The "zero-sum budget" - Deepstash

The "zero-sum budget"

An emergency savings fund buffer is vital for freelancers. It will help you to keep your head above water when your income fluctuates.

A zero-sum budget means living off last month's income alone. This can be done in the following way:

  • Start building a budget by assigning every dollar to a particular monthly expense.
  • Write down your bills, including rent and insurance.
  • Make a list of any debt payments and savings goals, and assign dollar amounts to each. As your income fluctuates, so will the dollars assigned to savings and debt repayment.

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Create an emergency fund

Despite all the benefits that come from working as a freelancer, there may be months in the year where you may desire a steady income to feel you can pay the bills.

Establishing an emergency saving fund can help you overcome the fear of a dry month.

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Assigning 45 percent of your income to savings is essential if you're serious about building savings and have the ability to pay quarterly estimated taxes.

  • Allocate 30 per cent of your income towards taxes
  • 5 per cent for reinvesting in your business
  • 10 percent to build your emergency savings fund
  • The remainder can be used for living expenses or investing in your business.

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An emergency buffer consists of a specific metric you're trying to reach based on what you reasonably will need during a dry month.

Some have a checking account with two month's worth of bills saved. It covers rent, utilities, insurance and cell-hone bills. In addition, they have at least three months of living expenses built up in a savings account.

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How much you should save every month

The popular 50/30/20 rule states that you should reserve 50 percent of your budget for essentials like rent and food, 30 percent for discretionary spending, and 20 percent for savings.

But it's not that simple. If you're a high earner, you'd be wise to save a larger percentage of your income. If 20 percent is impossible for you to save, then saving something is better than saving nothing.

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Budgeting is simply balancing your expenses with your income.

It's a plan for the coordination of resources and expenditures. When you budget your money, there’s a desired outcome. And being able to track your spending should ultimately move you in the right direction towards meeting your financial goals.

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Definition of a budget

A budget is an estimation of income and expenses over a set time. It is usually drawn up and re-evaluated periodically.

Budgets can be made for a person, a group, a business, a government, or anything else that makes and spends money.

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