How to create a zero-sum budget

December 10, 2020

By Claire Hegstrom

How to create a zero-sum budget

Woman stand in her apartment, hunched over her desk. She is writing on a legal pad, while typing numbers into her calculator.

A zero-sum budget—also known as a “zero balance budget” or “every penny budget”—is a method of managing money where every single penny of your paycheck is accounted for. While it may seem like this is a tedious way to keep track of your finances, this budget can be almost completely automated, only requiring one simple transfer at the end of every month.

This form of budgeting can be extremely helpful to those who feel like they are living paycheck to paycheck, or for people who find that they have plenty of money to spend from one paycheck, but find themselves paying all of their bills with their second paycheck.

If you’ve never had a budget before, don’t shy away from this highly-detailed approach just yet. We’ll walk you through the steps so that you can see how satisfying it can be to have equal amounts of money every paycheck, and to prioritize saving. Here are the eight steps to create a zero-sum budget.

1. Write down the average amount of your most costly monthly expenses.

Most of us have seven relatively expensive bills that we need to make sure we pay on time every month.

Here are some examples of monthly expenses the average person may have.

  • Rent or mortgage payment
  • Car payment
  • Car insurance (plus health, vision and dental insurance, if not automatically withdrawn from your paycheck by your employer)
  • Utilities
  • Outstanding debt (student loans, credit cards)
  • Subscriptions
  • Cell phone bill

Pro tip: If you’re lucky enough to not have student loans or a car payment, use this open category to save for big expenses like car repairs or veterinary bills.

2. Determine your bi-monthly paycheck amount.

While many other types of budgets are based off your monthly earnings, zero-sum budgets break your earnings down per paycheck so that all cashflow is evenly distributed throughout the month. This means you won’t be paying all your largest expenses with one paycheck, and then living on just a few bucks until the next paycheck.

If you’re a salaried employee, this task should be very easy. Simply view your last paycheck and write down your net pay (the amount you take home after taxes and deductions). If you’re an hourly employee, add up six months of net pay and divide that by 12 for an accurate bi-weekly paycheck amount.

3. Subtract half of your monthly expense total from your bi-weekly paycheck amount.

If we lost you there, don’t worry! Here’s an example:

Rent or mortgage payment: $1,200

Car payment: $340

Car insurance (plus health, vision and dental insurance, if not automatically withdrawn from your paycheck by your employer): $120

Utilities: $200

Outstanding debt (student loans, credit cards): $200

Subscriptions: $50

Cell phone bill: $100

Total expenses per month: $2,210

Divided by two pay periods: $1,105

Let’s say you get paid $2,000 every paycheck. When you subtract half your expenses, you are left with $895 per paycheck for “spending money.” We’ll explain what spending money entails later on.

Remember, although you can’t pay half of your mortgage at a time, you can save half of your mortgage cost for the payment every paycheck. This will ensure that you aren’t left paying one huge bill every paycheck, and it evens out your expenses across the month.

4. Create seven supplemental savings accounts with your bank or credit union.

At many financial institutions, creating supplemental savings accounts are free. For example, members of Alliant can create up to 19 additional supplemental savings accounts to better help them budget. Either ask to name your accounts with the names of your seven monthly expenses, or rename the accounts yourself within your institution’s online or mobile banking app.

From there, you can set up automatic transfers to each correlating account after each payday. Remember to create transfers that cover only half of the total price of the bill each month.

5. Decide how you’ll use your spending money.

Remember the $895 we had left over for “spending money?” This is the money you will use for groceries, entertainment, gas, and any other recreational spending.

This spending money is also where any savings funds will be taken from twice a month. If your goal is to save $400 a month, you’d want to set an automatic transfer of $200 every paycheck to a high-rate savings account. This would leave you $695 every two weeks to spend on food, gas, and anything else. Suddenly, saving money seems really manageable, right?

6. Transfer funds to pay your seven costly expenses

When the time comes to make a payment for one of your seven expenses each month, simply transfer the funds to your checking account, and immediately make the payment. Making the payment right away is important because it means there is no chance of spending the money that you’ve allocated for your bill.

7. Transfer any “spending money” left at the end of the month to savings.

At the end of the month, if you have any leftover money in your checking account, transfer it into a high-yielding savings. See why it’s called zero-sum budget now? On the very last day before you get your first paycheck of the month, take note of how much is in your checking. The morning you get paid, make sure to transfer that leftover amount into savings, so every penny from the previous month is accounted for.

8. Review your budget often and adjust

Maybe you refinance your car loan and your payment goes down, or you start earning more money in the new year! Every good budget requires adjustments so that you can reallocate extra money to debts or savings.

Do you find that you’re constantly withdrawing from your savings account to pay for irregular expenses like property taxes, holiday costs, or even car insurance premiums? Adding an additional supplemental savings account can ensure that your savings funds keep growing while you still have money allocated for one-off expenses.

Looking for more tips on budgeting? Here are some helpful guides:

3 monthly budgeting options you can set and forget

The 50/30/20 Budget

How to budget for big expenses


Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.

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