The Causes of a Budget Deficit - Deepstash
The Causes of a Budget Deficit

The Causes of a Budget Deficit

The main cause of a budget deficit is: spending more than what you're making!

However, when it comes to large scale-spending, like how the government spends, it can be difficult to track due to low taxes and high spending.

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Causes of Governmental Budget Deficits
  • Tax cuts (these decrease revenue)
  • Low Gross Domestic Product (GDP - the money that's being made in the country; it means that we're not making enough money domestically)
  • Poorly-designed tax structures that under-tax high-earners and over-tax low-earners
  • Excessive spending on certain governmental programs
  • High amount of spending for subsidies to various industries

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Reducing Budget Deficits with Governments

In order to reduce the budget deficits that's happening with the government, they can do the following:

  • Increase the taxes, particularly on the wealthy, as advocated by a large group in order to increase federal revenue therefore offsetting the deficit.
  • Stimulate economic growth. It can be tricky because cutting taxes increases growth however we need to raise the taxed to maintain revenue.
  • Reduce spending on certain government programs. Some are advocating to reduce spending on social programs while others, military spending. 

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Defining Budget Deficits

When you spend more than you earn and the total amount of money that you're spending turns out to be more than the amount that you're brining in causes a budget deficit.

For example, if you spend $100 per week but earn less than that every week, that's a budget deficit. In addition, should you continue this kind of excessice spending, you will likely end up in debt.

Budget deficits can happen in both small and large scales (individual - nations).

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Guarding Against Budget Deficits
  • Keep tabs on how much money you earn each month. It's important to know how much you make so that you'll be able to plan out your expenses.
  • Make a checklist of your monthly expenses, down to the penny; and
  • Allocate budgets to spend for certain matters that match your income.

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Definition of a budget

A budget is an estimation of income and expenses over a set time. It is usually drawn up and re-evaluated periodically.

Budgets can be made for a person, a group, a business, a government, or anything else that makes and spends money.

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The 50/20/30 budgeting method

With the 50/20/30 budgeting method:

  • 50% of your monthly spending goes toward essentials - your home, your food, etc.
  • 20% of your monthly spending goes toward savings goals. It also includes paying down debts as it helps you build savings later.
  • 30% of your monthly spending goes toward everything else. That might include travel, gifts, and dining.

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What a Budget Does

As a personal financial planning tool, a written, monthly budget allows you to plan for how you'll spend and/or save your money each month and also keep track of your spending patterns.

With a budget, you can begin to prioritize your spending and better manage your money and financial future.

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