Zero-sum budgeting is a technique that can help entrepreneurs make better financial decisions. Budgeting is the act of planning the inflow and outflow of money over a given time-period. It’s a popular strategy for business owners to perform as a way to project revenue and expenses so that they can make strategic decisions based on the projections.
Budgeting isn’t limited to businesses. Individuals can actually use budgeting to optimize their earnings and avoid wasteful expenditures. Zero-sum budgeting is one of the many budgeting techniques that can be used to make the most of every dollar.
Zero-sum budgeting requires using the previous month’s income to fund the current month’s expenses. As long as your earnings are relatively consistent, you can use zero-sum budgeting to optimize every penny.
In fact, that’s exactly what zero-sum budgeting is designed to do. You are tasked with spending every single penny you earned from last month’s income to some expense this month. The goal being, at the end of your budgeting report, you should have $0 remaining. You’ll need to allocate enough money to cover your fixed expenses like rent/mortgage, loans, and utilities. For the rest, try to make educated plans based on historical data. If you have extra left over, assign that money to savings or other long-term categories.
Take the quiz below by Health IQ to test your knowledge of zero-sum budgeting. If you have any other budgeting techniques that you like, add them in the comments below!