using the dollar amounts that fit your situation. Subtract $1,000 for a house payment, for instance, $350 for groceries, $300 for savings, etc. Continue to work toward zero as you give each dollar a job. In this example, let’s assume that what you have remaining at this point (after tithe, taxes, and retirement contribution) is $3,500. Then account for the total amount of tax-related withholding (you can find this figure on your pay stub), along with any amount you’re contributing to an employer-sponsored retirement plant. If you tithe on your gross, begin by assigning $600 for your tithe. Let’s suppose, for example, that your gross monthly income is $6,000. There’s nothing wrong with managing a monthly budget based on your net pay - after all, that’s all you have to work with! But you’ll gain a clearer picture of where your salary goes if you begin with gross income.įrom your gross pay, simply subtract the cost of the “jobs” assigned to each and every dollar. A portion of the You Need a Budget "dashboard." In other words, most systems don’t account for 1) funds withheld from your paycheck for various taxes and (possibly) health insurance, or 2) your contributions to an employer-sponsored retirement plan. That said, most of today’s web- and app-based budgeting systems skip a helpful initial step in zero-sum budgeting, simply because they start with net income (the dollar amount received), rather than with gross income (what you are paid by your employer). Other systems apply the zero-sum approach only to monthly income.)
(You Need a Budget applies the “every dollar” principle to all money at your disposal, including funds already in checking and savings accounts. Not a single dollar of income will be without a designated, predetermined task. Still other dollars will be enlisted for savings. The job of other dollars will be to buy groceries. For example, a specific number of dollars will be assigned the collective task of paying your mortgage. The key principle is to “give every dollar a job” - ahead of time. Zeroing in on zeroĪ zero-sum budget is a means of making the envelope method function in a world of largely non-cash transactions.
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(Carrying around envelopes full of cash is also something of a security risk!) Still, the idea behind the envelope method - i.e., separating one’s money according to intended use and then deploying it accordingly - remains powerful. Most transactions these days - many of which are conducted online - are done by debit card, credit card, electronic transfers, or mobile payment services, rather than with cash. The envelope system still works, but times have changed. When money is spent, the user simply notes on the envelope the amount used and how much remains. At a clothing store, funds come from the “clothing” envelope. At a supermarket, a purchase is made from the “groceries” envelope. (Tiller can be set up to use either zero-sum budgeting or another approach.)Ĭonceptually, zero-sum budgeting is akin to the tried-and-true “envelope system” which involves placing predetermined amounts of cash into envelopes each pay period, using one envelope per spending category. This month, we focus on the approach to budgeting that three of these systems ( You Need a Budget, Every Dollar, and Tiller) have in common - namely, an emphasis on “zero-sum” budgeting. Last month in this space, we highlighted four popular online money-management systems and touched on a few of the attributes of each.
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Just as there is “more than one way to skin a cat” (apologies to cat lovers), there is more than one way to manage one’s cash flow.
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