How to Make a Zero-Sum Budget: Your Tool to Financial Freedom

How to Make a Zero-Sum Budget: Your Tool to Financial Freedom

Do you want to make a budget but aren’t sure how you can start? A zero-sum budget (which is also referred to as a zero-based budget), is amongst the most common types of budgets. It happens to be one of the most straightforward and easiest ways for one to budget their money.

Since there are various different methods to budget your earnings out there, most people find it difficult to begin the process.

Will you use the 50/30/20 method? Are you supposed to utilize cash envelopes? The wide range of options can often become challenging for a first timer who isn’t sure of the right method to apply that is suitable for them.

A zero-based budget, also known as a zero-sum budget is amongst the commonly used budgeting methods. Its not only simple to use, but it’s also a straightforward method that you can use to budget money. A lot of people use this method because it works very efficiently.

If it’s your first-time budgeting and you’re looking for an easy and simple way to begin, then opt for zero-based budgeting.

What is a Zero-Based Budget?

This is a budgeting method that gives you the ability to assign each dollar a task. This includes everything even “leftover money” that you’ll have after paying all your bills. The method is a perfect of ensuring that all the monthly expenses are equal to one’s income. The budget makes sure that every dollar earned has a purpose.

When we say that each dollar is given a task, it doesn’t mean that every cent of your earnings will be spent. What this means is that some of the money will be used for your expenses, another portion will be used for paying credit card debts, some will be put in your emergency savings and the rest towards any financial goals you may have.

Zero-based budgeting utilizes a mindful approach as it has you thinking about each dollar, making you confront how you spend money.

The budget will encourage you to use a budget which integrates savings and spending. As you know, there are some fixed expenses like rent or mortgage and car payments. However, when looking at variable expenses such as clothing budgets or grocery bills, you’ll discover that all you do is consider what you can afford or what is needed.

For more detailed information, look at the zero-based budget provided below:

Zero Sum Budget Calculator

By using the tool provided below, you’ll be able to visualize your spending habits with the help of zero-based budgeting.

Example of a Zero-Based Budget

Below is an example of a zero-based budget in action. Use it for guidance when you’re creating your personal spreadsheet, or use the zero-based budgeting calculator we invented to start out. All you’ll have to do is modify the amounts and categories according to your expenses and spending.

Advantages of Budgeting to Zero

There are many benefits of using a zero-based budget. The budget ensures accountability for every dollar, meaning that there are less chances for you to overspend money. You’ll then be able to get to your financial goals faster as you’ll be aware of how every dollar is being spent.

Every Dollar Has a Purpose

When it come to zero-based budgeting, each dollar has a purpose. If you’re not sure how much money you spend every month, it would be a great place to begin. It would also be a great way if you’re looking to get out of debt and is would like spare some money to help pay for your debts.

When each dollar is allocated purposefully, you’ll be able to control your money without difficulty. Your money can now be spread out effectively to cater for your monthly necessities and all long-term financial expenditures.

Helps to Identify Spending Patterns

Not having a budget means that you may not know exactly how you spend your money. With a zero-based budget you’ll be able to know how you spend money and evaluate if your spending goes well with your financial goals and values.

You will also be able to decide the things that are more important to you than others. For instance, a lovely date night or regular Starbucks beverages. Whatever treat you settle for, the budgeting exercise allows you to gauge the kind of tradeoffs made with regards to your money. This will definitely help you make the right financial decisions.

Reach Your Goals Faster

Zero-based budgets are great tools that can help you get to your actual financial goals quickly. They enable you to be clear and consistent on how your money is spent.

For instance, if you’ve allocated $300 for the “paying car loan” category, you won’t be able to use the money for another task. When you become consistent with your savings and payments, you’ll be able to achieve your goals quickly.

Downsides of Zero-Based Budgeting

Although zero-based budgeting is a great tool that can help you get financial stability, it has several downsides. If you’re not good at following a budget, you should take these challenges seriously before you can start using this budgeting system.

It Can Feel Restrictive

Zero-based budgets can sometimes feel a vit restrictive. Since you need to allocate every dollar of your money to a task at the beginning of every month, you can sometimes become frustrated when it comes to dealing with the unexpected.

There are times that you’ll only get to two weeks before spending all the money allocated for entertainment. Then you get invited to a big event that you need to pay for from your own pocket. You can decide to rebalance what’s remaining or borrow some money from another category. If this restriction seems difficult to follow, then using a zero-based budget can be a bit challenging.

Difficult to Handle Emergencies

With each dollar allocated a task, you won’t be able to handle unexpected expenses without denting your original financial plans.

You can put aside a specific amount of money every month that will help handle emergencies or unexpected expenses. However, such expenses aren’t easy to predict. You can go for months without experiencing any emergencies, then when you’re not expecting it, you suddenly need to get a new transmission for your car.

This ca be handled by setting money aside every month for an emergency fund and leaving it there until you have a big emergency. Go through all the emergency expenses you had the previous year or simply calculate how much money is required for the emergency fund.

Time Consuming at First

When you’re trying to navigating using a zero-based for the first time, it might be very time-consuming. The first step is to monitor all the expenditures for the whole month and note every expense according to categories. You can also try recording your everyday spending.

Use a budgeting app instead of tracking all your expenses manually. The most popular app that uses the same budgeting principles as zero-based budgeting is You Need a Budget. You’ll also learn to live with the income earned on the previous month. This is great for someone who is self employed or has a variable income.

Personal Income and Mint apps allow the user to track and budget their expenses using various categories.

There are people who prefer using old school methods instead of apps like a notebook or spreadsheet to track their expenses. They say that the method is an easier way of seeing how they spend their money.

Related: Mint vs Personal Capital: Which One is Right for You?

How to Make a Zero-Based Budget

Although using a zero-based budget sounds time-insensitive, its actually a very useful way for people to start budgeting.

1. Figure Out Your Monthly Income

The first step is to add up every dollar of your monthly earnings. You can get this from several sources like:

  • Tips and wages
  • Stock dividends
  • Freelance payments
  • Tax returns
  • Sale of property or investment
  • Child support or/and alimony
  • Royalties
  • Rental income

If you don’t have the same income every month, refer as back as six moths so that you’re able to have a realistic monthly income averagely.

2. Start with Regular Expenses

Next, list all you recurring expenses. This includes every dollar you incur each month. The money should take care of things such as:

  • Utilities
  • Groceries
  • Rent or mortgage
  • Childcare
  • Gas, parking, tolls or public transportation pass
  • Insurance
  • Car payment
  • Cell phones
  • Subscriptions
  • Memberships and dues


3. Add Your Sinking Funds

After listing all your monthly expenditure, include your sinking funds. A sinking fund is basically the savings money that are set aside for expenses that don’t happen during every month. The best way of preparing for infrequent expenses is by creating sinking funds for all irregular things like:

  • Income taxes (yearly)
  • Property taxes (yearly)
  • Car insurance payments (every 6 – 12 months)
  • Christmas (yearly)

A sinking fund is a great way of ensuring that the money for emergencies when its needed. This is very important for expenses such as taxes and insurance.

4. Plan for Your Goals

It important to plan for long-term goals for your family. Begin by setting aside some money for all the things that are important to you. Remember that even allocating just $50 on every category each month means the money will keep increasing if you’re consistent.

You can decide to save for goals such as:

  • Vacations/ holidays
  • Emergency funds meant for any surprise expenses
  • Remodeling the house
  • Paying off you student loans, car loans or credit card debt
  • A down payment for a house
  • A college fund for your kids

You can choose to put your savings in sub-accounts or just set up one account for every goal. The former is more reasonable, especially when you’re saving at once for multiple goals.

5. Budget to Zero

As you’re now aware of your monthly income and created a list for all expense categories, allocate each dollar to a given expense. Start with your fixed expenses. You won’t be able to wiggle around your car and mortgage payments, so it important to know how much needs to be allocated.

When it comes to variable costs, you can look for creative methods of reducing those expenses. For instance, groceries money can be saved with the help of cash-back apps or even looking for a less expensive phone plan from your service provider.

Next, figure out how much money needs to be set aside for your sinking funds. Most of these funds need to have enough money for emergencies, so make sure you add a buffer.

For instance, look back at your property tax for a couple of years. Let’s say that you’ve been paying at least $1,000 every year on property taxes for the past three years. Add a buffer and increase the payment so that your account has $1,200 just in case. This means that you’ll have to add $100 every month into your sinking fund.

If your sinking fund is tax related, make sure that it has a buffer so that you don’t come short when making payments. Sinking funds for things like Christmas don’t have much leeway.

Lastly, allocate whatever is remaining for your financial goals. Even if it means that you’ll only be able to save a little amount every month, for example $50 for a kitchen remodel or $25 in your vacation fund.

6. Track and Adjust

Once your budget has been created, begin tracking your expenses. In case you notice that you’re more consistent in one area than another, you can always adjust your budget. Take some money from one category and use it to add the budget in another one. So, consider carefully the category that you can reduce money from.

As you already know, Mint, You Need a Budget and Personal Capital are good apps that you can use to track your expenses and budget. If you choose to use a more old-school method, you can opt for an easy spreadsheet from excel or use an app such as Tiller which could would work perfectly.

7. Get a Month Ahead

Once you get into using a zero-based budgeting, ensure that you plan ahead of time so that you have the whole amount required to get you through the month waiting in your account.

it may take some time to achieve this especially if you live paycheck to paycheck, though you’ll won’t have any trouble once you get a hang of it.

Zero-Based Budget FAQs

Using a zero-based budget may be quite confusing at first or are used to using another budgeting system such as the 50/30/20 budget.

Can someone with an irregular income use zero-based budgeting?

Yes. In fact, it’s the best method to budget with when you have an irregular income. Try to create a budget using a lower income than the one you’re going to receive so that there’s enough room to wiggle around in case there are any late payments or the tips you make are lesser than what you expected.

Do you need a spreadsheet when using a zero-based budget?

You can use a personalized spreadsheet or a digitalized system such as Tiller or Mint. That’s the best thing about using zero-based budgeting. It may take a while for you to figure things out before coming up with a system that works best for you. However, there are several options for you to select from.

Related: Tiller Review: A Perfect Budgeting Tool for Spreadsheet Addicts

What happens if I have some extra leftover money?

If you have some extra money after budgeting, put it towards your future financial goals. You can choose how to allocate the money, whether you’ll use it to pay off some debts, add it to you vacation fund or as extra padding for your emergency fund.

The Zero-Based Budget Is Worth Your Time

Although it may take a while, using a zero-based budget is worthwhile especially if your financial goals are big or if you’re a first-time budgeter. You’ll be able to get a better grasp of your spending or figure out the areas that need some work.

A zero-based budget is helpful to people who tend to extra money by the end of the month. With this budget, each dollar is allocated toward a specific purpose that it is designated to.

It will not only help you plan for the future and to align all expenses to your income, you’ll also be able to plan ahead for both short -long-term goals on your finances.

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