What Is Baseline Budgeting?

Budgeting

June 12, 2025

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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!

What Is Baseline Budgeting?

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

🚫 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.

FeatureBaseline Budgeting (for individuals)Zero-Based Budgeting (for individuals)
Starting pointLast month’s budget/spendingStarts from zero every month
AssumesThat most expenses will stay the sameThat every dollar should be planned fresh
How it worksYou copy last month’s budget and tweak for small changesYou assign every dollar a job, from income to savings to spending
Time requiredQuick — just review and adjustTakes more time — plan everything from scratch
FlexibilityLess flexible if your income or needs change a lotVery flexible — great for changing income or new goals
Good forPeople with stable incomes and expensesPeople 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…”
RiskCan lead to “set and forget” habits and overspendingCan 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

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.

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.

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.

  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.

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.

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.

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)

About the Author

TIFFANY WOODFIELD is a financial coach, cross-border expert, and the co-founder of SWAN Wealth based out of Kelowna, BC. As a TEP and associate portfolio manager, Tiffany has extensive experience working with successful professionals who want to leave a legacy and enjoy an adventurous, work-optional lifestyle. Tiffany combines extensive knowledge from her background as a financial professional with coaching and her passion for personal development to help her clients create a unique path that allows them to live their fullest potential. Tiffany has been a regular contributor to Bloomberg TV and has been interviewed by national and international publications, including the Globe and Mail and Barron’s.