Is zero-based budgeting a good way to save money in a cost of living crisis?

First Person: We may have just crawled out of a recession, but economically, times are still tough.

Money flies out of your account sooner than it lands each fortnight and sometimes it's hard to keep track of it all. I'm not standing on the edge of a financial cliff, but it's still a bleak sight to bear.

It's probably why I fell down a recent TikTok hole when I came across a video about zero-based budgeting by a user named Beth Fuller.

Each month, the 27-year-old content creator writes down in granular detail what she owes in bills, what she intends to spend, and what she can save. It's allowed her to clear thousands in credit card debt and find a place of financial stability.

Fuller's videos capture an audience of about 20,000 people each month, as she figures out how to spend her salary.

The idea is simple in principle: your income over a certain period, minus your expenses, should equal zero.

The method was created by accountant Peter Pyhrr in the 1970s as a business accountancy technique, where instead of basing your budget on previous years, you analyse each expense to see whether it still justifies allocating some of your funds to it.

More recently, it's grown into somewhat of a social media phenomenon for household budgeting, thanks to content creators like Fuller and US money guru Dave Ramsey.

Let me preface this by saying spreadsheets and numbers are not my forte (I'm a journalist for a reason), but this method seemed manageable even to me.

Generally, I avoid looking at my bank account balance and I tap Eftpos machines without a second thought. Whether the transaction is approved or declined is in God's hands.

But over the past two weeks I've done the unthinkable - I've assessed my finances to see what's working and what's not and given zero-based budgeting a go.

Every dollar counts

The crucial thing to know about zero-based budgeting is that every dollar counts - and you have to know where each one is going to go.

Say you make $2000 a fortnight - everything you give, spend, save, and invest in that period needs to amount to $2000.

I sat down and listed my income and my expected expenses, all broken down into categories from mortgage to car expenses, insurance, supermarket shops, streaming subscriptions, donations, and food - whatever felt important and frequent.

I live with three others, so many expenses like food and mortgage payments are shared.

I wrote down a vague plan for how the $2000 might be split up otherwise: $175 for utilities, $85 for insurance, $75 for restaurants, $70 for petrol and transport, and so on and so forth.

It was looking pretty decent; I would probably need to cut back on food and petrol costs, but the rest was standard.

The next step was to make a provisional fund for unexpected expenses; a pot to dip into specifically for a rainy day. This ended up being my most ambitious goal - $400 of savings, accounted for as an expense within the zero-based budget method.

I was proud to put some kind of plan together. It's something my parents are excellent at; my mum even keeps a daily tally of household expenses in a diary and my dad is notorious for stuffing loose cash into different pant pockets to be surprised by later (it's a legitimate saving tactic).

The trial period

The fortnight started out well; I was cooking more at home and catching up with friends over cheap and cheerful activities ($16 for tenpin bowling and three hours free parking at Westfield Newmarket felt like a win).

I'd accounted for a June birthday in my family that would take me out a couple of hundred dollars. Sure, it was out of my pot of 'savings' but that's what it was there for - those infrequent expenses.

Then, a surprise expense not even my measly savings could afford - car troubles.

One thing about me, I'm perpetually cursed with cars. It's kind of a running joke with my friends. Parking fines I could manage, but a failed warrant of fitness and a $450 bill for a broken taillight lens I could not.

I was shaking my fists at the sky. I'd gone grossly over budget. With birthdays and outings and unexpected car failure, I'd spent well over my allocated $400, and I couldn't take back what I'd already overspent elsewhere.

My budget had gone into negative; I'd officially spent more than I'd made. Zero-based budgeting was not for me.

Expert advice

I spoke to Hannah McQueen, financial force of nature and founder of enable.me, to understand why this was. When I explained my spending habits, McQueen wasn't surprised.

Turns out I'm just not a saver, I'm a spender.

"Maybe it works for people who are naturally good at managing their money, but I think for people who aren't pre-disposed that way, maybe they're more of a spender or they've got kind of unusual money beliefs because of their upbringing, I don't think zero-based budgeting is effective at changing those behaviours."

It's true - my parents and I have grown up in completely different socio-economic environments. Where they've felt strapped for cash at times, I'm fortunate that money isn't a constant stressor in my life.

McQueen says this is why zero-based budgeting might work better for people who are already conscious about money or living paycheque-to-paycheque.

"I think it's pre-disposed to people who don't tend to spend money anyway. People are often better at budgeting the less money they earn, because the money has to go further. As you earn money, you become more relaxed with how you spend it, which is why it doesn't translate to progress."

McQueen says zero-based budgeting can also be a hard thing to wrap your brain around if you're used to traditional budgets - for one thing, you're left with a figure of zero at the end of it all.

"You don't get much satisfaction from it because it's zero. At least with a traditional budget, you're measuring your savings build, whereas here the whole objective is to get zero. That feels so depressing before you've even started.

"But it's understanding who you are and who you're not; if you're a shopper, you need a different way to manage your money than if you're a saver. A saver could do the zero-based budget and they'd be good at it. The shopper - it's like death by a thousand cuts for them, it's painful."

McQueen says the method is good in principle, because your savings are budgeted for as an expense. However, the reality of it is that it's all going to "slip through the cracks".

"There's a target, 20 percent of your income you want to be able to save, and in theory it's supposed to force you to save. But the reality is nobody has money left over just from living. It feels fraught from the start. Most people can't do that, they just sort of fritter it."

Is there a way to do a zero-based budget and stick to it? Maybe, but you need an important enough goal that you actually want to stick to, McQueen says.

"You need a reason to care; most people don't have a goal that's exciting enough to stick to a budget for two weeks. It's like me saying I'm gonna go on a detox for two weeks. For a lot of people there isn't enough upside, so why would you care?"