Zero-Sum Budgeting: How to Make It Work for You

For most people, budgeting is not a fun exercise. Instead it’s an evil that they don’t typically see as necessary so much as helpful. Let’s reframe things for a minute and think about budgeting from a new perspective. A budget is essentially a way for you to achieve your goals whether they be financial in nature or not. But, not all budgets are created equal and today we spend some time talking about the zero-sum budget, how it works, and why it may help bring you closer to those goals.

What Is a Zero-Sum Budget?

A zero-sum budget is a budget that is designed to make the most out of every dollar you earn. It starts with the amount of income you’ve brought in and allocates every dollar to a specific category. The difference from a “normal” budget is that literally every penny is assigned a job. That means, not only does your budget include line items for rent, groceries, utilities and the likes, but it also includes line items for things like saving for vacation and funding your emergency savings account. By including the latter on the face of your budget, it’s a monthly reminder to “pay yourself first” and fund these goals instead of finishing your month on budget and blowing the remainder by either spending it on things you don’t need or letting it sit in your checking account.

To learn more about how to pay yourself first without going broke, you can read about it here.

How Does It Work?

So how do you actually make a zero-sum budget? If you’re using the good ole pen and paper, at the top of your page you will start with your actual income or the amount currently sitting in your checking account since you may have excess funds sitting in your account from prior months that still needs to be allocated. Next divide your budget up into a five categories:

  1. Obligations: These are things you can’t live without and can’t easily change. Examples include rent, utilities, daycare, gas, and groceries.

  2. True Expenses: These are items or services that you may spend money on any given month, but they may not be essential your life or may vary from month to month. Examples here could include charitable donations, clothing, dry cleaning, and car repairs.

  3. Debt Payments: Next add a category for any debt payments you might have. These could include car payments, student loans, and credit cards. (Note: It usually makes sense to leave your mortgage under the obligations category.)

  4. Goals: Here’s the section where you designate funds to pay yourself. Here you list out your goals such as saving for vacation or an emergency fund.

  5. Fun Money: This is where fun comes back into budgeting. In this category you can designate any extra money for dining at restaurants, entertainment, or other fun things your heart may desire. Notice, however, that this category is last for a reason.

Once you’ve listed out your expected expenditures within their respective categories, you’ll need to assign a budgeted amount to each line item. This should reflect a realistic amount that you think you’ll be able to stick to this month. When you sum all the budgeted line items and subtract them from your actual income, you should get to zero. Leave no penny behind… if you have budgeted for all of your expenses and have even a dollar left, assign that dollar to one of your goals or accelerating your debt repayment. Spend some time daily, or at least weekly, watching your spending so you can ensure that you are staying on target. You should also revisit these budgeted amounts every month as every month is unique and may require some rejiggering of your budget.

If you’re not feeling ambitious enough to take this on alone, I highly recommend You Need a Budget (YNAB). For $5 a month you can get access to this awesome zero-sum budgeting software that sets everything up for you. They also offer regular classes and an impressive amount of tutorials and customer support. You will absolutely make your $5 back every month and more! (FYI: This is not a sponsored post. I just really like YNAB.)

Here’s a Trick to Make It Work for You

The biggest problem you can run into when using zero-sum budgeting (especially if you’re using YNAB) is the presentation of how you pay yourself. In order to make this work, you essentially need to remove the amounts you’re are saving from your checking account. They need to look like an expenditure from your account. The best way I’ve found to do this is by moving that money either to a holding account for the month (an easily accessible savings account) or set up automatic contributions to your investment accounts.

How Can It Benefit You?

Ultimately zero-sum budgeting can be an integral tool in achieving your financial goals. By setting these goals directly into your budget you are reminded of how much you need to fund these accounts and are able to prioritize them. At the end of the day you can get a lot more out of your money when you put ALL of it to work for you.


Written By: Lindsay Dell Cook

Lindsay Dell Cook is a CPA, finance writer, and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband and adorable daughter. When she's not working, she enjoys spending time with her family, taking their lovable mutt for walks, or reading a good book while buried under a pile of cats.