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What Is a Budget Surplus?

Many families save their budget surplus for emergencies, such as illness or issues with a vehicle.
A budget surplus occurs when income is greater than spending.
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  • Written By: Mary McMahon
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  • Last Modified Date: 25 November 2014
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A budget surplus occurs when income is greater than spending. When people, organizations, or governments have a budget surplus, this means that they have extra funds which can be used to do things like retiring debt. Governments often release information about their budget for the benefit of interested members of the public, and it is possible to find charts which show government surplus over time.

The opposite of a budget surplus is a budget deficit, and most people, organizations, and governments actually run at a deficit, not a surplus. This is because it is often necessary to go into debt to finance activities which will lead to improvements. The trick with deficits and surpluses is to make sure that servicing interest on debts does not become such a heavy burden that the budget is unable to support it. The task of organizing a budget to allow for the management of debts and expenses is known as balancing the budget.

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When a budget surplus arises, there are a number of ways it can be dealt with. In households, the decision to save the extra money may be made, under the argument that it can provide a financial buffer in case someone loses a job or unexpected expenses arise. A budget surplus can also be used to pay down the principal on the debt in order to reduce interest payments. People may also opt to utilize the surplus to finance purchases which have been delayed or considered optional; for example, a school budget surplus might result in the decision to buy new science equipment.

Being in a state of budget surplus is often viewed as positive, and in the case of governments, as a sign that the economy is healthy and the government is being run well. Some governments reward citizens in times of surplus by lowering tax rates, although this has been shown to be problematic because it can be difficult to balance the budget later. Others may use surpluses to reinvest in people and communities.

People should be aware that numbers about the budget can be and sometimes are manipulated to push particular political, economic, or social agendas. Estimates of surpluses and deficits can sometimes vary widely because people use different rubrics to arrive at the numbers. When someone quotes a number, it is advisable to ask about the source and the methods used to arrive at that number, rather than accepting it at face value.

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PinkLady4
Post 6

@everetra - You are so right. The amount that the average person or family can manage to save is low. Costs of essentials keeps rising. A surplus in the family finances is just a dream for many.

After you take care of food, clothing, housing, health, and transportation, you can look back and see that you can make some cuts in some of these areas.

With food, you can do couponing, take advantage of sales, and make a weekly meal plan, buying only what you need for that week.

Buy only clothes that you really need, and only at the change of season. Watch for sales and coupons. Make sure the clothing fits well and you like them, so they won't sit unworn in your closet.

Folks, be creative! There are many ways you can save money and it will add up! Good luck, all, on adding to your surplus fund.

B707
Post 5

@nony - I agree with you. Our government is sinking so deep into the deficit hole, I don't think we'll see a surplus for a long time. But, our government can make some cuts to big programs, such as Medicare and education.

First of all, I believe we should make an all out effort to get rid of all the waste of money and the corruption in government programs. This won't get us on the surplus side, but it will get us closer.

As far as taxes go, there are way too many loop holes that allow large corporations and rich individuals to have ridiculously low taxes. I say, change the tax structure, but be reasonable about it.

SkyWhisperer
Post 4

This is a good budget surplus definition. I especially like the part about being careful with numbers, as politicians manipulate them for different agendas. It’s like the old saying that liars do figure.

Anyway, one source that I trust for good numbers is the Congressional Budget Office. Anytime a new budget proposal is discussed I like to get the CBO’s “scoring” of the budget. They are a non-partisan organization and usually give a fair rating of different budgets. It helps me to make my way through the fog of partisan bickering.

nony
Post 3

Government spending continues to rise which makes surpluses rarer, and just adds to the federal deficit. Politicians need to use a combination of spending cuts, and mild tax increases, in my opinion, to pull the country out of the red and into the black once again.

NathanG
Post 2

@everetra - The only time in my life when I had a substantial surplus was when I worked for a company overseas. They paid me a salary, and also paid for most of my living expenses. So a lot of the money that I took in was pure gravy, basically. I socked it away in savings.

When I returned to the States, I didn’t have a job lined up right away so I burned through that surplus within a year until I got a decent paying job and my income picked up speed. It’s a painful thing indeed to live off savings for a year, but at least the money was there. In hindsight I probably should have invested my surplus while I was overseas, so I could have more money left over.

everetra
Post 1

Unfortunately consumer surplus tends to be less common than consumer deficits, with so many people maxing out their credit cards and having to make car and mortgage payments. I think I read somewhere that the average savings rate for consumers is about 1 – 2%.

Those numbers vary of course but the trend is still the same. People are basically living paycheck to paycheck. I think we all need to learn some lessons from frugal people like coupon cutters to learn how to live within our means again.

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