Money » Budgeting » How to Set Up Zero-Sum Budgeting – Full Guide
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How to Set Up Zero-Sum Budgeting – Full Guide

here’s the process that you’re going to need to follow in order to get your zero-sum budget off the ground and ready to go.
Baruch Mann (Silvermann)
Baruch Mann (Silvermann)
Baruch Mann (Silvermann) is an experienced analyst and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

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For too many of us, money can get pretty tight and when that happens you want to make sure you’re keeping track of your money. You want to be sure that you’re not spending it in places where it definitely shouldn’t go.

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If you’re looking at financial information though, you’re going to find a lot of people telling you what you need is a budget. For those who aren’t so great with budgeting, it can be difficult to get started.

Well, we’re here to tell you that one of the best ways you can go is what’s called a zero-sum budget.

What is Zero-Sum Budgeting?

First, let’s get into a zero-sum budget. You have to make sure that you use every single dollar that you make in this type of budget. But the idea is to give those dollars a job. You don’t have to spend them on items in order to give them a job.

You just need to make sure that every dollar that comes in is going to go somewhere and that you know where that ‘somewhere’ is before you even start doing anything with the money. As a result, you’ll have zero leftover.

For this method, you’re going to need a brand new budget each and every month, which can be difficult for some. You need to look at each of the methods of income you have for that month and each method of spending you have for that month. Then, you can see exactly where your money needs to go and where you need to make some changes.

How Does It Work?

With this type of budgeting you’re actually going to be taking the money that you brought in last month and using it to pay for the things you need to do for this coming month. That way, you’re going to have all the funds you need and you can feel confident that you’re going to make it through the month.

If you have any surprise money coming in throughout the month you still need to put the money somewhere and make sure that it has a job. If you don’t get that kind of money the next month then you’ll need to cut back on whatever you were using your extra for.

By doing this you don’t have to worry about how you’re spending or saving. You know what money you can use for everything right from the start and you can just make sure that you’re using it right. When you run out of the money you no longer get to spend in that category (similar to the envelope budgeting method).

When You Should Try Zero-Sum Budgeting?

Zero sum budgeting is a good option if you’re new to having a budget or you struggle to track your monthly expenses. Taking a zero sum approach may help you to gain clarity on where your money goes and help you to achieve more purposeful spending.

Since the overall aim of this budgeting method is to zero out your budget at the end of each month, many people find it offers less pressure compared to other budgeting methods. You will still cover all of your essentials, but you can then get creative on how you spend, save or invest the rest of your paycheck.

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Zero-Sum Budgeting vs. 50-30-20 Budgeting

The 50-30-20 budgeting format is a little more complicated. It requires that you direct 50 percent of the budget to living expenses, 20 percent to savings or investments and the remaining 30 percent for discretionary spending.

While some people enjoy the structure of this type of budget, it is far more confining. For example, if you want to save for an emergency fund, vacation spending and your retirement investing, it all needs to fit into 20 percent of your overall budget. With a zero sum budget, you can be more flexible. You can allocate money from whatever income is left after you pay your essential expenses. So, you can feel motivated to adjust the amount each month.

Zero-Sum Budgeting vs. the envelope Budgeting

As the name suggests, envelope budgeting means that all of your expenses are assigned to different envelopes. You will need to allocate cash to each of the envelopes according to how much you’re planning on spending.

This system is similar to the zero sum budgeting approach, as every dollar is assigned to an expense category. However, envelope budgeting does require working with a lot of cash, which may not be practical for most people.

How to Create a Zero-Sum Budget?

Now, if you’re looking to use this type of budget you need to take a little bit of time and expend some effort to figure out how you’re going to make it work. So, here’s the process that you’re going to need to follow in order to get your zero-sum budget off the ground and ready to go.

1. Monthly Income

First things first, you need to have an entire month of earnings saved up. This can take a bit of time for some, but make sure that you know how much should be there for an entire month and then work to put away as much money as you can each month until you get there.

That way you know how much money you have to assign to your different categories.

2. Monthly Expenses

Next, you’re going to need to know how much money you spend each month. Make sure that you account for every one of your bills and that you’re watching for those that might have variable costs. You also need to have an allowance for things like groceries and gas. Also, make sure that you know any additional bills that might bill only every few months or every quarter. You want to make sure you’re account for any of these.

Look at unusual expenses like birthdays that are coming up or holidays. That way you know where you need a little bit of extra money built into your budget. You don’t want to miss out on a birthday and not know how you’re going to come up with something for a present.

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3. Organize Your Categories

Now you want to look at the categories of where you’re spending your money. Look at things like groceries, medical expenses, entertainment, transportation and more. Try to group all of the things that you identified in the last section into overall categories.

You’ll need to figure out just how much money you can assign to each category and reasonably make your payments. If your house payment is $600 a month and you only allocate $700 to household expenses you’re never going to make it. You need to account for the mortgage, the utilities and so on. Make sure the amounts you’re assigning are reasonable.

4. Compare Your Leftovers

Do you have any money left over at the end of the month? Are you spending more money than you should on things that you don’t actually need? You want to make sure you’re paying attention to these things so you can figure out where the money is going to go in your zero-sum budget.

Remember that you want to eventually get to no money left over. But that doesn’t mean you’re going to get there the first month. You just need to keep finagling your money until you figure out how you’re going to make it work.

For some, this process is going to show you that you’re spending way too much in certain areas, but if you’re conscientious of this you can absolutely make some changes. Just make sure that each month you’re looking at how much you budgeted and how much you actually spend. You may also want to start out by setting some limits to categories where you feel like you were spending way more than you should.

5. Monitor – And Adjust

Okay, it’s not as bad as all that, but you should be taking a close look at your budget after each month. If you don’t make it the first several months that’s fine. If it takes you a lot of months that’s fine too. Just make sure that you’re going back and looking at what you budgeted and what you actually spent each month. Then you can make adjustments to better fit what’s important in your life. It’s all part of the process.

After all, if you had a budget for holiday spending and the holidays are over you can now reassign that part of the budget somewhere else.

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Zero-Sum Budgeting – Example

Let’s take a look at an example of a zero-sum budget so you can get an idea of what you might want to work toward. If you bring in $5,000 a month and you want to make sure you have a little money allocated to savings then you’re going to need to make sure your expenses account for that.

Let’s say you take a look at your monthly spending and this is what you see:

  • Mortgage: $1,300
  • Car Payment: $800
  • Personal Care: $400
  • Utilities: $500
  • Entertainment: $300
  • Dining Out: $700
  • Clothing: $300
  • Groceries: $800

In all, you’re spending $5,100

That means you’re actually spending more than you have available and that’s going to set you up for a whole lot of problems. It’s also not a zero-sum budget.

So, if you’re looking to turn this into a zero-sum budget you need to know what your goals are and what the money is that’s coming in each month. You’re also going to need to cut some of these areas down a bit in order to come up with some extra money.

Once you take the time to look things over you might be able to come up with a budget that better reflects what you’re going for and helps you to have some money to go toward the things that are really important to you.

  • Mortgage: $1,300
  • Car Payment: $800
  • Personal Care: $250
  • Utilities: $500
  • Entertainment: $200
  • Dining Out: $550
  • Clothing: $250
  • Emergency: $350

In all, you’re spending $4,900

This is getting you closer to a zero-sum budget but there’s actually some money left over. What it did, however, was force a little bit of self-reflection on some of the categories in order to cut out that money.

Can You Make a Zero-Based Budget With an Irregular Income?

Yes, if your income varies in amounts or arrives at different times of the month, you can still implement zero based budgeting. To start, create a budget based on your lowest earning month. Ensure you cover your utilities, food, transport and shelter before listing your other expenses in important order.

When you get paid, take your payment amount and spread it across the items in your budget. If the paycheck can’t cover everything you list on your budget, focus on the expenses you mark most important. If you receive another paycheck later in the month, you can continue with the list where you left off.


As with any other budgeting method, there are pros & cons you should consider. Let's start with some of the great advantages you can find when using the zero-sum method:

One of the best things about this type of budget is that you know exactly where all of your money is going.

You know what you’re spending on and you can no longer be in the dark. It might be surprised where the money is going, but it’s going to be a great benefit for your family.

When you use this type of budget you can see how you’re doing and where you’re succeeding or not. That’s going to make it a whole lot easier for you to stick with it. After all, when you can see your progress you’re going to feel a whole lot better about cutting back on some of those things you might really want.

Just make sure that you’re keeping track of your overall goal and when you’re going to achieve it. From there, you’ll be able to keep marking your progress and see just how you’re doing and when you’re going to get there.

This type of budget is highly effective because you’re being disciplined and you’re taking control of your money.

Similar to the 50/30/20 budgeting method, you know what your goals are and you know where you’re sending the funds you have coming in. That keeps you on track.

With this type of budget you’re basing everything off a single month at a time, so you have the ability to be a little more flexible. You can keep adjusting the budget and you can make sure that you’re accounting for things that are important to you when they come up.

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You get to decide what’s actually important to you with this type of budget. That’s going to be the best part and the reason that you’re going to stick with it.

Whether you want to save more or spend in certain categories, you’ll be able to keep yourself on track.


Here are the main cons you should consider when thinking about the zero-sum budget:

You will have to spend some time overall to get this budget to work for you.

You have to keep adjusting each month at the very least so you can make sure you have enough money coming in to cover what’s going to be going out. That can be a little much for some people.

It can be difficult to really get a good understanding of this type of budget, so you may need a little training or someone to point you in the right direction

You’re going to have to be disciplined in order to stick with this type of budget.

You want to make sure that you’re getting strict but not too strict because that can actually cause you to fall off the wagon.

Those who have a flexible income may find it a little more difficult to stick with this type of budget because you have some months where you don’t make as much money.

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A zero sum budget is actually a great choice if you don’t have enough money, as it forces you to focus on your essential expenses.

You will allocate what funds you do have for your basic necessities, such as your rent, food, utilities and transportation. You can then decide what you will do with your remaining funds.

A zero sum budget may not work for you if you want a more passive budget system. A zero sum budget does require proper management every month, since you need to account for any variable expenses. This means that you will need to take time out before the start of every month to determine your essential expenses and discretionary spending.

This type of budget may also not be the best choice for you if you tend to feel restricted by too much financial control.

As with a standard budget, knowing exactly where your money is going will help you to make more conscious spending decisions.

However, one area where a zero sum budget can help you to increase your savings is that you allocate every dollar of your paycheck. You will need to allocate an amount to savings, rather than simply having an ambiguous “whatever is left” approach to your savings account.

Before you can start your own zero sum budget, there are several things you need to know. Firstly, you’ll need to know your typical income. If your income varies, you can still use a zero sum budget, but you will have to work your budget each month, rather than having a basic template to use.

You will also need to know all your typical expenses. So, collect your utility bills, bank statements, receipts and debt records, so you can calculate what you need to spend and where. It is also a good idea to write a list of categories that will help you get organized. Don’t forget to include a savings category.

Finally, you need to know your priorities, which will help you to focus on your specific financial goals.

Implementing a budget is the simplest way to achieve your financial goals. Whether you want to save up an emergency fund, get out of debt, plan your retirement or make a large purchase, a budget will help you to remain in control of your finances.

Having a zero based budget allows you to have the freedom to purposely spend money. Since every dollar is accounted for, you can plan how you want to spend your money rather than allowing it to be out of control.

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