Take back control of your finances using a zero sum budget. This easy budgeting method will help you gain control of spending and save for what matters.
(Updated January 2018)
Raise your hand if you are living paycheck to paycheck.
No judgment. We’ve all been there.
My hubby and I were in the same boat early in our relationship. We knew we were spending more than we were bringing in.
The thing was, we didn’t care.
Don’t get me wrong, we’ve never been the rebel type. We just weren’t making enough to cover our expenses and had to pay our bills somehow.
Credit cards felt like an evil necessity and financial stability felt like something that would come one day when we finally made these magical salaries.
As it turns out, the higher salaries weren’t the magic we needed to get our finances in order. We just needed to learn how to tell our money what to do.
When we finally decided to do something about the mounting debt we were in, our first step was to figure out how to set up a budget.
It took a bit of trial and error (and a whole lot of mistakes), but we finally figured out how to set up a budget that worked for us. We’ve found a way to budget that has allowed us to pay off credit card debt, medical bills, and car loans. All in all, we’ve been able to pay off tens of thousands in debt and save for the things that matter most to us.
What is a Zero Sum Budget?
The budgeting method that worked best for us is called a zero sum budget. The basic concept is to set your monthly budget so that your income minus your expenses leaves you with $0 at the end of the month.
Wha? You want me to spend all of my money???
Stay with me, I know that sounds like a horrible idea.
The crucial part of this method is that you need to treat financial goals as a monthly expense. Any money that you have left after paying your bills should be budgeted towards these goals, leaving you with nothing left at the end of the month.
Let’s look at a very simple zero bases budget example where your goal is to build an emergency fund:
Monthly Income: $3000
Car payment: $300
Gas (for car): $160
Savings/emergency fund: $200
Total Expenses: $3000
Your budget will vary from the above example depending on your personal situation. You may not have daycare expenses, or you may want to budget for dining out. Just make sure to include all the expenses that you need to spend money on each month. You want to be as accurate as possible, but if the expense varies from month to month, it is better to estimate than to not account for it at all.
For the zero sum budget to work, it’s important for you to put the extra money in your budget towards your financial goal. If your goal is to pay down debt, be sure to check out my post on How to Get Rid of Debt with the Snowball Method.
Where is your money going each month?
If you are anything like me, the money in our checking account has a way of magically disappearing each month if I’m not careful. Once I sat down and added up how much money was coming in and how much our expenses were each month, I was surprised to see how much money we should have left.
What was even more shocking was to see where our money was going. We were piddling away our hard-earned money on non-essentials—eating out, morning coffee, and other random purchases here and there that added up over the course of a month. It was clear that we needed to form new habits when it came to our spending.
Whether you choose a zero sum budget or some other form of budgeting, the important thing is that you start something. A budget will give you an accurate picture of your financial situation, and it puts you back in control. Instead of wasting that “extra” money each month on things that won’t help you reach your financial goals, you are making your goals a priority.
Make that first step and take a hard look at your income and expenses. Knowing your financial situation and making a plan on how to spend your money will help you to finally work towards making those goals a reality.
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