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DEFINITION
Balanced budget is a situation in financial planning wherein the revenue and expense columns of the working budget are equal.
Having a balanced budget occurs not only when the person’s total revenues equate to the total expenses but also when the total revenues exceed the total expenses within a full year. So even if the budget shows an outstanding lead on the revenue side of the balance sheet, it can still be called a balanced budget. Company’s operating budget for a forthcoming year can be termed balanced based on predictions or estimates.
An alternative to the annual balanced budget is the cyclically balanced budget. The cyclically balanced budget follows the economic cycle wherein the budget goes through the dynamics of surpluses and deficits. Theoretically, if the economy goes through the ups and downs, it should your budget should balance itself out.
COMPONENTS
The 5 components of a balanced budget are:
1. FIXED MONTHLY EXPENSES
These expenses remain the same every month or year due to Singapore’s laws and Company service-provider terms (e.g. Hand Phone Plan, or HDB Rent).
2. VARIABLE MONTHLY EXPENSES
These expenses include food, entertainment, clothing, petroleum, and other expenses that may change every month or year. The challenge now is for you to choose on which variable expenses you can reduce.
3. OCCASIONAL EXPENSES
Occasional expenses happen a few times a year. This includes holiday vacations and seasonal gifts.
4. INCOME AFTER TAXES
Your monthly income after taxes is the amount of money that you have to work with within the month. This amount varies depending on a person’s career. Use your annual income to guide you while making your budget
5. SAVINGS
Savings is a portion of your budget that you keep for future use. It includes emergency fund and retirement fund as it helps you to reach your financial goals.
NEXT STEP
To attain a balanced budget, you must first know about the basics of keeping one. May this short video help you with that:
