What Is a Cash Shortfall?

What Is a Cash Shortfall?
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Although the term "cash shortfall" can be used in many different applications, it simply means there isn't enough money for a planned activity. It can apply to the purchase of a house, a family's monthly budget or the finances of a major corporation. But in any cash shortfall situation, there are solutions available.

Major Purchase Shortfall

A cash shortfall can arise when a purchase requires a down payment and a payment plan. For example, you have been setting money aside in a savings account to buy a home and have $20,000. But the down payment of your dream house is $21,000, causing a cash shortfall. You can cover it with money you have set aside for any other purposes. Or, if you have no other cash, you can borrow the difference from a friend or relative or get a cash advance on a credit card.

Family Budget Shortfall

Simply put, cash shortfall occurs in a family's monthly budget if expenditures exceed income. Simple solutions include working out a budget that spends less money or finding a way to earn more income, such as part-time jobs or selling unneeded household items. Credit cards can offer temporary relief, but beware. They can also lead to further shortfalls by constantly increasing monthly balances. Carefully monitor credit card use and avoid impulse buying that you may regret later.

Corporate Cash Shortfall

Large companies are not immune from cash shortfall problems. A weak economy can cause customers to buy less of their products, causing a decrease in revenue, leaving companies without enough cash to pay their expenses. Unexpected problems can cause their expenses to increase. Corporations have many ways to resolve a cash shortfall, including borrowing money, increasing prices or reducing expenses.

Avoiding a Cash Shortfall

On all levels, cash shortfall problems can be avoided by proper financial planning. With a major purchase, you can buy a less expensive product or wait until you have enough for the down payment on the product you want. In a monthly family budget, build a safety net by always setting aside a little extra cash for unexpected expenses or emergencies. Look online for financial planning software, and then get the family together to make a game out of entering everyone's expected income and spending.