The Ultimate Zero-Sum Budget Resource Guide

Person creating a zero-sum budget

Sticking to a budget can be tough, but creating one doesn’t have to be.

When you give every dollar a job, you keep money from slipping through the cracks. You know exactly where every dollar is going, which helps you stay in control of your finances.

A zero-sum budget ensures that your income equals your expenses. This doesn’t mean you have to spend every penny of your paychecks! It means every dollar that comes in is put towards a category in your budget, including savings.

I have been using a zero-sum budget for several months, and it has really helped me stick closer to our spending plan better than ever before. It’s also helped us know where we overspend, and how we need to adjust our budget for the following month.

Being intentional

When I finally got tired of living paycheck to paycheck (after about *25* years), I decided to get more intentional about where our money was going. Like, down to the penny intentional.

I created a spreadsheet and recorded how every cent was spent. I used detailed categories so I could see exactly how much we were spending on what. And I combed through every bill and expense to see where the leaks were.

By doing this, I was able to cut over $1,000 from our monthly expenses!

But then I also had to be intentional about *where* that extra money would go. This is when I decided to try the zero-sum budget. I liked the idea of giving every dollar a specific “assignment”, because I knew this would maximize our income and help us reach our financial goals faster.

What is a zero-sum budget?

zerosum budget is a financial strategy that assigns every dollar of income to a specific category.  This approach requires you to treat even optional spending – like savings and charitable giving – as a bill to be paid.  The desired result is to “give every dollar a job” and have income equal expenses.  This would leave you with a balance of $0 at the end of the budgeting period.

The goal of the zero-sum budget is to make income minus expenses equal zero. Every dollar is given an assignment, so you know exactly where your money is going.

So, when you add up all of your income and then subtract all of your expenses, you *should* have $0.00 left.

It sounds a lot like living paycheck to paycheck, doesn’t it? But it’s not!

Because, in your expenses, you include categories like savings, charitable giving, retirement fund, emergency fund, etc.  When you treat savings like it’s also a bill, you will always make sure that you’re paying yourself.  So, a zero-sum budget doesn’t leave you with zero dollars, it helps you be intentional about putting more dollars in savings!

How a zero-sum budget works

If you’re wondering how this budgeting method works, here’s a breakdown for you:

  • Budget categories are created for your income streams, fixed expenses, variable expenses, charitable giving, and savings funds. This means your savings and giving are treated as if they were regular bills.
  • Maximum spending amounts are assigned to each category. All of these amounts, added up together, should equal your income for that budget period. So, when you subtract all of your expenses from your income, you should have zero dollars left over.
  • Adjustments are made along the way to ensure you’ll have a zero balance at the end of each budgeting period.  If you spend too much in one category, you would decrease the budget in another.  If you have money left over at the end of the month, you would assign those funds to a category, like savings.  This way, your budget will be balanced and you’ll still end up with zero dollars.
  • Zero is the goal.  If you end the month with a zero balance, you did it right!  Then, start over the next month. Make any adjustments for irregular expenses (car registration, doctor bill, etc) so you’ll end up at zero again.

And that’s it, really.

If you have a fixed income, you can simply budget with your regular paychecks. If you have a variable income, budgeting with your previous month’s income is best.  More on that later!

Benefits of a zero-sum budget

There are a few different popular budgeting methods you could use, so why choose the zero-sum budget?

With the 50/20/30 budget, you would allocate 50% of your income to necessary expenses, 30% to discretionary spending, and 20% to savings and debt payments. This creates a savings cap and allows for extra unnecessary spending.

With the zero-sum budget, you are less focused on the percentage you’re spending on overall categories and more intentional about where each dollar is going. When monthly expenses vary, you would adjust the amount you put in savings. This can motivate you to look for every opportunity to lower your expenses and save more!

Envelope budgeting is very similar to the zero-sum budget, except your categories are actual envelopes that you put cash into. So, every dollar is put into its appropriate envelope and you pay cash for everything.

When you use the zero-sum budget, you spend all of your income on paper first. Then, you track your spending throughout the month with any system you prefer (spreadsheet, mobile app, digital document, etc.).  You have to be just as meticulous, but you don’t have to carry cash around all the time.

Then there’s the Pay Yourself First budget method. Basically, you put aside savings first, then use what’s left over to pay your bills and other expenses. This method ensures you make savings the priority, but leaves a lot of room for unnecessary spending.

As long as you have money left over after you pay all of your necessary expenses, the zero-sum budget also allows you to make savings a priority. However, you are more intentional about where your money is going.

Here are a few more reasons why a zero-sum budget could work for you:

  • You struggle with keeping track of your spending
  • You want more control over where your money is going
  • You want to make savings and/or giving a priority
  • You need a flexible budget for fluctuating expenses

Creating a zero-sum budget is pretty simple, but there are a few things you need to know before you sit down and write one out.

What you need to know before you start a zero-sum budget

Before you create your zero-sum budget, you’ll need to make sure it’s one that works for you.  Take a close look at these things so you can make a budget that’s realistic:

  • Your income:  Know how much money you are bringing in every month.  If it varies, you can take your annual income and divide by 12 to get an average.  Another way to budget with a variable income is to use the previous month’s income for the current month’s expenses.
  • Your expenses:  Gather up bank statements, utility bills, debt records, and receipts so you have a good picture of how much of your income is going where.
  • Your categories:  Write down a list of all of your expense categories.  Then include your savings, charitable giving, any discretionary spending categories that are important to you, and also any goals that you have (vacation fund, home improvement fund, etc.).  Basically every single place you want to put your money, write it down.
  • Your priorities:  Decide what your financial priorities are right now. If you want to focus on paying off debt, allocate more of your income to those bills. If saving for retirement is high on the list, allow more money for your retirement funds.

Some people like to limit expenditures to a certain percentage of their income.  Other people spend more on what they value, and cut spending in other categories.  It’s up to you, as long as your income minus your spending ends up at zero.

It’s important to remember that the zero-sum budget only works if you are consistently tracking your spending. If you decide you want to try this budget method, make sure you have a system you can commit to.

Track your spending

It’s not enough to know how you want to spend your money. You’ll need to track your spending closely to make sure you’re sticking to your plan.

If you’re not used to being on a budget, I suggest tracking your spending every day. If not every day, then at least every other day. After a few months, you’ll find your own rhythm. But as you learn to stick to a budget you’ll want to watch it closely, and often.

I use a spreadsheet in Google Sheets to create my monthly budget. I record all of my financial transactions in ClearCheckbook, a free online money management system that lets me run reports and keep a checkbook register. You can actually keep a budget in ClearCheckbook, but I like using my own spreadsheet.

As you track through the month, you will probably go over in some categories. If so, just adjust other categories to keep your end of month balance at zero. Like I said earlier, it will take a few months to smooth out the rough spots. The important thing is to stick with it!

If you go over budget, don’t look at it as a failure! Think of it as a learning process, and you’re figuring out what works and what doesn’t. Then, the next month, make adjustments and try again. Remember – it’s your budget. Make it work for your lifestyle and priorities.

How can the zero-sum budget increase your aavings?

If you don’t currently know where your money is going on a dollar level, you are most likely wasting some of it.

Tracking your spending will help you find what I like to call “budget leaks”. Here are a few that most people will find once they start paying attention to where every dollar is going:

  • Food: This includes dining out at restaurants and grocery shopping. If you ignore how much you spend on both every month, you’ll probably be surprised at how much it adds up to! This budget category will typically save you money once you give yourself a maximum spending limit (and stick to it!).
  • Utilities: Once you start being intentional about your spending, you might realize you’ve been wasting money on your utility bills. You can cut costs and save money by investing in energy-efficient light bulbs, reducing or eliminating your cable service, finding a better deal on cell phone plans, and using a programmable thermostat.
  • Entertainment: Taking the family to the movies on a Friday night can potentially set you back over $100 (especially if you get popcorn). Decide what you value, and align your spending habits with them. If the most important thing to you is spending time together, consider playing a game at home or going for a hike.
  • Clothing: Go through your closet and decide if you *really* need a new outfit. Many times you can make your own new outfit with clothes you already have. If you really want something new to you, try a thrift shop or consignment store.

Once you find those areas where you can reduce costs, add those extra funds to the budget categories that are a high priority to you.

How to create a zero-sum budget in 6 steps

Now that you’ve got a good grasp of your income, expenses, and categories, you can start plugging in the numbers.

You can use paper and pencil, a spreadsheet on your computer, or even an app like EveryDollar by Dave Ramsey.

  1. Write down your income.  This includes income from your job, child support, investments, side hustles, tax returns, yard sales, and any other cash you receive. Add it all up and write the total at the top.
  2. Write down all of your categories.  This may take a bit more time, but don’t overthink it.  You’ll probably change these over the first couple of months, as you figure out what categories are necessary and which ones you value the most.  You can do a quick Google search to get some ideas.
  3. Fill in your budgeted amount for each category.  Remember to look at past spending so your numbers reflect a realistic budget!  Also, as you write in each amount, subtract it from your income.  This will help you know you’re on track to reaching zero as you go along.  If you’re running out of income and you still have 5 categories left, you’ll need to go back and make some adjustments.
  4. Subtract total expenses from total income.  If you’ve given every dollar from your income a job, you should get zero!  If you get a negative number, then you’ve overbudgeted in some categories.  If you end up with a positive number, you’ll need to add those dollars somewhere in your budget.  Remember, you need to account for every dollar, even if that means you put more into savings or towards your debt.  You can even apply it to a “next month’s budget” category.
  5. Start tracking. Once you pay all of your necessary expenses, what’s left will go toward groceries, gas, and other discretionary costs. In order to make sure you don’t go over budget, you’ll need to have several check-ins throughout the month. In the beginning, this might be a daily task. But, over time, you’ll get a better sense of where you’re at in the budget and you can track less frequently.
  6.  Adjust as you go. Don’t expect perfection in the beginning. If you’re not used to following a budget, you’ll likely experience some failures in the first few months. That’s okay! The important thing is to *keep going*. Those mistakes will tell you what adjustments you need to make to your budget, so you can do better next time.

And that’s it!  Pretty simple, right?

The next part is a little harder.  You’ve created a plan, now you’ve got to work the plan.

Using the zero-sum budget in real life

Let’s see an example of what the zero-sum budget would look like in action:

Kristy is a single mother of 2 and receives a monthly net income of $4,000. She has $2,000 in credit card debt, a car payment, and lives in a rental home. She struggles with having anything left for savings and can never seem to give as much to charity as she’d like.

Before using the zero-sum method, her spending looked like this:

Whoops!  Looks like Kristy ended up spending more than she made that month.  To make sure this doesn’t happen again, she started tracking her expenses to get a clear picture of where her money was going.  She was willing to make some adjustments and be more intentional with her money. After thinking about her financial goals, she decided her priorities were to decrease unnecessary spending, increase debt payoff, and put more in savings.

Using the zero-sum method, she created a budget that looked like this:

Kristy was able to achieve her objectives by cutting costs in some categories and making a few financial sacrifices. By doing this, she found an extra $600 in her budget to allocate to savings, debt, and giving. If she sticks to this budget, she’ll have her credit cards paid off within 6 months, and can then increase her savings even more.

Budgeting with last month’s income

If your paychecks are always equal and consistent, then implementing a zero-sum budget will be pretty easy. Just add up your income for the month and base your budget off that amount.

If you have a variable income, then budgeting with the previous month’s income will make your life so much easier. Getting a month ahead gives you the ability to budget with a “fixed” income as well as providing you with a 30-day emergency fund if you’re hit with an unexpected expense.

Once you have one month’s expenses saved up, just use those funds for the current month’s budget. Then, as you receive income during the month, put that money in savings for the next month’s budget.

Even if you live paycheck to paycheck right now, you may find that an average month of income is actually more than you really need after you account for all of your expenses. This means more savings for you!

My husband has always had a variable income and his paychecks can vary widely from month to month. Sticking to a budget was hit or miss, until I decided to start budgeting with the previous month’s income. Now, I pay all of our bills, give our tithe, and put some away in savings on the first of each month. It’s so much easier and has made money management a lot less stressful!

(You can read my post about the what, why and how of budgeting with the previous month’s income if you want to learn more.)

Whether your income is fixed or variable, the zero-sum budget can help you stay on track with your financial goals.

Practical tips to be successful with the zero-sum budget

The zero-sum budget is a simple method when you consider all you have to do is get your income minus your expenses to equal zero. However, there are a few helpful tips you can implement to make the process easier and more effective:

  • Be consistent with tracking. In the beginning, this might mean checking in with your spending daily. I used to take a few minutes at the end of every day to update my budget spreadsheet, just to make it a habit. I knew if I let several days pass then I would get lazy about sticking to it.  Figure out a check-in schedule that works for you, but don’t go longer than a week at a time. Checking in often with how much you’re spending in each category will help you make smarter choices with your money and keep you accountable to your budget goals.
  • Don’t leave anything out. This might require some honest reflection of your money habits. If you leave out those small expenses like your morning coffee shop drive-thru or your monthly Hulu subscription, you’ll never get to zero. Be sure to create enough categories that include every type of expense you make each month. Remember – every dollar needs to be accounted for.
  • Be realistic. It’s impossible to forecast the exact dollar amount of some expenses. As you track your spending over time, you’ll get more accurate. But with monthly bills that fluctuate, it’s easy to underestimate the amount you need to budget for. For utilities, look at your bill from the same month last year to get a good idea of what you’ll owe. You can often find your billing history on the utility company’s website. For categories like groceries or gas, it’s wise to overestimate what you’ll spend as you get used to using the zero-sum budget. After 2 or 3 months, you’ll have a better picture of your spending patterns and get closer to budgeting actual costs.
  • Focus on progress, not perfection. Forming new spending habits that line up with your new budget takes time to get good at! Expect some fails along the way, and just know you’ll probably need to make several adjustments in the first few months before you find your stride. Chalk up your mistakes as learning opportunities. And remember – your budget is unique to *you*. You can change it at any time to fit your lifestyle. The zero-sum budget is meant to be a tool that helps you control your finances better, not be a burden that causes frustration and stress.  Don’t give up!
  • Have an emergency fund. Even if you’re a total boss at budgeting, you can’t foresee the future. The most accurate budget can be completely derailed by an unexpected financial setback. That’s why it’s important to keep building an emergency fund that will support you when your regular budget can’t. If you don’t have a 3-6 month emergency fund yet, make sure to include this as a category in your zero-sum budget so you’re adding to it every month.

Why the zero-sum budget may not work for you

I have explained many of the benefits of a zero-sum budget. But the truth is, it’s not for everyone. There are a few reasons why it may not be the right method for you.

  • The time commitment: In order for this budgeting method to work for you, you must be committed to consistently monitoring your spending habits.
  • The details: You have to account for every. single. expense. If you’re not budgeting for every dollar, this budget won’t work for you.
  • Irregular income. If your income fluctuates with every paycheck, you’ll likely be frustrated with trying to stick to a zero-sum budget. Save up one month’s income first, so you’re always budgeting with the previous month’s income. This will make your life so much easier!
  • No tracking system. If you’d rather just use your bank account register to track your money, you probably won’t succeed with the zero-sum budget. Having a spreadsheet (digital or paper) or some other type of detailed log is crucial to making this budget work.

Why is this important?

A budget is important to reach your money goals.  Without a plan, your goals are just dreams!

A zero-sum budget will help with:

  • finding the “leaks” in your spending
  • getting out of debt
  • building an emergency fund
  • planning for retirement
  • making sure you have the money for the things you value
  • gaining control of your finances
  • reaching your financial goals

Another important benefit of following a budget is learning to be more intentional with your money. Following a budget requires you to confront your spending habits and decide what you truly value. You’ll likely need to make some sacrifices and clarify your priorities.

Taking time to reflect on the financial choices you’ve made in the past and how they’ve affected your present will help you make the necessary changes to ensure a successful future.

Budgeting is important because your future is important!

Try it for yourself

Now you know what the zero-sum budgeting method is all about. You know what it is, how to make one, what it requires, and why it’s effective.

The only thing left to do is try it out for yourself. If you’re not using a budgeting method already, you’ve got nothing to lose (and possibly a lot more savings to gain!).

See how it works for you over 2 or 3 months. If you find it’s too difficult to stick to, try a different budgeting method.

Either way, I encourage you to not give up. A budget can do wonders for your financial goals and money management. The right one can help you spend less and save more.

With a zero-based budget, you know where every dollar is going. If you want this level of control over your finances, then start one today. You’ll be one step closer to achieving financial freedom!

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The Ultimate Zero-Sum Budget Resource Guide

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