The federal budget and your money

Editor’s note: This article first appeared in Money Matters, a newsletter from Britannica Money, on October 4, 2026.

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Another federal fiscal year, a record-breaking deficit.

© artiom.photo/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

On October 1, the U.S. government started a new fiscal year. Preliminary estimates suggest that the U.S. closed fiscal 2026 having spent about $2 trillion more than it took in. Meanwhile, the national debt crossed $40 trillion for the first time.

Try that at home and see how it goes.

There are some obvious similarities between the federal budget and your household budget. You have income and expenses. When expenses exceed income, you borrow the difference—and pay interest on what you owe. Do it again next year and the debt keeps piling up.

But that’s about where the comparison ends. Your household can’t levy taxes, issue Treasury bonds, or create more dollars to pay your bills. The federal government can. And when the federal government changes what it taxes, spends, and borrows, the effects can reach everything from the economy and financial markets to your own wallet.

So how did Uncle Sam do in fiscal 2026? More importantly, why should you care?

Let’s start with the big numbers. The federal government took in roughly $5.4 trillion in fiscal 2026 and spent about $7.5 trillion. That leaves a deficit of about $2.1 trillion—the difference between what was collected and what was spent during the year.

Most of the money coming in comes from us. Individual income taxes and payroll taxes make up the bulk of federal revenue, with corporate income taxes, tariffs, and other sources accounting for the rest.

On the expense side, we have Social Security, Medicare and Medicaid, defense, veterans’ benefits, federal salaries, highways, national parks, and a very long list of other things the government pays for. And then there’s interest. Washington is on track to spend more than $1 trillion this year just paying interest on the debt.

And deficits aren’t exactly a recent development. The federal government last ran a surplus in fiscal 2001. Every year since, Treasury has borrowed to cover the gap between revenue and spending. That borrowing accumulates over time as the national debt—the running tab that passed $40 trillion this year.

Here’s something that holds true in governments and households alike: If debt payments swallow up too much of your budget, cuts ultimately have to be made. That’s why mortgage lenders look at your debt-to-income (DTI) ratio—your monthly debt payments divided by your gross monthly income. As a general guideline, lenders have traditionally looked for a DTI of 36% or less.

Governments have more flexibility, especially the U.S. government. It can run deficits year after year, as it has since 2001. But every deficit adds to the national debt, and every dollar of debt has to be financed. At some point, bondholders—the people and institutions loaning money to the government—may require more compensation for lending to a highly indebted borrower.

You know how that works with household debt. Your credit score helps lenders assess the risk of lending you money, and borrowers with lower scores generally pay higher interest rates. A subprime borrower will usually pay more than someone with excellent credit, and unsecured debt such as credit cards can cost even more. Risk has a price.

The federal government doesn’t have a FICO score, but it does have credit ratings. And ours has slipped. In 2025, Moody’s became the last of the three major rating agencies to take away the U.S. government’s top rating, citing the deterioration in the country’s fiscal strength. S&P had downgraded U.S. debt in 2011 and Fitch followed in 2023. And the ratings agencies aren’t the only ones paying attention to creditworthiness. Many of us are bondholders, whether we own Treasurys directly or through retirement accounts and other investments. The more return investors demand to lend the government money, the more expensive that borrowing becomes.

Then there’s the budget itself. If more goes toward interest, where do you cut? Social services? Defense? Or do you raise taxes? Governments and households aren’t the same. But at some point, both have to make hard choices.

You can’t control government borrowing, but its cost affects the interest rates you earn, pay, and encounter as an investor.

So, how did we do in the 2026 fiscal year? A roughly $2 trillion deficit and a national debt that crossed $40 trillion aren’t exactly numbers to celebrate. But neither tells the whole story. Just as lenders look at your debt in relation to your income, economists compare government debt with the size of the economy supporting it, using the debt-to-GDP ratio. The measures aren’t quite the same, but the question behind them is: How much debt can you reasonably carry?