How long can a state operate without a budget? It seems like an absurd question, but let’s take a quick peek at California. Their fiscal year came to an end on June 30th. And they did not have a budget approved for the following fiscal year at that time. So when it comes to services that are funded by the state, where is the money going to come from to pay for it all? That’s a good question, and only recently was answered. California was, up until a week or two ago, literally writing IOU’s to its creditors. Talk about poor money management?

In government, here is how things are supposed to work: you can only spend the money you have. It’s called a balanced budget. Unfortunately this year funding from the State and Federal government has decreased and many programs are requiring cuts. Each government official has a vested interest to keep as many programs on the budget as they can, but without the funding something has to give.

The only options: either raise taxes or lower costs by cutting programs. Unfortunately, in our economic climate, no one can afford to have their taxes raised. So to balance the budget, what programs should they cut? That’s a tough question! But it is one that needs to be answered quickly because without a budget eventually even essential services like fire and police will fail. The budget is such that it calls for a reduction in spending to the tune of $15 billion. Cuts included $6 billion from K-12 schools, $3 billion from the University systems, $1.3 billion for healthcare, and $1.2 billion from the state prison system.

So what can we as individuals gain from this? Well, how many of us actually have a personal budget? And for those of us that do, is it balanced? The best budgeting advice is to simply have a budget! Generally people are not entirely in complete control of how much money they make. Few people can give themselves a raise! So we have to control our spending. Ideally we never want to spend more than we have or we end up in debt. And ideally we would like to actually spend less than we make so we can save for the future. This is an opportunity to learn from the fiasco that California is facing. Having a balanced budget is every bit as important for individuals as it is for a state government.