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Deficit
Definition
A deficit occurs when expenses exceed income, requiring borrowing or drawing from savings to cover the shortfall.
Explanation
A chronic budget deficit leads to growing debt, depleted savings, and financial stress. Temporary deficits may be unavoidable due to emergencies or large expenses. Addressing a deficit requires increasing income, cutting expenses, or both.
The first step to fixing a deficit is honest expense tracking to understand where money is going. Even a small monthly deficit compounds into significant debt over time.
Example
A $200 monthly deficit means you're borrowing $2,400 per year, which at 18% credit card interest would cost $432 in annual interest.