Zero Sum Budgeting

What is the zero sum method?

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The main feature of the zero sum method is that every dollar of income is allocated to a specific expense meaning monthly income minus monthly expenses equals zero. Hence the name.

Some argue that you should use last month’s income to pay the current month’s expenses, but that isn’t very realistic for people with a very limited income.

I’ve been using the zero sum method of budgeting for years. Right now, I have to rework the budget due to new reoccurring expenses and medical debt.

How do I make a zero sum budget?

List All Of Your Income: Add up all of your monthly reliable income sources. I don’t add in flexible income from things like eBay sales because it isn’t reliable. I might sell a handbag one month and not sell anything else for several more months.  My husband is on a salary so all of his paychecks are the same.

List All Of Your Expenses: This really means all of your expenses. This can be very time consuming, but it is very important for the budget setting process. Go through your last bank statement so you don’t miss a thing. Pro tip: Make a calendar of your due dates, so you never miss paying a bill.

Sort It Out And Add It Up: Next you have to sort all of your expenses and add them all up. Add up all of your grocery store trips, then add up all of your credit card bills,  and so on.  After sorting add up all of your expenses for your grand total.

Zero It Out:  Income minus expense needs to equal zero. If you have money left over, allocate that money to something such as savings or to credit card debt or clothes.  You will know what your priorities are so that is where you should allocate your extra income.  If your income minus expenses comes out negative, you will need to rework your priorities. Right now, I am falling into this category. To come out to zero, I had to move money from the grocery budget to the medical bills budget.

Final Thoughts

I’ve been using a version of zero sum budgeting for years. It is this method that has helped me get by when the budget was tight. It has in the past, allowed me to pay down bills. While it is what works for me, you may find a different type of budget suits your lifestyle and financial goals better.



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