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Growing your savings with a zero-sum budget

By Holly Johnson

Growing your savings with a zero-sum budget

People would probably laugh if they saw my checking account balance toward the end of the month. There have been times when I've had as little as $20 in it, and all I could do was count the days until the 1st of the month rolled back around.

However strange this may seem, rest assured that it's totally intentional. That's because I purposefully spend every dollar we come across in a monthly planning and savings scheme sometimes referred to as a "zero-sum" budget.

The purpose of a zero-sum budget is to "spend down" all of your monthly earnings until you completely run out of money each month. This accomplishes several things: First, using a zero-sum budget forces you to allocate all of your money to something, which cuts down on waste. Second, zero-sum budgeting requires that you pay money to savings and your investments as if they were bills, which helps you save more than you would have otherwise. And third, a zero-sum budget forces you to commit to spending thresholds in each category.

That all sounds great, right? If you're interested in creating a zero-sum budget of your own, the following steps can help.

Get a month ahead

One strategy for zero-sum budgeting is getting one month ahead of the game. To do this, I suggest using savings for your regular bills and spending while stashing away your monthly earnings at the same time. This strategy is especially advantageous for those with a fluctuating income since this month's bills will always be paid with last month's earnings.

Determine your income

Next, figure out how much your family makes on any given month. It doesn't matter whether you're paid weekly, bi-weekly, or just once each month either. The process is the same. Simply figure out how much money you actually bring home each month and write it down at the top of your zero-sum budget.

List your bills

Fixed bills are easy to plan for. However, some bills -- such as utility payments -- can be much harder to predict. Regardless, it's important to list all of the bills you have to pay in a given month. Include things such as housing, gas, electric, car payments and insurance. For bills that fluctuate, estimate the best you can. It's also OK to overestimate for some bills if you think that may help. Any overage can either be transferred to your savings account later or used up in any spending category that ends up costing more than you planned.

Decide how much to save

Once you've listed all of the bills you're required to pay this month, it's time to figure out the difference between that amount and what you earned last month. And this is where the fun begins. The difference between your earnings and your bills is all money that can be saved or invested.

Once you figure how much money you have left, it's important to list this amount, and pay it, as if it were a regular bill. Remember, the point of a zero-sum budget is to leave you penniless by the end of the month. Don't let your allocated savings linger in your checking account for too long or you run the risk of spending it.

Track your progress

Once you've determined your monthly income and listed your bills, all you have to do is follow the plan. Transfer any funds you've decided to save immediately and pay your bills as they come due throughout the month. Check in frequently to see how much you've spent in each category, and make adjustments as needed.

The first few months may be tricky and you may find that you need to adjust certain categories to be more realistic. If you do, try not to see it as a failure. The whole point of a zero-sum budget is to become more purposeful with your spending, not to punish yourself.

Once you've fine-tuned your zero-sum budget, you may notice a sharp uptick in your savings rate. And the truth is, those savings can be addictive. But that doesn't mean that the process will always be painless. In a lot of ways, a zero-sum budget can feel like a smack in the face, simply because it forces you come to terms with your spending and make changes that might feel uncomfortable at first.

On the other hand, those changes can free up funds for the things you really want out of life. And if you ask me, that's the whole point of using a budget in the first place.

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