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Zero Sum Budget

The Zero Sum Budget: How to Stop Wasting Money

It’s time we talk about budgeting. No, not about how to cut $10 here and there by ditching coffee shops or sacrificing avocado toast. Instead, I want to talk about the Zero Sum Budget and how this budget can help you stop wasting money.

This budget is not designed to nitpick at every monthly expenditure. 

Instead, the Zero Sum Budget focuses on balancing your income and expenses by utilizing every dollar that goes in and out of your bank account.

If effect, the Zero Sum Budget requires that every dollar you make is put to work for you.

Every. Single. Dollar.

“Put to work” can mean many things, and we’ll get to that, but just think about that concept for a moment.

Every dollar you earn should be put to work. Not wasted away in a checking account or 0.01% interest rate savings account.

If you are not utilizing every dollar you earn, then you are wasting it.

Wasting money

Ask yourself one question: “Is there money left over in my checking account at the end of the month?”

If the answer to that question is “not sure” or “yes”, then the Zero Sum Budget is for you.

It could be $0.25, $250, or $2,500. The point is, whatever the value, it’s being wasted if it is not being put to work.

The Zero Sum Budget

As stated, the goal of the Zero Sum Budget is to use every dollar earned. Put another way, the goal is zero.

Zero dollars left over in your budget each month.

The Zero Sum Budget method prescribes that every single dollar is allocated toward something.

But it’s important to understand what Zero means. Zero means that if you make $3,000 a month and typically spend $2,800, there is an extra $200 that needs to be taken care of.

Assuming that the $2,800 was spent on typical living expenses such as housing, food, and entertainment, the remaining allocation should be aligned towards debt repayment, savings, and investment.

Here is an ordered list for you to consider:

  1. Pay off high interest debt like credit cards or student loans
  2. Contribute towards an emergency fund*
  3. Fund retirement accounts like a 401(k) or IRA
  4. Invest in low-cost index funds through a taxable investment account
  5. Other – real estate, business, travel fund, etc.

By telling every dollar where to go, you are optimizing your finances and increasing your savings rate at the same time.

Stop wasting money

A great thing about the Zero Sum Budget is that it is easy to start right away. You can do it in as little as three steps, and you may already be doing two of them.

  1. Track your monthly expenses**
  2. Track your monthly income**
  3. Subtract your expenses from your income then allocate the rest to one or more of your goals

Let’s review the example scenario above to see the power of this way of thinking. Recall, the example has an individual making $3,000 a month and spending $2,800, leaving $200 extra each month.

For simplicity’s sake, the values are annualized and we assume they stay level. We will also assume this person has no high-interest debt and has a fully funded emergency fund, leaving them somewhere between Step 3 and Step 4 on “put your money to work” list above.

Here is what their potential saving could look like if invested for the next 35 years:

Annualized, that $200 a month is equal to $2,400. Invested at 7% annually over 35 years and that savings is now worth over $350,000.

This is a simplified and long-term example, but it shows the power of utilizing every dollar you make.

For a copy of the Google Sheets spreadsheet I used to run these values, enter your name and email below and I will send them to you.

Zero waste. 100% work.

Instead of viewing your budget only as the amount you can spend on things, view your budget holistically. Account for the inflows and the outflows. By allocating every dollar, you are able to prevent careless spending.

If you follow the Zero Sum Budget, your goal should be zero.

Zero waste. 100% work.

Don’t waste your money by leaving your left overs to spoil. Take those leftovers and make something with it.

What are your thoughts?

Do any of you follow a Zero Sum Budgeting approach? How has it worked for you?

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*I use an online savings account for my emergency fund since it pays 1.3% interest. It’s still lower than a 2% inflation target, but it sure beats big banks savings rates of 0.1%.

**I suggest Personal Capital or Mint (non-affiliate links) to track my income and spending, along with investments and any debt. I find Personal Capital more to my taste, but to each their own. It’s worth it to try both if you haven’t tried one yet.

7 thoughts to “The Zero Sum Budget: How to Stop Wasting Money”

  1. I do this with my money. For everyday stuff, I give myself an allowance that I just calculate in my head. It’s about $225 a week and it covers everything from pedicures to gas to food. When I am out, I am out and it is time to eat out of the cupboard until the next week. It’s worked well for me this year!

    1. That is a nice way to break it down week by week! Makes it simple and lets you reset every week. Do you save the rest that isn’t spent or do you roll it into the next week?

      1. It depends. My week runs Friday to Thursday. If I still have money and it is a Friday I get paid, I will roll it into my debt payment. If its a Friday I don’t get paid, I will usually add it to the next week and have a treat of some sort. Since I have budgeted this money for weekly expenses it’s okay if I spend it on me.

  2. I think it is important to be intentional with every dollar. I don’t stress a budget on my spending but have everything allocated as far as the regular paycheck is concerned. If a raise or windfall comes into my life I make a game plan allocate where the new money will go (along with how much I can spend) and then get back to living life. Good read.

    1. I am right there with you. I’ve found budgeting too strictly doesn’t work well for me, but having a general sense of what is being spent each month and how to allocate each dollar earned has really helped my savings rate. Thanks for stopping by!

    1. I only shift money once a month and I have it set up where I am using my income from last month to pay for this month. So around the 1st of every month I look back and see how much I spent versus how much I earned, and then allocate the remaining dollars from the previous month to some sort of saving/investing.

      I let my paychecks go directly to my checking account so the account is never actually going to zero. This way, the income I earn this month is in my account to prevent too low of a balance, but then I don’t actually spend it until next month.

      Oct income = $3000
      -I’ll use this $3000 for November expenses. At the end of November I have $200 left and move it to savings.

      Nov income = $3000
      -This income goes directly into the same checking account so the balance doesn’t get too low during the month. This money isn’t spent until December, where I’ll be earning December income which keeps the balance at a reasonable level.

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