Balanced Budget

What is a Balanced Budget?

Definition

A balanced budget is a financial term used to refer to a budget that does not have its expenses exceeding its revenues. It occurs when revenue is equals to or greater than the total expenses. A successful balanced budget can be identified by its good fiscal health, that is, maintain a level of healthy spending that keeps in step with costs.

Understanding Balanced Budget

A balanced budget can only be actualized at the close of a fiscal year after all the revenues and expenses for that year have been successfully recorded. Although, this term can be applied in all financial-related facets of life including profit and non-profit organizations, however, it is majorly used in government budgets. Every year, the government grants a press-release on the plans for a balanced budget in the coming year or assure the public of balancing the budget of a previous or current fiscal year.

Budget Deficit: this occurs when the revenues fall below the expenses, thereby, incurring extra costs. A budget deficit leads to rising debt, and financial and government experts have asserted that budget deficits place a debt burden on future generations to come.

Budget Surplus: this occurs when the revenues overly exceed the expenses. There are different factors which bring about budget surplus such as tax revenues exceeding government expenditures

Perks and Pitfalls of a Balanced Budget

• It helps governments or organizations keep in step with their spending, thereby, reducing wasteful spending.

• Surplus revenues can be used to develop other aspects of a government or an organization

• Some economists believe that deficit spending can be used as a tool to tackle recessions.

• Budget deficit incurs future generations with debt burdens