What Are the Best Tips for Using a Budget Surplus?

Malcolm Tatum

Budget surpluses occur when a household or business generate income that is above and beyond the projected revenue for a given period. Surpluses are the opposite of budget deficits that occur when there is not enough income to cover the budget for the period cited. When determining the best ways to make use of a budget surplus, it is important to prioritize those potential uses, project the possible outcomes, and make decisions that will ultimately enhance the overall financial well-being of the household or company involved.

Companies may choose to invest a budget surplus in new equipment that improves operational efficiencies.
Companies may choose to invest a budget surplus in new equipment that improves operational efficiencies.

After identifying the amount of the budget surplus, the task will often focusing on brainstorming how to make the best use of that extra money. Within the home, this may call for a family conference that allows each member of the household to provide some ideas for possible uses. In a business setting, the process will often involve discussions between owners and managers to determine how the funds can be spent and benefit the company in some tangible or intangible manner. Collecting several ideas for consideration helps to inspire participants to think seriously about what to do with the budget surplus and have something to show for it later on.

Budget surpluses can be useful in times of disaster.
Budget surpluses can be useful in times of disaster.

Once several ideas of how to spend the budget surplus are secured, it is important to qualify those ideas. This can be accomplished by determining how much each idea will cost and if there is enough of a surplus to fully complete the task. Depending on the range of ideas presented, it may be possible to select a couple of ideas for serious consideration, if it appears that the budget surplus is sufficient to manage multiple options.

Budget surpluses might be used to pay down large debt.
Budget surpluses might be used to pay down large debt.

A final step involves projecting how the use of the budget surplus will provide benefits to the household or company. Doing so helps to provide a snapshot of how the finances will stand once the surplus is allocated to one of more suggested options. This helps to provide a better understanding of the long-term ramifications of spending the surplus in certain ways, which in turn makes it easier for a few specific strategies to stand out from the rest.

Many families save their budget surplus for emergencies, such as illness or issues with a vehicle.
Many families save their budget surplus for emergencies, such as illness or issues with a vehicle.

Two of the most common ideas on how to spend a budget surplus involve paying debt that is currently outstanding, or placing all or a portion of the budget surplus into savings. Both ideas are worthy of consideration and would certainly aid in improving the present financial situation of a household or a company. For example, a business may choose to allocate a portion of the surplus to a contingency fund that will help offset a deficit in a later economic period. Another portion may be used to retire a specific debt, a move that frees up income in subsequent periods. The remaining portion of the surplus could be used to purchase something for the company that will enhance the operation in some manner, or perhaps provide an additional amenity for the employees.

Household budget surpluses can be put into a savings account.
Household budget surpluses can be put into a savings account.

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Discussion Comments

bluedolphin

I have a lot of student loan debt. So if I have a budget surplus, it goes directly towards my student loans. I think this is the best way to use a surplus because student loans keep increasing due to the interest rate. The faster I pay them off, the less money I will be paying overall. So this is my priority.

I don't think there are a lot of people out there today who don't have some kind of debt -- student loans, credit card debt, etc. So we have to prioritize these.

serenesurface

@turquoise-- Most people do the same thing. But do you have any savings? If you don't, next time, you might want to put aside at least a part of your budget surplus for an emergency savings account. Every little bit counts and it will accumulate into something substantial over time.

I think that anyone who has a regular budget surplus needs to maintain an emergency savings fund. Life is unpredictable, anything can happen. We can be faced with sudden expenses that we have no way of covering otherwise. The emergency savings fund comes to the rescue in these situations.

I used my savings recently to cover an emergency surgery that my health insurance wouldn't cover. I was so happy that I had that money put aside. I don't know hat I would have done otherwise.

turquoise

When I have extra money left over from my budget, I tend to splurge on either good food, entertainment or shopping, or all three if I can. The way I see it, if I'm doing well and keeping up with all my payments otherwise, I can use any extra money to spoil myself a little bit.

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