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What is a Balanced Budget?

A balanced budget can help save money.
A balanced budget has enough funds to cover expenses.
Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 September 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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There is no type of organization that cannot benefit from at least having the ability to arrive at a balanced budget. From the household budget to the operating budget of an international corporation and on through to the budget of a national government, the ability to achieve a balanced budget is desirable. Basically, a balanced budget involves generating more income or revenue in a given period than outgoing expenses. As long as there is more money coming in than going out, a balanced budget has occurred. Here are some tips on how to go about balancing a budget, whether in the home or in the workplace.

One of the first things to understanding about balancing the budget is that there must be a budget to balance. Budgets involve creating a documented plan of action that takes into account any and all known expenses that are incurred in a given period. Some of the budge items may be fixed, such as building rentals. Other budget items may be variable and need to be budgeted as an average. Monthly utility bills are an example of variable line items that require some degree of creative and thoughtful budgeting, based on past actual monthly costs. Once all anticipated expenses are accounted for in the monthly budget, the total cost for those expenses can be compared to the amount of income that will be collected during the same period.

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Perhaps the single largest obstacle to achieving a balanced budget is the lack of enough income to cover the outstanding financial obligations. When this situation occurs, there are essentially two ways to seek a balanced budget. First, increase the amount of income received each period. For individuals, this may mean taking on a part time job. In the case of companies, this may mean finding ways to increase sales while not adding any new budget costs. The second approach is to cut the currently budgeted amounts assigned to each line item in the budget. Typically, both people and companies tend to look at the latter method first and then move on to the former method if a balanced budget is not realized.

Creating a balanced budget by bringing expenses more in line with income means taking a hard look at what could be considered necessary budget items, and what items are simply wanted or desired. The necessary line items usually have very little in the way of flexibility, when it comes to budget cuts. However, focusing on line items that are not necessary for the continued operation of the home or business can often be reduced and possibility eliminated, until more income becomes available. This process is rarely accomplished without some degree of anxiety.

Home budgets that must be cut mean less recreational activities and possibly eating at home more often. Corporate budgets that must be trimmed may mean reassigning responsibilities and eliminating some personnel and positions from the operational, management, and executive levels of the company. While often difficult to do, cuts are often the quickest way to begin working toward a balanced budget.

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