How to Write a Zero-Sum Budget

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Are you trying to live on a budget but aren’t doing so well?  Do you write your budget down, but then have a hard time following it?  I have been there and done that, and I finally broke free from that cycle when I started using a zero-sum budget.

We did our budget completely wrong the first year of our marriage.  We have never lived on a budget before, and we thought that we could simply divide our bills evenly between our bimonthly paychecks and “just not overspend.”  I actually believed until very recently that this was the definition of budgeting.  Oh boy, was I wrong!

Every paycheck, after paying bills and setting aside money for groceries, gas, and other expenses, we would have “extra money” in our account.   We were so excited when this happened, and we would spend that extra money on things we didn’t really need (like eating out).  We justified our spending by telling ourselves that if it was in our account, it was in our budget.

It wasn’t until my husband and I signed up for Financial Peace University, started watching Dave Ramsey’s videos online, and began reading his books that we realized not only how many mistakes we were making with our budget, but how much money we were wasting by not doing a zero-sum budget.

A zero-sum budget is when your income minus your expenses equals zero.  I wrote this post describing why this budget is so important, but now I want to give you a step-by-step guide for how to write a zero-sum budget.  So get out a pencil (with an eraser), a piece of paper, and a calculator—and let’s get to work!

First, write down everything you spend money on, and how much you usually spend.

Seriously, everything.  Mortgage, utilities, car, gas, groceries, Starbucks, household supplies, and lunch with your coworkers.  Write it all down, and then double check that you are not missing anything by going to your bank statement and looking at your expenses.  Be sure to record any payments you make on debts as well (like a mortgage payment, car payment, or student loans).  Organize these expenses into categories such as groceries, clothing, housing, transportation, and entertainment.

If you are just starting a budget, you will probably have a rude awakening when you see how much you spend on things you don’t need.  Don’t worry!  The whole point of a zero-sum budget is to intentionally change your spending habits.  For now, just write everything down.

Then, write down the things you want to budget for.

Do you want to start saving money?  Write it down!  How about a vacation budget?  Do you have debt you want to pay off?  Has it been forever since you have tithed or given to charity?   Do you want to start saving for college for your children?  Write it down!

To give you an idea and some inspiration, my husband and I have recently added the following things to our budget:  emergency savings, tithing, college savings, and a Disney World trip.  Dream big!  It’s okay if you don’t have the money for everything on this dream budget list, but just writing down what you want to do with your money one day will be a huge motivation to stay on track!

Have a realistic idea of your take-home income.

If you are a salaried employee, this is easy, because your paycheck should be the same every time.  If you are a small business owner, hourly employee, or your paycheck varies—lowball it.  Write down the amount you made in the leanest month last year and then make a plan for any additional income you make above this baseline.

Adjust your budget.

Okay, so you already have an idea of what you usually spend money on and how much you make.  Chances are, those numbers don’t match—so it is time to make some adjustments.

Take a look at what your biggest expenses are each month.  Do they need to be that high?  Can you cut some things down from what you are currently spending and relocate it to savings, paying off debt,  or one of your dream budgets?

Try to make a few changes to lower the budget for things that aren’t strictly necessary, and then relocate the funds to a different category that will help you with your financial goals.  Unless you have a lot of mouths to feed, you do not need $500 a month for groceries.  Most families can live comfortably on $300 a month or less for this budget category.  You could move that $200 that you save from the grocery budget to the emergency fund budget.

Did you have any spending habits that shocked you when you took a look at your bank statements?  Great!  These are the easiest to cut down on!   It may not shock you how much you spend on gas (it is a necessary budget to have), but if you spend just as much on Starbucks as you do on gas—cut from your coffee budget!

Every dime that you make should fit into a budget category.  Change and adjust things so that your income minus your expenses equals zero.

If you have a limited income (and who doesn’t?), there will be some budget categories that you will have to cut out.   You can bring them back later when you make more income, or when you reach some of your more important financial goals—for instance, saving 3-6 months of expenses and paying off any debt.

It isn’t good to have “extra” money.  Assign that cash somewhere if you are in this situation!  Put it into savings if you don’t have 6 months of expenses in the bank, or put it towards debt if you have any.    Remember, your goal in creating this budget is to come out with $0 at the end of every month!

Stick with your budget.

When you are trying to follow the budget for the first time, you will realize you made some mistakes when you calculated the budget.  The first time my husband and I tried to follow our zero-sum budget, we forgot about dog and cat food and ended up going over.  That’s okay!  As you practice writing your budget every month, you will get better at it!

Following the budget is the hardest step—it takes a lot of discipline and self-control to stick to your budget in each spending category, but it pays off big time!  You no longer need to stress about money or constantly double check your bank balance, because you have already done the budget.  Just put your money to work, and spend it intentionally according to your zero-sum budget.   

It is hard to get used to at first, but over time you will feel how much more freedom you have when you have your finances under control—rather than being controlled by them.  Trust me, following the budget is much less stressful than second guessing how much money you have in the bank when you write a check or go to the grocery store.  You will learn to love the peace that comes with sticking to a budget—it is so much better than the panic you will inevitably feel if you splurge on something.

A zero-sum budget really is the best way to be intentional with how you spend your money.  When your expenses equal your income on purpose, your money has a purpose!   And this kind of budget is not difficult to write—just write down what you actually spend money on, what you want to spend money on, and create a budget so that your income minus your expenses equals zero.  Stick to the budget, and make little adjustments every month as necessary.  Before you know it, you will be reaching your financial goals!

What have you struggled with when it comes to setting—and sticking to—a budget?  What has worked for you?  Let me know in the comments!

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