s good about zero-based budgeting: you take cost out rather than just manage cost. I think that’s a really healthy exercise because costs should fall out of our financial lives over time,” says Benson.
The approach means you don’t get inured to discretionary spending.
“If you were roughly spending all you had every month and you just normalised that, it’s not really where you want to be with your finances. You want to see progress over the years. And I think that’s why it is quite an effective way of managing your money,” says Benson.
As well as noodling on a spreadsheet, the budget-conscious should allocate time to the things that are going to give them the biggest bang for their buck, says Benson. That could mean haggling the next time your health or car insurance is up for renewal. Switching mortgage, putting your savings into a higher interest account and paying pension contributions will also save you money.
“Focus on the big annual costs, and also on the things that have become a habit, like the Disney+ subscription. Things have to go; otherwise you are always building permanent things into your financial life,” says Benson.
“People worry, ‘Oh I splurged on a big lunch,’ but in general that’s not really what wrecks people’s finances. It’s more the big-ticket annual stuff and then the regular bad habits. Or the €3,000 sitting on your credit card with 30 per cent interest.”
Zero-based budgeting came naturally when we paid for things in cash, says Benson. “We took out €100 and that was our money for the week, we had a feel for it. The problem now is, because you are tapping, you are not ‘starting’ with €100 and noticing how much it is depleting during the week.
“A lot of these digital applications are now trying to reverse engineer some of the positive characteristics of paper money in how they are used.”
Healthy finances are about cultivating good habits, and being vigilant about cost increases, he says.
“Everyone on the other side of the table wants you to have bad habits, which is basically direct debits that are very convenient. Another month goes by with the direct debit, that’s the dream for them,” says Benson. “They just keep boiling the frog with little annual increases.”