Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Balanced Budget

What it is:

A balanced budget exists when a household's (or country's) revenues are equal to its expenses.

How it works (Example):

For example, let's assume that John Doe and his wife Jane Doe earn $100,000 a year. Jane analyzes the couple's expenditures for the full year and discovers that they have spent $106,000. Because the couple's expenses exceed their revenues, John and Jane do not have a balanced budget.

In some cases, people or countries spend less than they take in, which creates an opportunity to save or pay down debt. In those situations, people might say a balanced budget exists because at least expenses don't exceed revenues.

Why it Matters:

In personal finance, a balanced budget is one of the most basic steps to financial freedom. In government, a balanced budget can be one of the most controversial, contentious hot buttons, because taxpayers and politicians often argue about where to cut spending or how to invest surpluses.