Word of the Day | Deficit

A deficit is like when you spend more money out of your piggy bank than you actually put in.

Let's say you had $0 in your piggy bank at the start of the week.

• You put in $5 (that's your income or earnings).

• But you needed $8 (that's your spending).

You only had $5 total ($5 earned), but you wanted to spend $8. This means you were short by $3. That $3 is your deficit – the amount you overspent compared to what you earned.

Now, to actually spend that $8, because you didn't have enough in your piggy bank, you had to borrow $3 from a friend.

So, the deficit is the shortfall – the $3 extra you wanted to spend but didn't have. Borrowing from a friend is one way to cover that deficit, to get the money you needed to meet your spending even though you didn't earn it yourself.

Think of it this way:

• Deficit: The problem of spending more than you have.

• Borrowing from a friend: One solution to deal with that problem in the short term.

Just like borrowing from a friend needs to be paid back later, when a government or business has a deficit and borrows money, they will eventually need to pay that money back too, often with interest.

https://www.dbm.academy/faq for more blockchain vocabulary.