What is zero-sum budgeting

what is zero sum budgeting

Zero-sum budgeting is one of the most straightforward strategies out there. The goal is to allocate all of your income into different categories until you get to zero. This budgeting method definitely has some unique advantages but may not work for everyone. Keep reading to find out more about zero-sum budgeting and whether it is the right option for you. 

How To Start Zero-sum Budgeting 

To start the zero-sum budget, you need to figure out your exact monthly income and expenses. Once you have that, you’ll have to make some spending categories. You can do this electronically through an app, or spreadsheet, or you use pen and paper. With a budgeting app, you may be able to have automatic payments set up from your bank account, so you don’t even have to think about where your money is going. 

For most people, their spending categories may look like this: 

  • Groceries
  • Utility bills
  • Medical costs/prescriptions
  • Child care 
  • Rent or mortgage payment
  • Monthly bills
  • Debt payments
  • Savings and investing goals

Once you have all of the different categories, you can start adding money to each category. You will have to keep going until you have zero dollars left. This means you’ll have to plan ahead of the month before you spend your money. Sounds pretty simple right? 

That is because it is! The zero sum budgeting method is one of the easiest methods out there, one reason it is popular for beginners. Even businesses use this method. An April 2022 survey done by Gartner Inc. found that with over 300 global finance executives, 26% said they planned to zero-base their budgets.1 

If it’s your first time creating a budget, learn more about common budgeting mistakes so you can avoid them.

Some Advantages of Zero-sum Budgeting

There are all kinds of advantages you’ll get from using this budgeting strategy; here are a few: 

Can Help Increase Your Credit Score

The great thing about using a budget, including this one, is that it will help you make payments on time. When you pay all of your bills on time, like a payment for your payday loan, credit card, car payment, etc., it will all show up on your credit reports. Any positive payment history will then help boost your credit score! 

No Math Needed To Use This Budgeting Method

One advantage unique to the zero-sum budgeting method is that you don’t have to do any math with it! Some budgets can become complicated, but this one is as easy as it gets. 

Zero-based Budgeting Can Help People Who Impulse Buy

Impulse buying is making purchases without really thinking about them. Usually, these kinds of purchases are marketed to get people to spend money without really thinking about it. With the zero-based budgeting process, you won’t have to worry about making impulse purchases because all of your money will be allocated to all the categories you have set up. Less impulse buying means spending money on things that actually matter, like building an emergency fund or saving for a long-term financial goal like buying a home. 

Can Help You Prioritize Money Goals 

You may realize that it doesn’t make sense to have a large chunk  of your income go to rent if you can afford to purchase a home. From here, you can take some funds from your spending categories like recreation, and add that to a new category of “home purchase.” Over time these savings can help you have the needed funds to put money down on a house! 

Another example may be with debt. Most people have some form of debt, whether they have payday loans, title loans, bad credit loans, student loans, or personal loan options, you may not be aware of exactly how much money is going towards repayment until you have a budget. With the zero-sum method, if you want to pay off your debt faster, you can easily prioritize any leftover money towards that goal. 

When you know exactly where your money is going, it will be easier to set goals and achieve them. 

Tips for Managing Irregular Income

Budgeting can be challenging when you don’t have a predictable payment schedule. But you can still use the zero-based budget with irregular income! Check out some tips below. 

TipDescriptionRelevance to Zero-Based Budgeting
Average Your IncomeCalculate the average of your income over the past 6-12 months. Use this average as your baseline for your zero-based budget.This helps in creating a more realistic zero-based budget, ensuring that your budgeting is based on a typical income level rather than fluctuating extremes.
Prioritize EssentialsList your essential expenses such as rent, utilities, and groceries. Ensure these are covered first in your zero-based budget.In zero-based budgeting, prioritizing essentials ensures that your most critical expenses are always covered, regardless of income fluctuations.
Create an Income BufferSet aside a portion of higher-income months into a savings buffer. Use this buffer during lower-income months.This strategy aligns with zero-based budgeting by allocating every dollar a purpose, including building a buffer for leaner months.
Flexible Spending CategoriesHave flexible spending categories in your zero-based budget that can be adjusted based on your monthly income.Zero-based budgeting is adaptable. In months with lower income, you can reduce spending in these flexible categories.
Regular Budget ReviewsReview and adjust your zero-based budget monthly to reflect actual income and expenses.Regular reviews are a core part of zero-based budgeting, allowing for adjustments to align with your actual income and spending patterns.
Set Realistic Savings GoalsBased on your average income, set achievable savings goals within your zero-based budget.Zero-based budgeting involves assigning a role to every dollar, including savings, which should be realistic and based on your average income.
Plan for Taxes and Large ExpensesAllocate funds in your zero-based budget for taxes and large, irregular expenses.In zero-based budgeting, planning for these expenses ensures you’re not caught off guard when they arise.
Use Budgeting ToolsUtilize budgeting apps or tools that support zero-based budgeting principles, making it easier to track and adjust your budget.These tools can simplify the process of managing a zero-based budget, especially with irregular income.

Zero-sum Budgeting May Not Be Right for Everyone

Although the zero-based budgeting system may work for many households, it won’t be right for everyone, and it may not always be foolproof. For example, this way of managing finances may fall apart when unexpected expenses arise. Variable expenses can happen to anyone, such as medical bills, vet visits, car repairs, etc., so you may have to make some adjustments, which can be a little frustrating after setting up a plan. 

If you have irregular income, your current month’s income may not be the same as last month’s income, making it hard to use this budget. For example, let’s say you are a freelance writer, and you get a ton of assignments one month, while another month, you get half of that. With that fluctuation, it can be tough to know how much money you will have for your budget. The good news is that there are other methods that make it easier to budget with irregular income

Other Budgeting Methods You Can Use

The zero-based budget is just one of the many ways out there that can help you organize your finances. There are many other kinds of methods that may work better for your money and lifestyle. For example, there are many budgets that help couples manage money together.

Here are a few others to consider if you want to try budgeting through another method: 

The 50/30/20 Method

The 50/30/20 method provides ideal percentages for household expenses. 50% of your income goes to necessary expenses like rent/mortgage, bills, groceries, etc., 30% goes to “fun money,” and the last 20% goes to savings. This method will work even if you have an unpredictable income. You’ll have to do some elementary math here, each month or every time you get paid, depending on how you want to approach this budgeting strategy. 

The Pay Yourself First Budget

The pay-yourself-first budget is also a straightforward budgeting method that doesn’t require calculations. With this strategy, you will first take care of your necessary payments and savings. After that, you can spend the rest of your money on anything you want! 

The Envelope Budget Method

The envelope budgeting method is the closest you will find to zero-sum budgeting. However, with this method, most people use cash and have paper envelopes they store safely. Each time you get paid, you will have to add funds to the different envelopes labeled with categories. From here, you can only spend the amount of cash you have in each envelope. 

Regardless of what kind of budgeting method you choose, remember that budgeting is one of the greatest tools out there to help you organize your finances. Over time you will be able to make your money work for you, accomplish short-term and long-term goals, pay off debt, and build a solid savings fund! And if you haven’t done it before, simple budgets like the zero-sum budget or the envelope budget are a great place to start!

Frequently Asked Questions About Budgeting

What’s the difference between zero-sum and zero-based budgeting?

While they sound similar, zero-sum budgeting focuses on allocating every dollar of your monthly income to specific expenses until you reach zero, whereas zero-based budgeting starts each new budget period with a ‘zero base’ and every expense must be justified, often used in business settings.

How do I determine my monthly income for a zero-based budget if it varies?

For variable incomes, average your income over the last few months. Use this average as your monthly income figure for your zero-based budget, and adjust as needed.

Can zero-sum budgeting help me build an emergency fund?

Absolutely! One of the categories in your zero-sum budget should be an emergency fund. Allocating a portion of your income to this fund each month is a smart way to ensure you’re prepared for unexpected expenses.

What are some effective budgeting methods for debt repayment?

Zero-sum budgeting is excellent for debt repayment. It allows you to see exactly how much you can allocate to debts each month, helping you pay them off faster and more efficiently.

How do I set realistic savings goals with a zero-based budget?

Start by reviewing your financial goals and bank statements to understand your spending habits. Then, decide on a savings goal that is challenging yet achievable, and include it as a key category in your zero-sum budget.

Is zero-sum budgeting suitable for long-term financial goals?

Yes, it’s quite effective. By assigning every dollar a job, including contributions to long-term financial goals, you’re actively working towards these objectives every month.

What’s the best budgeting style for saving money without feeling restricted?

Zero-sum budgeting can be great for saving money while still enjoying life. It ensures all essentials are covered, debts are paid, and financial goals are met, but also allows for discretionary spending.

How often should I review and adjust my zero-based budget?

It’s a good practice to review your budget monthly. This helps you stay on track with your financial goals and make adjustments based on changes in income or expenses.

How can I adjust my zero-based budget for unexpected expenses?

First, assess if there are any non-essential categories where you can temporarily reduce spending. Redirect these funds to cover the unexpected expense. If the expense is significant, consider tapping into your emergency fund, if you have one. Just ensure that your spending and savings still align with your overall financial goals.

Conclusion With CreditNinja

Zero-based budgeting involves keeping track and using all your income; that way, you know exactly where your money is going. Zero-based budgeting does have its advantages, however, it may not work for everyone! Fortunately, there are many other types of budgeting plans out there. No matter what budget you choose, taking the step to create a plan for your money is always a good one! For more tips on budgeting, savings, and finances in general, check out CreditNinja’s dojo!


  1. Companies Turn to Zero-Based Budgeting to Cut Costs During the Pandemic | WSJ
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