GLOSSARY · BUDGETING, SPENDING & SAVING

Zero-based budget

A budget in which every dollar of expected income is assigned a purpose, including saving and extra debt payments, until income minus all assignments equals zero. Zero refers to the money left unassigned, not the balance in the account. The plan is rebuilt each month instead of copied from the last one.

Also called: zero-based budgeting, zero-sum budget, every dollar a job, give every dollar a job

FORMULA

Income − (spending + saving + debt payments assigned) = 0

COMPUTE IT WITH YOUR NUMBERS

Debt payoff planner →If I put $X/month toward my debts, when am I debt-free and which order saves most?Paycheck budget →How should I split each paycheck between bills, savings and spending?

LEARN IT PROPERLY

CHAPTER · BUDGETING METHODS & FUNDAMENTALS · FOUNDATIONSZero-Based Budgeting: A Job for Every Dollar CHAPTER · BUDGETING METHODS & FUNDAMENTALS · FOUNDATIONSChoosing a Budgeting Method That Fits

SOURCES

Zero-base budgeting. Peter A. Pyhrr, Harvard Business Review, 1970.
Mental Accounting Matters. Thaler, Journal of Behavioral Decision Making, 1999.

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