A perfectly balanced budget is an accounting textbook dream. In real life, in real households, in real companies and in real countries, it is not so easy to achieve this. On the surface, it would seem that balancing a budget should be a relatively straightforward proposition for anyone. Earn money subtract expenses = save leftovers.

However, financial planners know that even individuals avoid budgeting like the plague. Interjecting population segment wants versus needs, favouritism versus parity, special interests versus the majority, political party conflicts, economic uncertainty rationalization and the budget process for a country has to be a challenge for purse and people.

From a Keynesian point of view, a balanced budget in the public sector world is achieved when a government equates revenues with expenditure over the business cycles.

Wickipedia. When there are years of revenue surplus and high economic activity, excess government funds should be socked away for drawdowns during times of low economic prospects and high expenses. In individual financial planning terms, this is called contingency modelling - anticipating the what-if in economic cycles, but it hardly ever works that way, even for us plain folks.

Revenue Enhancement - The proverbial individual model is to work hard, receive promotions, wend your way toward and start up the ladder of success. On the way, however as earnings increase, the prevailing tendency is to spend more, to the level of our income. This tiny nugget of information explains why even some very wealthy people who spend to their income level (same stuff but pricier, well except the corporate jet) feel poorer in a declining economy.

If we do have a surplus, we might save an increment, reduce some debt, but more often than not, we acquire assets, and not always those that appreciate long term. While this is by no means a criticism, implicit within this equation is that there will always be jobs and the ability to earn.

If the job market contracts, the individual / family finds it has to reassess, reallocate resources for a second job, retrench or move on to where opportunities to remain upwardly mobile exist. The family priority review includes a what-if model that anticipates decreased revenues of varying percentages (say 10 percent, 20 percent, 30 percent, 40 percent reduction) and the impact on the family finances and goals.

It is somewhat different for governments, since they are captive to (and stewards of) the environment that they operate within and the people they govern. They must conduct the affairs and administration of the country prudently, fiscally responsibly, and conservatively in order to preserve surpluses, pensions and support vehicles for current and future generations. They must balance the needs of current residents against the demands of those yet to come.

While revenue is earned by the country's residents, government derives some revenue directly in the form of usage assessments, i.e. infrastructure, land, documents transfers, shipping, customs and airport passengers and so on. It also benefits from taxes imposed on the salaries of the working population. Increase the working population, increase in payroll taxes, decrease the number of workers and average salary ranges, predicts a drop in tax.

Government payroll tax revenue predictions last year for this fiscal year 2008/2009 are estimated at $335 million. We won't know if those numbers will hold up until budget release in a couple of weeks.

Government does not have the facility to pick up and move to greater opportunities elsewhere, but it does have the ability to increase revenue through changes or increases in taxes, sale of natural resources, addition of new taxes, restrictions spending, and borrowing, with the individual residents tacit permission, to meet budgetary and capital project goal shortfall.

Cash Flow Management. There is always great focus on the budget picture, but of equal importance on an ongoing basis is the management of cash flows. For those who do not make a study of corporate balance sheets, the corporations with the greatest chances of surviving are those with heavy amounts of free cash (readily available) and low debt to asset ratios.

A government balanced budget may not indicate that there is excess cash in the bank, or that the debt level is manageable relative to the statutory limits defined against the GDP percentages. There are many companies today whose balance sheets appear solid, but in reality they are debt-laden and have little available cash.

In the event of a cash crunch, they have the ability to raise cash through fire sales of listed assets - a big part of the liquidity problem in capital markets volatility. Small governments generally have no such capabilities given that the country assets may be comprised of reputation, international finance centre goodwill, and intellectual capital.

Debt Assumptions. The money has to come from somewhere. Even when we think the budget is balanced, because government has the capability, it can and it will levy taxes on the populace (us) or borrow in the name of the populace (us) to balance out its mandate. What may happen instead is that, the total sum of money a government collects in a year is equal to the amount it spends on goods, services, and debt interest.

Literally, government takes money from some people and gives some of it to others, under the highest purpose of operating for the common good, achieving social harmony while building a financially successful society.

Given that the entire global economy is in a recession of various degrees of negativity with little relief in sight, the release of the 2008/2009 budget is now anticipated with some anxiety. What will those figures show us about the performance of our economy? How have our stewards managed our precious resources and what is the projection for the future?

At the end of the day, collectively we all pay the price of supporting the government purse, yet on a day-to-day basis we have little or no power to object to the use of our money. Government may be we, collectively, but it is bigger than us, individually. Next week.

In Bermuda, the thought of any downturn in our economy has been dismissed as an aberration for years. Don't you know that here 'everything only goes up in value', said one impatient resident to me. What are we doing individually, and governmentally to control expenses? Is a 10 percent reduction in spending enough when US state governors are slashing payrolls, spending, and employee benefits by more than 25 percent? When one family loses 50 percent of their breadwinning capacity, what must they do to control their cash flow? One person's spending is another person's income - how the money supply multiplier amplifies an economy.

Martha Harris Myron CPA -NH1929, CFP® -67184 (US licences) TEP - Society of Trust and Estate Practitioners. She is a senior wealth manager at Argus Financial Ltd., specialising in comprehensive financial solutions and investment advisory services for individual private clients and their families, business owners, endowments and trusts. DirectLine: 294-5709 Confidential email can be directed to mmyron@argusfinancial.bm The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.