A financial plan in which the predicted revenues are the same as the expenditure is called a Balanced Budget.
However, when the revenue is more than the expenditure, it becomes Budget Surplus, but it is Budget Deficit when it is less than.
A Budget Surplus can also be classified under a Balanced Budget.
Why should you Balance your Budget?
It is a good strategy to have a spending plan, track financial transactions, and account for your income and spending over time.
Still, you are likely to run into debt when the budget is not balanced. So, to avoid this, you must keep a balanced budget.
A balanced budget will also help you have some extra cash left to settle your current debt, as well as help you meet your financial goals without getting confused.
How to Create a Balanced Budget
Follow the steps below to create a balanced budget;
1. Calculate your Expenses
Calculate the total amount of money spent within a particular period; could be last week, month, or year.
2. Total your Income
Calculate your expected income within the same period for the expenses.
3. Subtract the Expenses from Revenue
When you subtract your expenses from your total income, and you get a negative value, you have a budget deficit, but your budget is positive.
4. Balance the budget only if Deficit
To balance a budget deficit, you either reduce your expenses or increase your income. A pro tip to balancing is removing the least important thing from your expenditure list.
Balancing a budget requires making the total expenditure/expenses equal to or less than the estimated income/revenue. It helps you prevent debt and walk your way out of any current debt. You can also apply the steps above to public sectors, businesses, or other organizations.