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Let me start by saying this:
Budgeting is not about deprivation or extreme frugality. It’s about knowing where your money is going, allowing you to align your spending with your goals and values.
What exactly is zero-sum budgeting?
Why, I’m so glad you asked!
When we first started budgeting and tracking our spending, I had never heard the term “zero-sum” or “zero-based” budgeting.
It’s exactly what we were doing, but had no idea what it was called.
The point of zero-sum budgeting is that every single dollar you have coming in has a specific job to do. You budget all of your income until the balance is zero.
Income – expenditures = $0.00
That doesn’t mean you spend every dollar. The whole point is that you know where all your money is going each month. Some dollars’ job is to get spent, but some get saved and invested. It may be to buy food, pay rent, be saved for vacation or an emergency, or perhaps invested for your retirement or kids’ education.
It’s kind of like breaking up with the dollars you’re spending, but for a good reason (it’s not you, it’s me…and that I need to eat this week), dating the ones you’re budgeting for next month’s spending or shorter-term savings, and marrying the ones that get invested for the long haul, that will fund your sweet retirement.
Yea… that’s what it’s like…
When I started budgeting I didn’t realize there was an “option” to budget without using this method. It just doesn’t make sense to me.
How do I zero-sum budget?
The most straightforward answer to that question is to know how much money you have coming in for a specific period, say, a month. From there, you allocate money to each category of your budget until all categories add up precisely to the total amount coming in. Viola.
You can set up a spreadsheet that accounts for all your dollars, which we started with, years ago. It worked, but it was tedious and annoying.
There’s an app for that
Next, we moved on to the free version of EveryDollar and used it for over two years.
I was happy with EveryDollar, but that too got a little tedious and then discovered You Need A Budget (YNAB).
YNAB has a cult-like following, and for a good reason. It’s an impressive spreadsheet-based platform that takes the tedious part out of spreadsheet budgeting and provides you with some powerful analytics and trends so you can truly take control of your spending. It requires you to stay engaged but does much of the heavy lifting for you. Wins all around.
Why Should I Budget to Zero?
If you don’t know where all your mulah is going, then what’s the point?
If you budget everything you need for the month and have $5 or $5000 left, do you let it just sit there without knowing what it’s purpose is?
I’m sure it’s just my engineer/type-A/money nerd personality, but that would drive me nuts. I like things to be neat and clean and balanced to zero.
Even if the answer for the “leftover” money you hopefully have at the end of the month is just to let it be a buffer in your checking account, or to move more money than you originally planned to your savings account, then that’s the answer and you’ve arrived at zero.
Isn’t that more comforting than having no idea?
Is It Hard?
Zero-sum budgeting is easy! It requires a bit of time to get everything set up at first, but any sort of budgeting or money tracking system will require the same.
Using a platform like YNAB will do much of the work for you, allowing you to spend your time on the actual budgeting piece, and less time setting up and building your system. YNAB also offers workshops and helpful tips and tricks to assist if you run into a roadblock.
Ultimately, you have to find the right solution for you. Personal finance is personal, and there is definitely no one-size-fits-all solution.
If you haven’t given zero-based budgeting a try, I highly recommend you check it out and see if it’s a good fit for you. There’s something extremely empowering about knowing where all of your money is going each month, and not having to stress about it.
I’ve been doing this for a long time, if you have any questions, please ask, I’d love to help!