Zero-Based Budgeting
A budgeting method that assigns every dollar of income a specific purpose, so income minus expenses equals zero.
What is Zero-Based Budget?
Zero-based budgeting (ZBB) is a budgeting method in which every dollar of monthly income is assigned to a specific category — expenses, savings, debt repayment, or investments — so that income minus all allocations equals zero. Unlike traditional budgeting, ZBB requires justifying every spending category from scratch each period rather than incrementing last period's amounts. It gives maximum intentionality and control over spending but requires more time and discipline to maintain. Dave Ramsey's EveryDollar app is a popular tool for zero-based budgeting. Large corporations also use zero-based budgeting to control costs.
Example
Take-home: $4,500. Allocations: rent $1,200, utilities $150, groceries $400, car $300, insurance $200, gas $100, subscriptions $50, eating out $200, savings $500, emergency fund $200, extra debt payment $700, fun $500. Total: $4,500.