A zero-based budget is characterized by allocating every dollar of your income to specific expenses, savings, or debt payments so that your income minus your expenditures equals zero by the end of the budgeting period. This means each dollar has a designated purpose, whether for bills, savings goals, debt repayment, or discretionary spending
. What makes a budget zero-based is that it starts from a "zero base" each period, requiring you to justify every expense anew rather than simply adjusting prior budgets incrementally. This approach means all expenses must be reviewed and justified for their necessity and amount, regardless of whether they are recurring or new. This process eliminates assumptions based on past spending and encourages careful consideration of every dollar spent
. Key features include:
- Starting the budget from zero rather than basing it on previous budgets.
- Assigning every dollar of income a specific job.
- Justifying all expenses for the period, old and new.
- Aiming for income minus expenses to equal zero.
- Encouraging accountability and strategic allocation of resources.
This budgeting method can be applied both in business and personal finance contexts to optimize spending, reduce waste, and align expenditures with current priorities and goals
