The Zero Sum Budget – What Is It & Why I Use It



There are tons of different budgeting methods out there. Finding the right one for you and your financial situation can take some time, but doing so is definitely worth the effort.

I’ve decided to start using the zero sum budget.

It’s the budget that the financial software program You Need A Budget is based on. If you think it would be easier for you to use the software, check out their site. Remember, there is a fee for the program, but if it’s going to help you stick to your budget, it may be worth it. It’s free for the first 34 days and then only $50/year after that.

If you’d rather go it alone and use this type of budget for free, keep reading to find out how.

What Is The Zero Sum Budget

The zero sum budget is accomplished by saving one months’ worth of expenses in your checking account, and then using that money to cover all your expenses the next month.

After that, the total amount of money that you make in each month equals the total amount of money that you get to spend in the next month.

At the beginning of each month, you create your budget based on the amount of money you made in the previous month. Each dollar is given a job, whether it be for bills, savings, financial goals, etc.

Why It’s Useful

Basing your current months’ spending on your last months’ income means that you know exactly how much money you have to spend each month.

It breaks the cycle of living paycheck to paycheck, because you’re now spending money that you’ve already earned in the previous month. There’s no more waiting for payday. Each paycheck you earn is saved for the next month.

And if your paychecks usually fluctuate, it makes it much easier to create a monthly budget. Instead of guessing what you’ll make that month and using that inaccurate total to create your budget, you get to use a precise number because you already know exactly how much you made in the previous month.

It prevents you from going into debt because it’s impossible to overspend as long as you stick to it. Just don’t spend any more money than you made in the previous month and you’re set.

It also makes it easier to work towards your financial goals. When you create your budget at the beginning of the month, you’ll know exactly how much you need to set aside for all your bills and expenses, and exactly how much you have left over to put towards your goals. This means that you can squirrel away that money at the very beginning of the month and keep it safe and untouched. There’s no more ‘planning’ to work on your financial goals ‘if there’s any money left over at the end of the month’. You can pay yourself first every time.

It also acts as a 1-month emergency fund in case an unexpected expense comes up, such as a vehicle breaking down or a job loss. Of course, if you use it for an emergency you’ll have to start over and build up your months’ worth of savings again, but at least you won’t have to go into debt for that month. Just that peace of mind is worth so much.

How To Start

The first step is saving enough money in your account to cover all your expenses for an entire month.

This will require you to do a financial audit of sorts for yourself so that you know how much you’ll need to save.

First, add up all of your fixed monthly bills and expenses.

Then calculate your average monthly spending on variable expenses such as groceries and gas.

Include your discretionary spending as well, such as eating out, going out with friends, etc. But remember, the more money you budget for unnecessary spending, the more you will have to save up before you begin using the zero sum budget.

Finally, don’t forget to include any random expenses that may be coming up soon, such as prescriptions, vehicle servicing, etc. If you know how often these variable expenses come up, it’s always a good idea to put away a percentage of their cost in each month leading up to the month the expense occurs. This prevents you from having to pay for large expenses all at once which could break your budget.

This is a great time to do a financial ‘spring cleaning’ to lower your monthly expense total as much as you can, making it easier and faster for you to save up that first month’s worth of money. Check out my post Lower Expenses = Free Money for some help doing this.

Then, once you have enough money saved up to cover an entire months’ worth of bills, expenses and spending, you use that money for the next month.

At the beginning of each month, add up the total amount that you earned in the previous month. Then use that total to create a budget for the current month.

Remember to go over all your anticipated expenses each month while you’re creating your budget, so that you don’t forget to include anything.

Make sure every single dollar is budgeted for, whether it be for bills, expenses, discretionary spending, or savings, and don’t spend a single dollar more than you earned the previous month.

What To Do If You Overspend

Of course, even if you do your best to budget for every anticipated expense, things come up unexpectedly all the time. It’s just a part of life.

As I mentioned above, your months’ worth of savings can act as an impromptu 1-month emergency fund in case you fall on desperate times. However, depleting your months’ savings will mean that you need to start over and build your savings back up before you can start using the zero sum budget again.

That’s why you should work on creating an emergency fund as soon as you start using your zero sum budget. Allot a certain amount every month towards it when you create your budget. An emergency fund should cover at least 3 months’ worth of expenses, but you can start with saving $1000 and go from there.

In the event that you cheat on your budget and spend more than you made in the previous month, you’ll need to balance it out by spending less the next month. Cut the same amount out of your discretionary spending budget, or wherever else you can find the wiggle room.

If you find that you continually go over your budget every month, you have several options.

First, go over your expenses again and see if you can lower them any more.

Second, get a handle on your discretionary spending. Because you’re budgeting for each dollar every month, it should be pretty obvious which category you’re overspending in.

Third, earn more money. If you can’t lower your expenses any more and your discretionary spending is already at a minimum, you need to find a way to increase the amount of money you have to work with. Apply for a promotion, start a side hustle, or find a better job.

That’s It!

The zero sum budget is the perfect solution for those of us who want to prevent going back into debt, want to stop the cycle of wondering where their money is going all the time, and want to get serious about working towards their financial goals.

It can take some time to save up that first months’ worth of expenses, especially if you don’t make a ton of profit each month to put towards it after all your expenses are covered. But once you’ve done that, budgeting your money and organizing your finances will be easier than ever before.

And remember, never get discouraged because organizing your finances is taking a long time. Most of us don’t have a ton of money at our disposal and it can take time to find a system that works for you, especially if you’re in debt and constantly playing catch-up. You can do this, and it will be oh so worth it when you do!

Please leave a comment below about what type of budgeting system you use and what you like about it!

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