What is a federal budget?
Just as you would need a plan or a budget to ensure that you have enough money to pay for the essential things like rent, electricity or savings, governments need what’s called a “federal budget.” A federal budget is an itemized plan that shows how much taxpayer money should fund which government project. It contains a program for the government’s annual public expenses, which can include buying new equipment for the military, allocating subsidies for education, and paying for the salaries of federal employees. In other words, the federal budget is the fuel that helps our elected leaders fulfill their responsibilities and promises made during the election season; it keeps the government up and running.
In the U.S., federal budget developments are among the most followed in the news as everyone inevitably gets affected by the how it turns out. Ultimately, the final budget determines if people will get sufficient health care or if the U.S. military will be adequately supplied with equipment.
For an investor like you, you may want to keep yourself updated with the federal budget as it can give you clues on how inflation can affect stock prices or whether the U.S. dollar is going to see some severe devaluation.
What does a federal budget look like?
As previously mentioned, a federal budget is an itemized plan that shows how much will be allocated to particular departments or projects. Vast chunks of the budget go to priority projects. The U.S. federal budget covers the 1st of October until the 30th of September of the next year. The budget is named for the year it’s supposed to end. Below is a summarized version of the 2018 and 2017 federal budgets:
The 2018 U.S. federal budget ($4.1 trillion), the first budget proposed by President Donald Trump, received a lot of attention as more party leaders pushed for an increase in spending. This resulted in an omnibus spending bill that allows the government to allocate more than 60 percent of the budget to military spending, disaster relief, and health care, among others. The omnibus spending bill combines two or more of the smaller statements that comprise a federal budget. It prevents a prolonged government shutdown as one vote in each house is enough to pass it. The 2018 federal budget also saw the elimination of the previous administration’s $971 million budget for arts and cultural agencies.
The 2017 U.S. federal budget ($4.2 trillion), the last one submitted by former President Barack Obama, prioritized the creation of jobs, 21st-century transportation, medical research, and addressing climate change, among others.
How does the federal budget affect investing?
As an investor, a certain level of awareness of the U.S. federal budget can help you better manage your investments. Your knowledge of the existing national budget can also help you see how much debt the government has accrued and what it means for your finances.
For example, if the government has done little to bridge the gap between federal spending and revenue, this means that the nation is racking up debt. Debt can crowd out other investment: too much money going into Treasury bonds to keep the government running means there’s less money for investment in stock, new businesses, and real estate, among others. In the long run, this could mean higher interest rates and lower incomes.
As you follow the news, you will most likely hear a lot about a federal budget deficit, which means that the government spent more than the allotted budget for the year. While there’s not much you can do about it—deficits seem to be the government’s default setting—it pays to know how it will affect you and your investments so you can make better decisions about where you might want to put your money in the future.