One of my clients hasn’t paid me in three weeks. Another just asked for additional work, which was fine, but it means that my invoice will be late. Meanwhile, my website made considerably less money this month than last month, meaning my income projections for January are going to be off.
But pssshhhttt…. I don’t care, even though most people I know would be freaking out. Why?
Because I use a zero-sum budget. That’s why.
How Zero-Sum Budgets Work
The basic idea behind zero-sum budgeting is that you use last month’s income to fund this month’s expenses. By using this method, you escape the paycheck-to-paycheck lifestyle completely, freeing yourself from the confusion and stress of real-time budgeting in the process. As a self-employed individual, my income fluctuates a lot. But with a zero-sum budget, it really doesn’t matter. As long as I earn enough this month to pay for next month’s bills and savings goals, I’m good. Here are some of the other reasons zero-sum budgets are awesome:
Zero-Sum Budgets Take the Stress Out of a Fluctuating Income
If you are self-employed, work on commission, or have an otherwise fluctuating income, zero-sum budgeting can take the ups and downs out of the equation entirely. How? Since you’re budgeting for this month on last month’s income, you’re not stuck guessing how much money you will make. It’s hard enough being self-employed, but things can get pretty sketchy when you’re basing your budget on how much money you hope you make. Using a zero-sum budget solves that problem for you by giving you real numbers to work with – not just projections.
Zero-Sum Budgets Let You Focus On Your Business, Not Your Income
Before we started using a zero-sum budget, I used to stress about our income throughout the month. I would wonder, “When is payday?” and freak out when either one of us brought in less money than I expected. Now that I use a zero-sum budget and make plans off of last month’s income, I no longer have to wonder if I’m going to bring in enough to meet my goals. I can simply focus on my work and make as much money as possible without worrying about specific dollar figures all month long.
Out of all of the financial moves we’ve ever made, zero-sum budgeting is probably the smartest. Why? Because when you create a budget off of last month’s income, you’re forced to figure out the difference between what you earned and what you plan to spend. The benefits of this are two-fold. First, it helps you realize if you’re spending more than you should be compared to your earnings. And second, it forces you to realize how much you can save. In each zero-sum budget I make, I take the difference between my earnings and our spending and allocate it to long-term savings, retirement savings, or other investments. Doing this month after month has really helped our nest egg grow.
Zero-Sum Budgeting Gets You Out of the Rat Race Mindset
One of our biggest goals is becoming financially independent. In addition to investing and saving for the future, one of the things we need to do to get there is learn how to escape the 9-5 lifestyle and look at our financial situation from a different angle. We need our investments to cover our monthly expenses once we retire, and we hope to get to the point where it doesn’t matter how much we make any given week. Zero-sum budgeting has forced us to think of our income in terms of months, not in terms of days or weeks. Once we bring enough in through investments and not our labor, we will be in a good position to throw in the towel.
Now that I’ve been using a zero-sum budget for a few years, I can’t imagine doing it any other way. I know that one day all of our budgeting, plotting, and planning will pay off. In the meantime, I’m going to stick with the thing that works.
If you want to learn how to create your own budget, Greg has written a great guide that will walk you through the entire process. Check it out by clicking the link above!
Have you ever tried a zero-sum budget?
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