Definition: In a balanced budget, expenses equal the revenue generated in the same duration. Usually, governments or public sector companies use this term to show their financial position to stakeholders.
In a balanced budget, there is no budget surplus or budget deficit.
In a budget surplus, expenses are lower than the revenue; in a budget deficit, expenses are higher than the revenue.
The main advantage of a balanced budget is that they help avoid taking debt.
Example of a Balanced Budget
For example, let’s say that the expenses for the next fiscal year are 100,000 USD and the revenues from all streams are 100,000. In this case, expenses and revenues are equal, so the budget is balanced.
Importance of a Balanced Budget
A balanced or surplus budget are desired because these budgets do not have any deficit.
A balanced budget allows governments or organizations to avoid unnecessary expenses and spend funds where they are required most.
Also, a balanced budget lets governments save on interest rate charges on foreign loans such as loans from the World Bank, International Monetary Funds, any other country, etc.
Summary
In budget balancing, governments, organizations, or individuals try to balance expenses with revenue. This is the most desired form of budgeting and allows control of expenses, allowing funds to be utilized efficiently.