What is the Zero-Sum Budget?

Following a budget is essential to getting your financial life in order. It’s really the blueprint for all of your spending and saving during the month and year.  But there isn’t just one type of budget. We’ve told you about the envelope system of budgeting, and the 50-30-20 budget.

One more budget to know about is the zero-sum budget, also called the zero-based budget, because the goal is to get to $0 every month. It may sound scary, but it’s really not.

With the zero-sum budget, you’ll assign a destination for your entire monthly income, whether that’s paying back your debt, paying for your groceries, or even just buying something you want, such as a new shirt or dress. The zero-sum budget gives every dollar you take home a specific function and leaves you with no unused cash at the end of the month.

No leftover money means that every dollar is being spent or saved with a specific purpose. It doesn’t mean that you’ll be spending recklessly.

Tactics and Considerations

• Your entire month’s income, also known as your net income is your starting point. It’s how much take-home pay you have each month. Have a specific dollar amount in mind.
• Then take a look at all of your spending and saving over the last couple of months. It will require you to look at all of your fixed expenses and variable expenses, including cable and phone bills, rent or mortgage payments, student loans, groceries, and dining out.
• Determine your financial priorities. If debt payback and savings are high on your list, make extra room for these in your zero-sum budget.
• This budget can include your wants as well as your needs. If you’re spending less than your budget one month, see how you can shift your budget to make room for that extra cash, perhaps by assigning it to savings, an emergency fund, or even a retirement fund.
• If you go over your budget for one or more months, you may need to adjust the various buckets of your budget so you’re not spending more than you earn.
• Consideration: This budget might not be for someone looking for more budgeting flexibility since it requires putting every dollar to work.

Here’s an example of what a zero-sum budget might look like. Let’s assume your monthly net income is $2,500, and you have the following expenses. You can structure your budget this way so that there is no money left over at the end of the month:

This method allows for expenses such as rent and food while also designating a portion to savings and debt.

Now let’s say you want to go on vacation later in the year, and you need $1,200 for some days away.

You can adjust your categories to add a vacation fund, for example reducing your dining out category by $100 a month, and assigning that extra money to a travel fund. The result is the same: you wind up with $0 leftover at the end of the month.

You can design this budget to fit your specific income, needs, and wants. Once you’ve used the zero-sum budget for a month, feel free to alter the categories to suit your goals.

Remember, whether it’s the zero-sum budget, the envelope method, or some other budget, the objective is to take control of your financial life with a blueprint for smarter saving and spending.