Zero sum budgeting means that every dollar of income you bring in is accounted for. When you get your paycheck, you know exactly how much is going towards food, gas, entertainment, savings, etc. When you’re done budgeting, you have no money left over.
While that might sound like a bad thing, it’s actually very positive. Let’s say you budget for all of your expenses and regular savings, but negotiated your cable and internet bill last month, so you have an extra $20. With zero-sum budgeting, you’d decide what to do with that extra twenty bucks. (Such as put it toward savings or paying off debt.)
Without a zero-sum budget, you might just let that $20 float, using it as a cushion, but it’s more likely it will get spent on something frivolous than on something that brings true value to your life.
Where did zero-sum budgeting come from? Personal finance author Dave Ramsey popularized the idea of zero-sum budgeting:
“If you cover all your expenses during the month and have $500 left over, you aren’t done with the budget yet. You must tell that 500 bucks where to go. If you don’t, you lose the chance to make it work for you in the areas of getting out of debt, saving for an emergency, investing, paying off the house, or growing wealth. Tell every dollar where to go.”
How to get started with a zero-sum budget. If you’re paid the same amount every paycheck through a W-2 job, setting up a zero-sum budget should be a breeze. Before that paycheck hits your bank account, sit down and decide where every penny will be spent (or saved.)
If you are a freelancer or otherwise have a fluctuating income, a zero-sum budget is going to be a lot easier to set up if you get a month ahead with your money. If it’s May, the money you are earning now will be stowed away and given a job in June. The money you earn in June will be stashed until you allot each penny in July. And so on.
Getting a month ahead may seem difficult. However, it provides amazing peace of mind. Not only will you know that you have enough to cover your expenses, you’ll also know exactly where it’s going. That’s much better than wondering where it went.
Read more: buff.ly/2IOYcFf