What is a budget deficit?

A budget deficit occurs when a person's or organization's expenses surpass their revenues, resulting in a financial shortfall. This situation often necessitates borrowing or increasing debt to cover the gap between what is earned and what is spent. In practical terms, if the money spent exceeds the money coming in, it reflects a lack of sufficient funds to meet financial obligations, which is a critical concept in personal finance, government budgeting, and corporate finance. Understanding a budget deficit is essential for effective financial planning and management, as it highlights the need for corrective measures, such as reducing expenses or increasing income to achieve fiscal balance.