5 Strategies to Prevent Budget Deficits

It’s one thing for a government to run a budget deficit, with more money flowing out than in. To solve the problem, it can raise money by selling bonds. If that’s not enough, it can literally print more money!
But it’s something altogether different for you to run a budget deficit. You certainly can’t print more money. While you could take on debt, it would be better to avoid that.

A tale of two perils

There are two types of potential household budget deficits. There’s the day-to-day type, where outgo exceeds income. And there’s the dire type, where some sudden, large, unforeseeable expense pops up.

Here’s how to prevent either type.

Preventing day-to-day budget deficits

• Use a budget. Using a budget to manage your finances is the single most beneficial step you can take to keep your finances running smoothly. With an ideal budget—or, better labeled, a “cash flow plan”—income minus outgo equals zero. For every dollar of income, you assign it to a specific purpose. This much for giving, that much for saving. This much for groceries, that much for entertainment. Then, as you move through each month, you proactively manage the numbers in the budget. For example, before heading to the grocery story, you see how much of the month’s allocation for groceries has been spent so far. If you’re still in the first half of the month but you’ve spent more than half of your monthly grocery budget, that tells you to be especially proactive in buying only the essentials.

• Plan for periodic bills and expenses. You probably have some expenses that you have to pay at some point each year but not every month. This includes bills, such as an annual homeowner’s insurance premium or a semi-annual car insurance premium. And it includes expenses such as vacations and Christmas gifts. To plan for such costs, take the annual amount for each one, divide by 12, and list that amount in the right place on your cash flow plan. Then transfer all such monthly amounts into a dedicated savings account so the money is available when the bill comes due. When it does, you just transfer the money from savings back to checking and pay the expense.

• Build margin. Think about all of your monthly bills. With each one, there may be opportunities to save. For example, think about your cell phone service. Are you on the most cost-effective plan? Contact your service provider. Ask them to review your usage and see if there’s a less expensive plan that would meet your needs. Think about how much you spend on groceries. Visit a store you don’t usually use and compare prices on some the items you buy most frequently. It’s possible that the savings of using an additional store for some of your groceries will be worth the added time involved. Think about all of your expenses and consider ways to save. Lots of little savings can really add up!

• Spread out your payment due dates. If you are paid twice a month but all or most of your bills are due in the first half of the month, that can be a problem. Some service providers will be willing to change your due date if you ask, and that could help smooth out your cash flow.

Preventing dire budget deficits

• Build an emergency fund. In life, things happen. Expensive things, often at the most inconvenient times. There’s nothing like having some money in reserve for such things. Without a reserve, your only option is to take on debt, which will further stress your monthly cash flow. While the common advice to keep three-to-six months’ worth of essential living expenses in an emergency fund savings account is wise, it may sound overwhelming. Just start chipping away at it. Set up an automatic monthly transfer from checking to savings. Even $10 or $25 per month will help. If you’re contributing to a workplace retirement plan but you don’t have an emergency fund, consider temporarily stopping your retirement plan contributions in favor of building your emergency fund. One exception is if your employer matches some of your contributions. If so, consider only contributing the amount that earns the full match and redirecting any amount above that toward your emergency fund. Once it’s fully funded, you can go back to contributing more to your retirement plan.

Preventing budget deficits in your personal finances is crucial. Just because the government regularly runs budget deficits, it doesn’t mean it’s a good idea. By taking the steps listed above, you’ll keep your finances running smoothly, achieve financial stability, and practice key God-honoring money management principles!

As you continue on the path of biblical stewardship, consider banking at CCCU where you’re empowered to live our your faith simply by banking with them. Plus, they have high-earning savings accounts to help you save for your emergency fund.

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Matt Bell is the author of Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management. He speaks at churches and conferences throughout the country and writes the MattAboutMoney blog.

This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation.