What is a zero-based budget?

A zero-based budget is a budgeting method in which an individual or organization allocates every dollar of income to specific expenses, savings, or debt repayment so that the total income minus total expenses equals zero. This means that all income is effectively accounted for, with no surplus or deficit.

The primary goal of a zero-based budget is to ensure that every dollar is purposefully spent or saved, which can lead to better financial management and discipline. By assigning every dollar to a specific category, individuals can prioritize their spending and maintain control over their finances, ultimately working towards their financial goals more effectively.

This method emphasizes the importance of planning, as it requires a thorough understanding of one’s income and expenses, distinguishing it from budgeting approaches that may not ensure every dollar is accounted for or utilized towards specific financial objectives.