A Zero Sum Game

Flipping the idea of a traditional budget on its head, here’s how giving every dollar a job could transform your finances.

Improving your financial future is (in theory) a simple equation: Spend less than you earn and invest it wisely, and you’ll see your wealth grow. But, just like losing weight or any other goal that requires you to change your habits, the reality isn’t always so straightforward. Struggling with saving money is rarely the result of a knowledge gap — after all, there’s no shortage of free financial education available these days. Rather, it’s a game of psychology, with many of us fighting against decades of unhelpful conditioning around personal finances.

There’s no area where this is more evident than with the concept of a ‘budget.’ Sure, some particularly type-A people thrive on the idea of creating a colour-coded spreadsheet and updating it everyday. But for many others, the idea of adhering to a strict spending plan — not to mention all the manual admin involved — is literal hell. 

The issue with traditional budgeting is that it feels restrictive, arbitrary and of course, boring. Based loosely on your expenses and income, you pluck out a number and tell yourself “Don’t spend more than that.” And sure, for a little while, you might manage to stash that money in a savings account. But, if you’re someone who struggles with delayed gratification and self-control (ie. pretty much all of us), you’ll likely find yourself dipping into that account the second an unexpected bill comes up or you spot a pair of shoes you ‘need’. 

But, what if there was a way you could reverse this logic and create an anti-budget that makes your money work harder for you? Enter, the zero-based budget, where instead of telling yourself what you can’t spend, you allocate every single cent of your hard-earned cash.

What is a zero-based budget?

Based around the concept of ‘starting from zero’ this is a financial strategy where every dollar you earn is allocated a specific purpose — spending, saving, or investing — until your income minus expenses equals zero. It was developed and used by the American government in the 1970s as a way to justify expenditure in greater detail, and popularised by financial writer Peter Pyhrr in his book Zero-base Budgeting: A Practical Management Tool for Evaluating Expenses. 

While still often used in Fortune 500 companies today, zero-based budgeting also works equally well for individuals — especially those who love spending and hate being told what to do.

From zero to hero — why it works

When it comes to our money, it’s far too easy to fall prey to lifestyle creep. Like a kind of Parkinson’s Law but for money, our spending tends to expand to meet our income — even if we get a pay bump or an unexpected windfall.

So, say you earn $5000 per month and spend $1000 on rent, $700 on debt payments and $500 on regular expenses and bills. Without allocating the remaining $2800, it’s far too easy to mindlessly spend it on overpriced iced lattes and books you’ll never read.

However, by figuring out where the money will flow ahead of time, you get far more visibility, transparency and accountability over your money. So, rather than leaving that $2800 for a ‘rainy day’ (which let’s be real, never happens), you might allocate $500 in an extra debt repayment to your highest-interest lender, $300 to groceries, $200 to an investment account, $1300 to a buffer savings account that’s difficult to touch and $500 on guilt-free spending. You might even take it a step further and figure out how you’ll split that everyday spending — whether it’s on eating out or beauty appointments.

This isn’t about draining your bank account for the sake of it. Rather, it’s about giving you the peace of mind that everything is covered — from your bills and future security to that lash appointment or dinner with a friend in three weeks time. That way, when you look at your bank account and the total is a big, fat zero, it fills you with pride, not fear. Creating your zero-based budget can also give you that dopamine boost you get from going on a shopping spree, but in a much more practical and positive way. 

How to start zero-based budgeting

You don’t necessarily need any fancy apps to put this method into practice. By following this simple, five-step process, you can start putting your money to work.