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What is the Zero-Sum Budget?

November 11, 2019

Tip of the Week

Consider the zero-sum budget. It gives every dollar you earn a job. The goal is to end each month with no unused dollars.

2 min read

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

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:

Monthly Net Income$2,500
Rent & Household Expenses$800
Food$400
Dining & Entertainment$500
Debts$500
Savings$300
Leftover$0

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.

Monthly Net Income$2,500
Rent & Household Expenses$800
Food$400
Dining & Entertainment$400
Travel Fund$100
Debts$500
Savings$300
Leftover$0

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.

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By Claire Grant
Claire is a content writer for Stash.

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