Glossary
Zero-based budgeting
Zero-based budgeting assigns every unit of income a job: spending, saving or debt repayment, until nothing is unassigned. The budget balances at zero, which describes a plan rather than an empty account.
Each period you start from your expected income and allocate it, instead of adjusting last period's numbers. Assign whatever is left to savings or a sinking fund, so it does not drift into discretionary spending.
It asks more of you than category limits, and it shows you more about where money was going by default.
Related terms
- 50/30/20 ruleThe 50/30/20 rule splits after-tax income into 50% needs, 30% wants and 20% savings or debt repayment. It is a starting allocation, not a law, and is meant to be adjusted to your cost of living.Read
- Sinking fundA sinking fund is money saved gradually for a known future expense, such as an annual insurance premium or a replacement laptop, so the payment does not arrive as a shock.Read
- Discretionary spendingDiscretionary spending is money spent on things you chose rather than things you were committed to. It is the part of a budget that can change next month without renegotiating anything.Read
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