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 , 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 .
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.