What is zero-based budgeting?

What is zero-based budgeting?

• A. Allocates every dollar from zero balance
• B. A budget that spends nothing
• C. A budget that ignores savings
• D. A budget that sets a fixed 50/30/20 split

Answer: (A)

Zero-based budgeting treats income as a blank slate and assigns every dollar a specific job. You start with your total income and, category by category, allocate amounts to expenses, savings, and debt payments until the planned spending exactly equals the income—leaving nothing unassigned. This is why it matches the description of allocating every dollar from a zero balance: you build the budget from zero and give every dollar a purpose. The other ideas describe different approaches—spending nothing, ignoring savings, or sticking to a fixed split like 50/30/20—none of which capture the process of allocating every dollar to a defined purpose.

Zero-based budgeting treats income as a blank slate and assigns every dollar a specific job. You start with your total income and, category by category, allocate amounts to expenses, savings, and debt payments until the planned spending exactly equals the income—leaving nothing unassigned. This is why it matches the description of allocating every dollar from a zero balance: you build the budget from zero and give every dollar a purpose. The other ideas describe different approaches—spending nothing, ignoring savings, or sticking to a fixed split like 50/30/20—none of which capture the process of allocating every dollar to a defined purpose.