What Is Baseline Budgeting?

Let’s Talk about Baseline Budgeting

Baseline budgeting is a budgeting strategy that uses the previous year’s budget and makes adjustments for the new year.

With baseline budgeting, you don’t start building a budget from scratch. Instead, baseline budgeting assumes that spending will continue at the same level.

Baseline budgeting is mostly used by governments, especially in the U.S., but some businesses and organizations may use a version of it. It’s rarely used by individuals, at least not formally. However, when managing your personal budget you may use a version of baseline budgeting. More on that later!

Written By Tiffany Woodfield, Financial Coach, TEP®, CRPC®, CIM®

Here’s a simple way to understand it:

Imagine you spend $5,000 a month on groceries, rent, and utilities. When making next month’s budget, you don’t start from zero. You just take that $5,000 and adjust it a bit — maybe add $200 if prices went up or take out $30 if you canceled a service. That’s baseline budgeting.

Key points:

Used by: Governments and large organizations to keep budgeting consistent year to year.

Starting point: Last year’s budget.

Adjustments: Only for expected increases (like inflation or legally required increases).

✅ Baseline Budgeting Is Used By:

• Governments (like federal, state, and local): They rely on it to make year-over-year budgeting smoother and to keep services running unless there’s a specific reason to change.
• Some large businesses or nonprofits: They might use a baseline approach for departments that have stable, recurring expenses (like HR or IT).

🚫 Baseline Budgeting Is Not Commonly Used By:

• Individuals: Most people either don’t budget formally or use zero-based or goal-based methods.
• Small businesses: They typically don’t use baseline budgeting because they need more flexibility. Revenues and expenses can vary a lot, so many prefer zero-based budgeting or rolling forecasts that adjust to current conditions.
• Startups: Similar to small businesses — they often need to justify every dollar spent, especially when cash is tight.

Baseline budgeting isn’t formally used by individuals, meaning most people don’t consciously follow it as a method.  But some individuals unknowingly use a “baseline-like” approach — they base this month’s budget on last month’s spending, making only small adjustments.

As an individual you may think of baseline budgeting as “habit-based” or “last-month-as-a-template” budgeting — which mimics baseline principles.

Feature	Baseline Budgeting (for individuals)	Zero-Based Budgeting (for individuals)
Starting point	Last month’s budget/spending	Starts from zero every month
Assumes	That most expenses will stay the same	That every dollar should be planned fresh
How it works	You copy last month’s budget and tweak for small changes	You assign every dollar a job, from income to savings to spending
Time required	Quick — just review and adjust	Takes more time — plan everything from scratch
Flexibility	Less flexible if your income or needs change a lot	Very flexible — great for changing income or new goals
Good for	People with stable incomes and expenses	People with changing goals, income, or who want total control
Example	“Groceries were $500 last month, let’s do $520 this month”	“I have $3000 — $1000 to rent, $500 to groceries, $400 to savings…”
Risk	Can lead to “set and forget” habits and overspending	Can be stressful if you’re busy or dislike detailed planning

Quick Video: Zero-Based Budgeting Basics

Zero-based budgeting can be a smart way to ensure you’re saving, investing, and putting money towards credit card or other debts as well as enjoying your life!

Common Questions about Baseline Budgeting

How can baseline budgeting help with saving money?

Baseline budgeting helps you see where your money usually goes.

By spotting areas that don’t change much, you can identify where to cut back or freeze spending, then shift that money into savings without overhauling your whole budget.

Why is baseline budgeting important for managing expenses?

It gives you a stable starting point. Instead of guessing, you look at what you’ve already been spending.

That helps you plan ahead, avoid surprises, and make smarter choices about what to adjust, especially if your expenses are mostly steady month to month.

Can I use baseline budgeting for personal finances?

Yes, but it’s not common.

Most people don’t use it formally, but if you base your budget on last month’s spending and tweak from there, you’re basically doing it. It works best if your income and expenses are consistent.

What are the steps to create a baseline budget?

1. Look at last month’s spending.
2. List your regular expenses (rent, groceries, bills).
3. Copy those into a new budget.
4. Adjust for any known changes (like a rate hike).
5. Add goals like saving or debt payments on top.

How is baseline budgeting different from other budgeting methods?

Baseline budgeting starts with last month’s budget and tweaks it.

Other methods, like zero-based budgeting, start from scratch every time. Baseline is quicker but less flexible. It’s good for stable finances, while zero-based is better for full control or changing situations.

How can I create a baseline budget?

Start by writing down what you spent last month.

Use that as your starting point. Keep most categories the same unless you know something will change. Then set a goal — like saving or paying off debt — and fit that into the plan.

What is the difference between an estimated and a baseline budget?

An estimated budget predicts what you might spend based on guesses or plans.

A baseline budget uses what you actually spent in the past as a guide. Estimated budgets are forward-looking; baseline budgets are rooted in past behavior.

So, Should You Try Baseline Budgeting?

If your income and expenses are fairly steady, baseline budgeting can be a simple way to stay on track without reinventing the wheel each month. It’s not for everyone, but it can work well if you want a low-effort system that still helps you spot savings and stay in control.

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Read More:

💎 Budgeting 101: How to Create and Follow a Simple Budget

💎 How To Successfully Budget Your Money

💎 How to Stick to a Budget (Even If You’re New to Budgeting)

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