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Give every dollar a purpose with zero-sum budgeting

What if you could have a brighter financial future by spending every dollar you earned?

Sounds counter-intuitive, doesn’t it?

Zero-sum budgeting forces you to give every dollar a job so that your bottom line totals zero at the end of each month. You use last month’s income to pay this month’s expenses, including everything from bills to savings.

“If you don’t use every single dollar, you end up being tempted to spend that money on things you don’t really need,” says Erin Engler, community outreach and education representative at Dupaco Community Credit Union’s Asbury, Iowa, branch.

Engler has practiced zero-sum budgeting for as long as she can remember.

“It helps me save money and not be wasteful,” she says. “It also really helps me focus on getting my debts paid off quicker, and that saves me money in the long run too.”

Curious whether this budgeting approach would work for you? Consider these tips before you switch:

Review your current budget

You first need to know your expenses. Write down your monthly, semi-annual and annual expenses.

“This is where people miss out. Make sure you know where your money is going and how much you’re paying in bills every month,” Engler says.

A free Dupaco Money Makeover can help you review your entire financial picture, look for leaks in your budget and help you create a spending plan that’s right for you.

This is a good time to reevaluate your spending. Are you paying for services you no longer use? Can you get a better deal with another service provider?

Work with the bare minimum

Salaries can fluctuate, depending on whether you earn overtime or bonuses. When creating a zero-sum budget, work with the bare minimum of your potential to earn, Engler says.

That way, you’re not spending more than you earn. If your paycheck is higher some weeks than others, use those dollars to boost your savings or pay down high-interest debt.

Use multiple accounts

Because your budget includes several categories—such as mortgage or rent, loan payments and other expenses—it’s helpful to utilize more than one account to help you organize where every dollar goes.

Dupaco allows you to open multiple You Name It Savings Accounts and free checking accounts. Use these accounts to help you systematically set aside money, through either direct deposit or automatic transfers, for each of your budget categories.

“Every single dollar of my paycheck has a home, whether it goes into a vacation savings account, car insurance account or something else,” Engler says.

She also uses a checking account to give herself an allowance, which goes toward miscellaneous expenses.

Even if you pay your car insurance every six months, you can set aside money from each paycheck so the funds are ready when you receive the bill, Engler says.

“The more you can save systematically, the easier it will be to stay on track,” she says.

Account for variable expenses

Not every expense is the same each month. Your utility bill, for instance, can fluctuate from one month to the next. To make these expenses fit into a zero-sum budget, you have two options:

  • Enroll in a budget-billing service: Many utility companies offer a service that allows you to pay the same amount each month by averaging your heating and cooling costs throughout the year.
  • Overestimate these expenses: Determine the worst-case scenario for fluctuating expenses, and budget for the highest amount. If you have money left over, use those dollars to grow your savings or pay down debt.

Monitor your budget

While saving and paying bills automatically can help you stay on track, it’s still important to regularly monitor your financial accounts. You can use Dupaco’s free eNotifier Alerts to keep tabs on account activity.

“Not only does it help to make sure you’re staying on track with your budget, but it helps you detect fraud,” Engler says.

If you notice you’re routinely spending more or less in some categories than you projected, adjust your budget so it still totals zero at the end of each month. Other factors that might impact your budget include a pay raise or increase in property taxes.

Start at the right time

Because a zero-sum budget uses last month’s income to pay this month’s expenses, getting started can cause a temporary strain on your income.

The good news is this is a great time of year to get started, Engler says, because many taxpayers just received a refund. Consider using your tax refund to get one month ahead on your finances so you can pay your bills the following month. Another option: start during a month you receive three paychecks instead of two.

Be on the same page

If you share your finances with a significant other, it’s important that you’re both on the same page with your budget, Engler says.

“If one person is really on top of your expenses and knows where your money is going and the other person doesn’t care, your budget isn’t going to be successful,” she says. “Everybody has to be on the same page.”

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