How to Create and Stick to a Zero-sum Budget Plan

Zero-sum budgeting allocates every penny of monthly income to some positive purpose.

An AI generated image of a stern-looking hamster in a turtleneck holding an abacus.
Even a stern-looking hamster in a turtleneck holding an abacus needs to understand zero-based budgeting.

As the cost of living continues to rise, some folks may want to manage finances better, putting every dollar toward something productive. It turns out that is just what a zero-sum budget plan can do.

Zero-sum budgets —also known as zero-based budgets or ZBBs— require assigning every dollar earned to expenses and savings. Unlike traditional budgets which simply track income and expenses, a zero-sum budget forces individuals to make a conscious decision about where every dollar will go, ultimately reducing debt and increasing savings.

This budgeting method is a proactive approach to managing finances, helping individuals and families gain control over their money and achieve their financial goals.

Step-by-Step: Creating a Zero-Based Budget

Zero-based budgeting is a proactive approach to managing finances with a few straightforward steps. Here is a guide to help you get started:

  1. Identify Monthly Income – determine your monthly income. Include salary, any freelance income, or other sources of income. If your income changes month-to-month, estimate it and be prepared to update your budget once or twice a month.
  2. Pay Tithes and Offerings – if you donate to your church, give God His due before you worry about expenses.
  3. Allocate Money for Foundational Expenses – identify how much you will pay for foundational expenses like shelter, food, and utilities. These expenses are essential to your well-being, so they get priority.
  4. Identify Savings Goals and Debt Repayment – Set aside money for an emergency fund and or pay down credit card debt, student loans, or other forms of debt. Retirement savings that are not already coming out of your paycheck, etc. Don't forget to include things like a Christmas fund, a "new tires for my car" fund, or anything else that is a known upcoming expense you should be saving for in advance.
  5. Allocate for Additional Expenses – After prioritizing tithe, foundational expenses, and savings, you will allocate money for the rest of your spending. Your clothing, date nights, and subscriptions fit into this category.
  6. Ensure Every Dollar Has a Job – with this sort of budgeting plan, every dollar is planned and associated with a specific and productive purpose, leaving no room for waste or overspending. If you finish your "first pass" through the zero-sum budgeting process and have $35 left over, go back through your budget and find work for that money.

By following these steps, you'll be well on your way to creating a successful zero-based budget. Remember, with a zero-based budget you make conscious decisions about where every dollar goes, so take the time to plan carefully and stick to your budget.

Oh, and you don't just get to willy-nilly budget anything you want. There is a process for how to think about budget allocation too. You should:

  • Evaluate each budget time.
  • Justify its worth in your life.
  • Execute, meaning pay or buy, as effectively as possible.

Putting Zero-sum Budgeting into Practice

So what does a zero-sum or zero-based budget look like?

Let's consider an example budget aimed at reducing debt. This particular zero-sum budget will have some identifiable characteristics.

  1. High Debt Repayment Allocation – a significant portion of the budget will be devoted to paying off credit card debt, student loans, or other forms of debt.
  2. Trimmed Expenses – expenses in other areas of the budget will likely need to be trimmed. Things we could not see include discretionary items such as dining out, entertainment, or clothing.
  3. Limited Savings – while saving money is one of the most important things you can do, a budget specifically aimed at debt reduction will have a minimum about of saving, something like 20 percent of total income.

By prioritizing debt repayment and trimming expenses, a zero-sum budget focused on debt reduction can help individuals become debt-free and achieve financial stability.

Staying on Track with a Zero-sum Budget Plan

Creating a zero-sum budget is only the first step. You need to stick with the budget and make it a part of your routine. Here are some practical tips to help you stay on track.

  1. Schedule time to work on your budget regularly. Whether it's once a week or once a month, set aside dedicated time to review your budget, update your expenses, and ensure that you are staying on track.
  2. Automate your budget. Consider setting up automatic transfers to savings and debt repayment accounts to help you stay on track without having to think about it.
  3. Keep your budget in plain sight. Whether it's a physical copy of your budget or a digital one on your phone or computer, keep your budget easily accessible so you can reference it regularly.
  4. Celebrate small victories. When you achieve a savings goal or pay off a debt, take a moment to acknowledge your progress and celebrate your success.
  5. Use an app. There are many great apps for tracking a zero-based budget, so use technology to help you stay on track.
  6. Visualize success. Think about what your life experience will be like if you are successful with your budget. Visualizing the outcome will help you stay on track.
  7. Be flexible. Life is unpredictable, and your budget should be flexible enough to accommodate changes. If you have an unexpected expense, adjust your budget accordingly and get back on track as soon as possible.

Following these practical tips, you can stay on track with your zero-sum budget plan and achieve your financial goals. Remember, a zero-sum budget is not a one-time event but a lifelong habit that requires discipline, dedication, and a commitment to financial stability.

Advantages of a Zero-sum Budget

A zero-sum budget can offer many advantages to individuals and families looking to improve their financial stability.

  1. Improved financial control – zero-sum budget helps individuals take control of their finances by assigning every dollar a job, which can increase financial stability and reduce stress.
  2. Reduced debt – when the priority is debt repayment, a zero-sum budget can help individuals allocate funds effectively.
  3. Increased savings – because every dollar is assigned a job at the beginning of a budget period, i.e. a month, you will be more likely to allocate funds toward savings than spending.
  4. Better spending habits – a zero-sum budget can help individuals identify areas where they can reduce spending and make more mindful spending decisions. No, you do not need Disney+, Hulu, or Netflix. Stop watching that crap. It is a waste of money.
  5. Increased financial awareness - a zero-sum budget requires individuals to regularly review their expenses, which can increase financial awareness and lead to better financial decision-making.

These advantages make a zero-sum budget a powerful tool for individuals and families looking to improve their financial stability and achieve their financial goals.

Disadvantages of a Zero-sum Budget

While a zero-sum budget can offer many advantages, it is not without its disadvantages. Some of the key challenges of using a zero-sum budget include:

  1. Time commitment – a zero-sum budget requires time and effort to set up and maintain, which can be a challenge for individuals with busy schedules.
  2. Requires discipline – a zero-based budget requires discipline and a commitment to sticking to the plan, which can be difficult for some individuals.
  3. Inflexibility – a zero-sum budget can be inflexible, making it difficult to accommodate unexpected expenses or changes in income.
  4. May limit spending – A zero-based budget may limit spending in areas such as entertainment, dining out, or travel, which can be challenging for some individuals. But you did not need Disney+ away.
  5. Can be stressful – the process of tracking expenses and making spending decisions can be stressful for some individuals, leading to feelings of anxiety or guilt.

These disadvantages highlight that while a zero-sum budget can be a powerful tool, it is not the right choice for everyone. Individuals should carefully consider their financial goals, lifestyle, and time commitment before deciding whether a zero-sum budget is a proper choice.