This article is to provide some practical information on how one person, especially busy and forgetful one, can keep track of his/her spending budget effectively just once or twice a month.
You don’t have time to record your spending every day? Consider using a zero-sum budget method!
Understand Zero Sum budget method
Zero sum budget is a budgeting technique in which the total income minus the total expense equals zero. This means that every money earned is allocated to a specific expense or savings category. In other words, the goal is to ensure that all income is assigned a purpose, leaving no unallocated funds.
Total Income – Total Expense = 0
But do not mistake it by thinking that you should spend all the dimes on buying things and making the ending balance equal to zero. Saving for the future or “pay yourself” should be allocated as part of the “total expense” as well. For example, if you aim to save 20% of your total income, the above formula should look like this:
Total Income – (Total Saving of 20% + Total Spending of 80%) = 0
So, what example to help you understand the use of this technique towards your daily expenditures?
Think of the zero sum for your daily budget, meaning you assign a spending budget every day for yourself, and as long as you bring that budget down to zero, you will stop spending for the day. Let’s follow this example for your better understanding:
Early in the morning on a Sunday, Mary was given 10,000 MMK by her mother for her own spending within the day. Mary went out to the alley to eat a bowl of beef vermicelli for 3,000 MMK, and drank a cup of milk tea for 1,000 MMK.
Mary then goes home after school but her bike has flat tires so she has to stop by the repair shop to fix it. Cost: 2,000 MMK. After she reached home and finished her homework, a few friends called to ask her out for afternoon games. Their plan is to stop by for a quick burger for 4,000 MMK, and then a friend suggested ice cream for 500 MMK. At the point of buying an ice cream, her daily quota of 10,000 MMK had been completed and she could not afford the ice cream. Her friend offered to pay for her, and said she could pay them back the next day.
The friends later talked about going to dinner and a movie at night. It could cost them another 7,000 MMK for the day. At this point Mary had run out of her daily budget, and she could not let her friends pay for her, so she told them that she would want to head home instead. Once she reached home, she decided to eat whatever was in the fridge, then finish her homework early and went to bed.
As you have already guessed, Mary only has 10,000 MMK to spend for the day. If she doesn’t know how to plan for her budget wisely, she will run out of money and have to eat instant noodles or leftover food in the fridge.
Daily budget – 10,000
Bowl of noodle – 3,000
Milk tea – 1,000
Fix bike – 2,000
Burger – 4,000
Zero sum balance 0 (at which time she needs to stop spending)
So how does the above method allow us to avoid documenting every single spending item?
Imagine that we might not have the time or the memory to write down every single item: like a milk team or a movie ticket. You therefore set a daily spending limit for yourself, and once you’ve hit it, your spending is done for the day. If you choose to tap into other funds, your quota for the following day will be affected, and you will know that you have exceeded it. By this method, you can save time from writing down every item on a daily basis. Just be cautious to schedule your day and strictly stick to your budget every day.
Using the above-mentioned illustration, and recalling that we have previously discussed the spending towards NEEDS (50%) and WANTS (30%) based on 50-30-20 rule, you can guess Mary’s overall monthly budget from her income to spending. Let’s say Mary is a young working professional now paying from her own income, instead of receiving money from her mother:
Income = 1,000,000 MMK
Saving 20% = 200,000 MMK
Spending 80% = 800,000 MMK
- 50% for NEEDS (rental, transport, grocery) = 500,000 MMK
- 30% for WANTS (entertainment, fun with friends) = 300,000 MMK
- The zero-sum budget we’ve been discussing means that 300,000 MMK / 30 days = 10 ,000 MMK daily quota for Mary as previously illustrated.
If she follows this budget and quota, she simply needs to know her daily budget and track her daily spending based on the quota. Then at the end of every month, she just needs to sit down and look at the monthly budget to ensure that she keeps under the percentages she sets for herself. She won’t need to record every single expenditure detail on a daily basis.
Are we all like Mary? Have no time or discipline to record every single item on a daily basis?
This method by no means applies to everyone. You still need to understand your spending habits and categorize them to know that you do not overspend on unnecessary things. For example, if you overspent on unnecessary things (the WANTS), then this method might not be for you.
We are recommending this because there are many budget tools out there for you to choose from. As long as you are familiar with a particular tool, and already have a consistent discipline for many years, we encourage you to continue that. As long as you do not choose any tool that is too complicated to start with, then stop all together after a few months after using it. Budget is an on-going process and should not be avoided. We encourage you to find something simple and suitable for you and stick with it for as long as you can.
The following types of people we think should consider this zero-sum budgeting method:
- You are a long-term member of the “lazy people’s association”
- You are suffering ‘goldfish brain’
- You are too busy and don’t have enough time to take notes
- You can easily ”close” the sales deal and make your wallet ”fly empty” in a short time without thinking
- You tend to overspend regardless of your financial circumstances.
Don’t hit that marketing trap of installment with no interest, or just swipe that credit card without assigning yourself that daily quota. You don’t want to spend all your money on unnecessary shopping so that in the end, just a few days later, you regret thinking that “the salary is out, the salary is really gone”.
Prioritize the necessary expenditure first! You may be wondering if you haven’t paid the house this month, will the landlord send you away. Or if your motorbike runs out of gas just because you don’t have enough for gas money? Discipline with the spending allocation. We recommend the 50-30-20 ratios but find the ratios that could be relevant to you. The point here is to save at least 5% of your income, and do not spend more than 30% of your income on unnecessary things. Just to recap:
- Total Income – (Total Saving of 20% + Total Spending of 80%*) = 0
- Total Spending of 80% will divide into 50% on NEEDS and 30% on WANTS
- 30% on WANTS divide into 30 days of spending, and keep the within the budget on a daily basis
- You don’t have to record every single item you spent.
Hopefully through this article, you will have more views on Zero-sum Budget and think more about whether you are suitable to apply this method! Time will thank you because you don’t have to take notes on your budget every day anymore, but just sit with it once a month. Hope you will always have a healthy, stable and worry-free budget.