International Baccalaureate (IB) Practice Exam

Which budgeting method typically requires a high degree of discipline?

1. Zero-based budgeting

2. Traditional budgeting

3. Envelope system

4. Income minus expenses

The correct answer is: Zero-based budgeting

Zero-based budgeting is the method that typically necessitates a high degree of discipline because it requires individuals or organizations to start from a "zero base" at the beginning of each budget period. This means that all expenses must be justified and approved for each new budget cycle, rather than simply adjusting prior years’ budgets. This approach demands careful planning, as every expense must be considered and validated based on current needs and strategic goals. Individuals using zero-based budgeting need to meticulously analyze their spending and prioritize their financial objectives, which fosters a more disciplined financial management style. In contrast, other methods like traditional budgeting often rely on past budgets without as much scrutiny, making them less demanding in terms of rigorous financial analysis and accountability. The envelope system, while also promoting discipline, is more about cash management and spending limits rather than a comprehensive budgeting framework. Similarly, the income minus expenses method provides a straightforward way to manage finances but doesn’t inherently involve the same level of justification and planning that zero-based budgeting does.