International Baccalaureate (IB) Practice Exam

What does a zero-based budget help individuals avoid?

1. Meeting financial goals

2. Overspending and impulse purchases

3. Paying off debts

4. Saving for retirement

The correct answer is: Overspending and impulse purchases

A zero-based budget is a financial strategy where every dollar of income is allocated to specific expenses, savings, or debt payments, ensuring that no money is left unassigned at the end of the budgeting period. By incorporating this method, individuals can gain a clear understanding of their finances, which significantly helps them track their spending more accurately. This level of awareness is particularly beneficial in preventing overspending and impulse purchases, as every action must be justified within the framework of the budget. When individuals see exactly where their money is going and what remains for discretionary spending, they are less likely to deviate into unnecessary expenses. While meeting financial goals, paying off debts, and saving for retirement can also be components of a well-structured financial plan, they are not direct objectives of a zero-based budget. Instead, the primary focus of this budgeting method is to allocate all income to specific purposes, thereby reducing the tendency to overspend or make unplanned purchases.