Do you use a budget? More importantly, does it really work for YOU?

Most of us try to follow a budget, designed to meet our financial commitments and savings goals. But even with a budget, the unfortunate reality is that it isn’t always easy to manage money. Have you ever experienced this struggle?

“I try to budget, but no matter how much I plan ahead, I still can’t seem to save any money at the end of the month….”

“I have a miscellaneous section in my budget, and month after month, my miscellaneous expenses go out of control and this beats the purpose of budgeting altogether….”

“Even with a strict budget, I struggle to pay off my debts and still end up exceeding the limit on my planned expenses….”

If you’ve ever felt the same way, or if your current budget just isn’t working for you, it’s time for a budget makeover. And that’s where the ‘zero-sum budget’ comes in!

What is zero-sum budgeting?

A zero-sum budget makes you ‘spend’ every dirham you make. But hang on a minute! This ‘spending’ is of a different kind. In a zero-sum budget, you assign every dirham you earn a fixed purpose at the start of each month, and at the end of the month your income minus all expenses, debt repayments, savings and investments, should be zero.

Every month when your salary gets credited, you must plan how to allocate your income to the various expense categories. So you don’t leave money lying around in the current account without a purpose. It might sound extreme, but it can be really effective in helping you save more, and even paying off debts faster.

[Related: Emergency fund – Are you prepared for the worst?]

How does it work?

What makes a zero-sum budget truly work, is the fact that you know exactly how much you’re allowed to spend in a month, so there’s virtually no scope of going off track. It helps you make the most of a fixed income, and prioritize your financial obligations.

Allocating your income to all the budget categories may be a bit confusing if you’re doing this for the first time. Here’s an example of what a monthly zero-sum budget would look like:

Expense Categories Allocated Amount (AED)
Rent  8,000
Groceries  2,000
School fees 1,800
Utilities (DEWA) 800
Telecom 600
Fuel 400
Insurance premium 500
Car loan EMI 1,500
Emergency savings 600
Retirement plan premium  800
Personal allowance  1,000
Monthly Expenses 18,000
Monthly Income 18,000
Amount left over (Income – Expenses) 0

If you fall short when allocating your income, cut back from the non-essential expense categories, for example, you can reduce your telecom expenses by downgrading your Du/Etisalat monthly package, or take some cash away from your personal allowance.

Conversely, if you have some money left over after allocation, you can either redistribute it back into the expense categories as you see fit, or simply add it to your savings. If your primary goal is to pay off debt, then add whatever’s left to the monthly EMI categories, and make a lump-sum payment periodically.

You can tweak the budget as you go, and customize it based on your short-term and long-term financial goals. You can even go one step further and transfer the money allocated towards savings and investments to a separate savings account. Money that isn’t accessible will likely not be spent unnecessarily!

[Related: Overspending? Budget like a pro]