What is a Budget Surplus?
Let’s start by understanding what a budget surplus really means. According to Barron’s, a budget surplus is when income exceeds spending for a government, corporation, or individual over a certain period. In simple terms, it’s when you have more money coming in than going out.
This is the opposite of a budget deficit, which is all about living below your means. A budget surplus, however, focuses on having an excess of income over spending. It's not about cutting back —it's about creating extra income. And yes, that’s what financial IQ is all about: making more money.
Robert mentions how his rich dad loved the idea of “excess income,” and this chapter focuses on how to generate more income, rather than simply living below your means.
Now, let’s dive into how different groups manage a budget surplus.
Budget Surplus in Government
Barron’s explains that a government with a surplus might choose to start new programs or cut taxes. But here’s where the problem lies: Governments often spend the surplus, even when there’s no need. If a government department saves money, they’re often punished with a reduced budget for the next year.
How Do Democrats Handle a Budget Surplus?
Democrats tend to tax and spend. They often allocate more funds to social programs like social security and Medicare. This means social programs grow, the budget increases, and the cycle continues.
How Do Republicans Handle a Budget Surplus?
Republicans, on the other hand, tend to borrow and spend. Robert likens this to flooding the economy with “legal counterfeit money.” This extra money might look like an income boost, but it’s really an increase in debt, often in the form of T-bills and bonds.
Budget Surplus in Business
Barron’s says that a corporation with a surplus may either invest in expanding the business or buy back its own stock. There are two main ways a business can expand:
- Investment – Spending to grow.
- Acquisition – Buying another company to expand.
If neither of those options is viable, a business might buy back its own stock, signaling that the leadership believes the stock is undervalued. In this case, investors might want to consider buying more shares as the price rises.
Budget Surplus for an Individual
Barron’s also defines that an individual with a budget surplus can either:
- Pay down debt.
- Spend more money.
- Invest.
Unfortunately, many people focus on spending or debt rather than investing their surplus. But to become financially strong, you should prioritize investment over spending or paying off debt.
What Should We Prioritize?
To build long-term financial strength, focus on generating more income (surplus) and investing it wisely. The goal is not just to spend less or reduce debt, but to expand your wealth by making your money work for you.
Now, let’s explore what we should focus on!
