Eli5: Budget surplus

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Eli5: Budget surplus

In: Economics

Surplus = an amount of something you have remaining after you’ve used all the “something” you needed. A budget surplus is just extra money left over after fulfilling all your needs. If you make $2000 a month and budget $800 for rent and $200 for groceries and $100 for gas, well, you budgeted $1100 and at the end of the month you’ll expect to have a *surplus* of $900. Same thing happens with government spending sometimes – they need to pay for education and road repair and cops and firefighters and all that, and so they budget out money for all that stuff. And they’re getting money from taxes. And maybe the money from taxes is more than enough to cover the budget for all those expenses so they end up with a surplus.

In economics there’s two things you can do, as a company or government: get money or give money (you can also just *keep* money but if you just keep 100% of the money in a vault, you’re basically doing nothing in terms of economics).

Any company or government has a balance sheet: incomes (get money) and expenditures (give money).

A budget surplus is simply having more income than expenditures.

When you make a budget you anticipate how much money you are going to earn and how much money you are going to spend over a given time period. If you make more money, or spend less money, than you anticipated, you well end that time period with more money than you expected. That money is a surplus.

It’s leftover money at the end of a budget period. If a company department has a $1m budget for employee salaries, office/computer equipment, training, outside vendors, etc. and only spends $950k, then they have a $50k budget surplus.

Now that’s not always a good thing… if management sees that, they may decide to cut the budget the following year to $950k, when the department might still need another employee, or needs to upgrade their computers, etc. so you’ll often see those overseeing budgets try to spend up to their budget if at all possible to reduce likelihood of cuts and/or inability to spend on necessary expenses in the future. Better to upgrade all your employees computers and reduce budget surplus than not have the money to do so next year.