Surplus Budgeting and Deficit Budgeting

"Budget surplus" and "budget deficit" are terms most commonly used to describe a government's financial picture. However, businesses and even families can run surpluses and deficits, which come into play when planning financial strategies and investments. A surplus is an excess of funds, often stemming from earning more than you spend, such as when a business is profitable, when a family has a successful savings plan or when a government can accumulate money via taxes and reduced spending. A budget deficit is a shortfall, which occurs when there isn't enough capital and revenue to cover short-and-long-term expenses.

Budget Surplus Planning

Surplus budgeting is the process of planning what to do with extra money such as business profit, family savings or government tax revenue. Extra money is a good problem to have, but it's important to resist the temptation to spend income just because you have it. For businesses, families and governments alike, surplus budgeting should be a way of preparing for the inevitable times when available cash will fall short. A surplus budget should use available funds to generate future revenue and reduce the likelihood or the severity of future shortfalls through prudent investments. A business might invest in equipment or advertising that will increase revenue. A family might invest in stock or real estate. A government might invest in infrastructure projects that increase employment and improve the likelihood of future tax revenue.

Budget Deficit Planning

Businesses, families and governments must continue operating even when they're not bringing in enough money to cover expenses. Budget deficit planning usually involves finding ways to finance shortfalls. Careful budget deficit planning helps you pay lower interest rates to service your debts, and to manage your expenditures, so you don't incur more debt than necessary. A government's deficit may be financed by borrowing money, increasing taxes or cutting services. A business deficit may be addressed in a budget by finding inexpensive ways to increase sales, or by cutting expenditures in ways that won't compromise your company's future viability.

How to Define a Balanced Budget

"Balanced budget" is sometimes used to refer to a spending plan in which expenditures do not exceed income. In other words, your incoming revenue is sufficient to cover expenses. Businesses, governments and families with balanced budgets don't have to borrow money to make ends meet. The term "balanced" may seem to imply that expenditures and revenue will be equal or in balance, but the phrase means that the cash on hand is at least enough to avoid accruing debt.

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About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.