“Act your wage!” You may have read that phrase before. It is the advice that personal finance guru Dave Ramsey has given to millions of Americans seeking to live debt-free. For those with common sense the meaning Ramsey’s advise is simple – live within your means! Ramsey’s radio show must not be available in Washington, D.C. because Congress clearly does not understand that logic. Notice to Congress: Grab a pen and take some notes!
Personal finance is an easy subject to grasp, but it takes sincere discipline to exercise. If the housing crisis has shown us one thing about personal finance it’s that many families live financially on the edge or beyond their means (deficit). When the slightest financial hiccup occurs it is those people who feel it first – and hard!
Sadly, the federal government is in the same predicament as the families who suffered through the housing crisis. The feds do have two huge advantages over everyone else though. They can borrow money from investors with you guaranteeing repayment by means of future taxes or they can print it – and they do both!
In personal finance, natural economic laws force you to “act your wage”. That means that you cannot spend more than you make forever. Of course, with easy credit available living beyond your means is just a swipe of your credit card away, but that can only go on so long. If you continue to spend more money than you make using debt, eventually it will reach a level that is unsustainable. In other words, the payments on your debt will eat up all of your expendable income. In a worst case scenario it will exceed your expendable income. Once you have hit that threshold drastic measures must be taken immediately before you default on your debts causing tarnished credit, fees and penalties, harassing calls from creditors, higher interest rates, and even the confiscation of your assets in order to pay the bills. At that point you are bankrupt!
Doesn’t that trend sound a lot like the federal government? How about when you consider that the federal government has only had a budget surplus for four years since 1968! That means our government has been spending more money than it receives in taxes for 38 out of the last 42 years!
Our deficit now exceeds a record breaking $1 trillion. As a matter of fact, deficit spending in 2009 was $1.4 trillion and the projected deficits for 2010 and 2011 are estimated to be about the same if not higher. With the continued, explosive growth of deficit spending it is not hard to understand how the government has racked up over $13.6 trillion of debt!
Going back to the bankrupt example I described above, what is the common sense solution to that dire situation? Well, first you have to realize you have a spending problem. Then you have to take an account of all your expenditures and eliminate all things that are not essential. That might include things that you enjoy such as your high definition cable and Netflix subscriptions, going out to eat every day during your lunch break, and adding to your trendy clothing wardrobe each month. Even that may not be enough. You still may be compelled to sell off that boat or motorcycle you dearly enjoy or even downsize your home. It will certainly be painful to make those choices, but it will not be nearly as painful as it would be to be kicked out of your home and have all of your things confiscated by the bank.
The solution for the federal government is really that simple too, on a much larger scale of course. For the most part the government has a predictable income (taxes) and predictable expenses. Understanding those numbers makes balancing the budget straightforward. And like an ordinary Americans, making the tough choices to cut the expenses that are non-essential to the Constitutional function of government will be difficult, but it is necessary to avoid an even worse outcome like the all out collapse of the currency. If the government made that decision you might read something like this in the newspaper:
… this past week announced the steepest set of spending cuts in decades, vowing to slash department budgets by close to 20 percent and eliminate a half-million public sector jobs — all in the name of closing the country’s stubborn deficit.
Those are actual words from a Fox News story. As you can guess Fox News was not talking about the U.S. though. The government it was actually referring to was Great Britain, which has unleashed a plan to make the deepest spending cuts in over 60 years! Britain plans on doing that by slashing department funding by an average of about 19%, scaling back on welfare spending, increasing the retirement age to 66 by 2020, and eliminating 490,000 public sector jobs by 2015. Understanding the severity of the situation, Britain is running out of the burning building while the U.S. continues to run up the stairs!
It is true that denial can get the best of us. The United States, at least the federal government, is in a state of denial. It is almost as if they believe that because we are America the natural laws of economics do not apply to us. The majority of the American people seemed to be waking up to the severity of the situation, but it will take a united front of enlightened Americans to constantly pressure the federal government to make the drastic changes necessary to save our financial ship.
The federal government needs to take a hard look at its financial situation, look at what is going on in Britain and the rest of Europe, and humbly say “I am the federal government, and I have a spending problem.” From there it can work on cutting or phasing out all expenses that are not essential to the Constitutional function of the federal government and start acting its wage. Or it can continue to blindly walk towards the cliff with its fingers crossed, dragging the rest of Americans with it, hoping that everything works out.