posted on 06-06-2019

Balanced Budget

Updated August 5, 2020

What is a Balanced Budget?

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

How Does a Balanced Budget Work?

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 Does a Balanced Budget Matter?

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.