Save more with zero-sum budgeting

Woman in a green sweater looking at her pink piggy bank, holding it in her hand.


MoneyPlus Features Team

19th May 2017 at 5:21am

Do you go through the year constantly trying to save as much of your income as possible, only to fail because your spending is out of control?

I’m ever the optimist, and I often overestimate how much I will manage to save in a month.

Instead of cutting back to meet my goals, I move cash from my savings accounts to fund the lifestyle I’m used to.

It’s a vicious cycle that results in me having too little in my savings.

But how do you break the cycle?

Traditional saving methods tend to follow the same mantra as famed business magnate Warren Buffet who advises; ‘Do not save what is left after spending; instead spend what is left after saving’

But this traditional method has a fresh new name, zero-sum budgeting.

What is the zero-sum budget?

Well kept wallet  explains it as ‘where you allot every penny of income, essentially leaving you with zero money in hand at the end of the month.’

It’s as simple as that, but before you can reap the benefits of this brilliant budgeting style, there’s some ground work to be done…

Know your income

This method isn’t right for everyone, perhaps you work differing hours or are self – employed and don’t have an exact salary. Whatever the reason, if you don’t have an income which remains a constant this isn’t the savings strategy for you.  For it to work you need to have an income which is the same month in, month out.

Map out your essential outgoings

Take the time to really analyse your essential outgoings to get a good picture of how much of your pay packet has to go on the absolute musts.

It’s not how much you spend on clothes or trips to the cinema, I’m talking bills, rent, money for food and commuting. Everything you simply must pay for each month. Total these all up and make a note of the monthly cost.

Map out your non-essential outgoings

So, you’ve figured out everything you have to pay for each month, now you need to figure out how much you spend each month on non-essential outgoings. But how?

Most of us have access to our bank statements online, so have a look and put your non-essential spends in to categories such as ‘entertainment’, ‘clothing’ and ‘eating out’.

This can be a really eye-opening exercise and make you realise just how much of your hard-earned cash goes on buying things that aren’t really necessary.

Cut your costs and take control!

So, you now have a pretty good view of your spending habits. Don’t worry if you don’t like what you see, or if it’s a big shock. You’re going to take control.

Go through your spending and try to cut it down by assigning yourself a budget for each category, for example if you spend £100 on eating out, give yourself a £60 budget instead.

Go through each category and cut your costs, but remember to be realistic.

Give all your cash a job to do

Now that you know all of your spending categories and you’ve assigned them all a figure, it’s time to give your ‘left over cash’ a job to do too. This is the essence of zero-sum budgeting.

Having money sitting there without a purpose leads to spending on stuff you simply don’t need and this is where zero-budgeting can make a big difference.

So, give that money a job, as US website life hacker explains, ‘Once you determine your own excess cash flow, you can decide where that money will serve you best. For instance, if you’re still in debt, you can decide to pay X number of additional dollars toward those debts.’

Give your money a purpose, whether it’s upping your savings, or paying off debt, or both, and make the money you work hard for work for you too. You deserve that much.

A great tip is to set-up direct debits to pay off your debt or to up savings, that way you don’t miss the cash, or be tempted to squander it.

Stick to it

Now you need to live within the budget you’ve set yourself, and stick to it.  It’s easier than you may think.

After all, your savings will be set up by direct debit to leave your account before you even see it in your balance. What you don’t have, you won’t miss.

So why not try spending all of your money? It could be the key to upping your savings and becoming a new, financially focused you.