Description of image

Question 7

Zero-based budgeting (ZBB) is a method that requires deliberate allocation of every dollar in your income to a category before you spend it. Unlike simple percentage rules, ZBB treats income like a finite resource that must be assigned purpose — rent, groceries, entertainment, emergency savings, debt payments, and so on — until there is no unassigned money left. The practice has corporate roots (managers justify each period’s budget from scratch) but personal finance advocates adapted it as a way to expose leakages and ensure alignment with priorities. For households, ZBB can be liberating because it makes trade-offs explicit: if you want to increase one category, you must reduce another. It’s particularly powerful for people trying to eliminate waste or for those whose spending habits slowly creep upward because there’s no default place for excess funds. Implementation ranges from detailed spreadsheets listing every expected transaction to a simplified monthly plan that assigns rough totals to a handful of buckets. Critics say ZBB can be time-consuming and inflexible if applied overly rigidly; proponents counter that the upfront effort pays dividends in clarity and control. The question asks you to identify the defining characteristic of zero-based budgeting.

Which statement best captures the defining rule of zero-based budgeting (personal finance version)?

Did You Also Know...

By Wise Wallet

Persistent inflation erodes cash purchasing power, which is why savers often seek investments that outpace inflation.