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Effective ways of dealing with budget deficits and budget surpluses

We say you have a budget deficit if your income is less than your expenses while we say you have a budget surplus if your income is more than your expenses.

Now if you are not sure on whether you have a budget deficit or a budget surplus I’ll advice you to sit down and do some easy math before you find out how you can deal with your budget deficit or surplus (depending on the value you will get) . So list down all your expenses from clothing, housing, food to energy and then find out what your total income (everything that brings you money) . Now that you have two values subtract the value you got on expenses from your income value. If you found a negative value then it means you have a budget deficit. If the value you found is positive then you have a budget surplus.

To have a budget deficit is similar to living beyond what your pocket can finance. It is in simpler terms spending more than you are getting. While to have a budget surplus is living within what your pocket can finance. It is spending less than you are getting. We should all strive to have a budget surplus.

DEALING WITH BUDGET DEFICITS

If you found your value to be negative then it means you have a budget deficit. A budget deficit is not financially viable. It is not sustainable and it is better if we reduce it. There are only three ways to deal with budget deficits though I will only advice on the first two ways even though the third way will seem easier.

1. Increase your income

This is an effective way to reduce your budget deficit. Look for ways to increase the income that you are already getting. You have a deficit because your income can’t finance your expenses so if you can’t reduce your expenses then increase your income. Investing and working extra time are some ways you can do this.

2. Reduce your expenses

Two things affect your deficit ; income amd expenses. So if you can’t increase your income to cover your expenses then find ways to reduce your expenses. You can consider options like cutting on costs, foregoing other items until you do away with your deficit, changing some of your spending habits as ways of achieving this.

3. Borrowing*

You’ll look at the three options available and probably like many people you will rush to option number three because it is the easiest and the quickest; first, it does not require you to put in more work and second, it does not interfere with your lifestyle through reducing your expenses. Borrowing even though it is a way of reducing our deficit it is dangerous in that it increases our expenses. This is because it creates another expense on top of those that we already have through interests. So though it may seem we are coping with our deficit through borrowing, the complete opposite is happening because it is only increasing it.

DEALING WITH BUDGET SURPLUS

You found your value to be positive then you are living within your means. A budget surplus is financially viable and is sustainable. But do not be contented because there are ways which you can increase the positive value you already have. There are only three ways of dealing with a budget surplus and like budget deficit I will only advice on the first two ways and firmly discourage you from picking option three. So what can you do with your surplus?

1. Save

You can decide abstain from using your surplus by saving it in say a piggy bank account or cookie jar account and use it later when the need arises. But the main reason why you should always aim to save is to invest it later. So SAVE TO INVEST!

2. Invest

Investing is the best way of dealing with your budget surplus . You can consider options like; lending it with interest, trading it for an asset like stocks, bond, real estate. This way you will not only be saving your money but it will also be increasing with time. So INVESTMENT IS THE BEST OPTION to deal with your surplus.

3. Spend more*

This is also a way of dealing with your budget surplus but it is not a good option and not advisable at all even though it is the easiest. If you consume your surplus this way it is gone and you will not see it again even though you shall have ‘enjoyed it’ to some extent but at the cost of regretting later that you should gave used the money in a better way. It is not wise to use your surplus this way so please ignore it and always go for SAVE AND INVEST options. That way you will enjoy your money wisely.

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