Budget Your Money with the Zero-Sum Method

Are you tired of living paycheck to paycheck and never having any savings? Budget your money with the Zero Sum Method to take control of your spending!

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Does your budget need a makeover? I previously talked about the 50/20/30 Method but if it's not for you, then maybe the Zero Sum Method is what you're looking for. The frustrating thing about budgeting is sometimes, despite our best efforts, we find the bank account empty and unable to pay a bill until the next paycheck comes in. Or we may feel like money just slips through the cracks with miscellaneous expenses and purchases.

If you're tired of living paycheck to paycheck or of losing track of where your money is going, then the Zero-Sum Method may be your perfect guide.

How Does the Zero Sum Method Work?

The Zero-Sum Method has two main elements to it.

  1. Every dollar of income should be allocated to a specific purpose so that monthly income minus monthly expenses equals zero
  2. For added financial security, you should use the previous month's income to pay the current month's expenses

This budgeting method works as a powerful tool because it requires you to be purposeful with every single cent of your income by "spending" it. Now before you jump up and head to Target (which I recommend banning, by the way), you should know that the spending you do in this method isn't what we would normally consider spending at all. Categories like savings, charity, etc. are viewed as what you should "spend" your money on.

Also, I know you might be looking at that second part thinking, "Um, that sounds easy to do once you get there but how do I get a month ahead on my paycheck?" I'll give you a few pointers in the step-by-step section down below.

Are you feeling a little confused? Don't run away just yet because it's simpler than you think!

(Pssssst! If you like this blog post, then you will love my book The Beginner's Guide to Budgeting, now available on Amazon.com!)

Zero Sum Method Examples

Good Example:

Total Monthly Income: $3,000

Total Monthly Expenses: $3,000

Monthly Expenses:

  1. Mortgage $1,200
  2. Savings/Emergency Fund $400
  3. Car Payment $200
  4. Auto Insurance $150
  5. Groceries $500
  6. Utilities $150
  7. Cell Phones & Internet $200
  8. Clothing $50
  9. Charity/Tithing $150

*I made this budget extremely basic for the sake of this post. I'm assuming health costs and retirement contributions are already taken out.

This first example falls in line with the Zero-Sum Budget as every dollar has been allocated to a specific purpose, including savings and charity "expenses." Since total monthly income minus total monthly expenses equals zero, we are following the rules perfectly.

Bad Example:

Total Monthly Income: $3,000

Total Monthly Expenses: $2,800

Monthly Expenses:

  1. Mortgage $1,200
  2. Savings/Emergency Fund $200
  3. Car Payment $200
  4. Auto Insurance $150
  5. Groceries $500
  6. Utilities $150
  7. Cell Phones & Internet $200
  8. Clothing $100
  9. Charity/Tithing $100

This next example does not fall in line with the rules as total monthly income minus total monthly expenses equals $200. If you have paid all of your bills, spent all of your fun money, contributed to your savings, and still have a balance, then it's time to adjust your budget.

Zero Sum Method Step by Step Tutorial

Step 1: List all of your income

List all of your income, making sure you underestimate figures for flexible income. Like I mentioned in this post about creating a budget, you need to stop depending on any above average paychecks. It only causes problems if you find yourself coming up short on cash when the flexible income is low.

Step 2: List all of your expenses

It's time to get through the rough stuff! List every expense you normally have and even the extra ones too. Don't be worried about how it looks or how long the list may be. The important thing is that you're taking control of your finances so, whatever you do, don't hold anything back.

It's importatnt to list even your daily Starbucks' coffee or weekly trip to the movies. Excluding even the smallest expenses won't give you the clear picture you deserve to have of your finances.

Step 3: Do the math and make adjustments as needed

Let's look at the Bad Example listed above. Income minus expenses resulted in a leftover of $200. So we adjusted the charity/tithing and savings/emergency fund categories in order to bring the balance to zero. You may find that you need to adjust your expenses up or down. You may need to turn off your cable or lower your grocery bill. Just keep working on the numbers until you reach zero.

Step 4: Use the current month's paycheck to pay next month's bills

For example, you should pay for September's bills with August's paycheck(s).

It is suggested that you live one paycheck ahead of time on the Zero-Sum Budget, though no one's going to penalize you if you don't. This is especially helpful for people who depend on a variable salary as it gives them the added security that their bills will be paid every month.

But actually getting a month ahead of your paycheck can be very difficult. I recommend starting by lowering your expenses as much as possible and finding additional ways to make money.


  1. Cut out unnecessary expenses (Check out my Rockstar Budget post on how to tell the difference between needs and wants.)
  2. Sell stuff around the house you no longer want or need
  3. Pick up extra hours at work or find a temporary weekend or night job
  4. Set aside or use your current savings to get a month ahead on your bills
  5. If you receive a paycheck every two weeks (as opposed to the 1st or 15th of the month) you should end up with a few additional checks throughout the year. Be prepared to set these checks aside until you have saved enough to get a month ahead on your bills (Example: Someone who is paid every other Monday might receive 3 checks in the month of August 2015.)

The frustrating thing about budgets is that sometimes we don't know where to start. It can be disheartening to know our personal finances need to change but are stumped with where to begin. This budgeting method provides very clear, easy-to-follow guidelines that can help get you started.

Do you use the Zero-Sum Method to budget your finances? Do you love it or hate it? 

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