Tuesday, November 11, 2014

Living Within Our Means as INDIVIDUALS is a Result of Using a Simple Formula ... Income Minus Spending Equals Savings

Governments around the world, including ours, are spending more than they are collecting in taxes and other receipts. They habitually incur annual fiscal deficits and increased debt levels. Overspending has become entrenched as the long established way. Cities, states and nations all play the game of fiscal irresponsibility and universally use accounting tricks to disguise the future financial holes that they have dug and continue to dig for us to later fill. But sooner or later the bills will come due, no matter how much 'can kicking' is taking place today

But let's look at We the People as individuals today. I recently was part of a small group conversation where the tentative conclusion was that as individuals we've become a 'hard wired' nation comprised largely of financially irresponsible individuals.

Upon reflection, I reject that 'hard wired' idea. I believe instead that government programs plus easy and abundant access to credit (enabled by government and directly provided by others) have done the 'wiring.' Yes, people today have dramatically lower savings rates and higher debt levels than prior generations, but it's not a result of a decrease in financial literacy. During our younger years, we oldsters didn't know much about finance and credit either.

But in the 'good old days,' government didn't provide the rope to hang ourselves financially in the form of student loans, low money down home mortgages, and six or more year car loans accompanied by low monthly payments. In comparison, today's 'lucky' and newly young government enabled debtors had access to easy and abundant credit for home and lengthy car loans before the housing bubble burst, and now they are 'blessed' with 'no questions asked' easy access to abundant student loans, as we blogged in "What's a College Student? ...."

Saving Ourselves From Not Saving makes a compelling case for pointing the blame directly at us as individuals:

"Americans aren’t saving enough.

The numbers appear to back up this claim, which we hear repeatedly. But what I find more interesting is how we react to such statements. . . . it’s a touchy subject.

For the sake of argument, let’s agree the numbers are true and we’re woefully behind on saving. We have some options.
1. We can dismiss it. Not factually, of course, but we can choose to ignore it. We pretend it doesn’t apply to us and never use a calculator to confirm our own savings shortfall.

2. We can delay thinking about it. “There’s time,” we tell ourselves. “We’ll get started ... eventually.” Unfortunately, this option feeds into another common mistake. It doesn’t ever really get easier to see our future selves. As a result, we keep putting off tomorrow until the next tomorrow and then the next.

3. We can secretly believe in magic. Through a random chain of events (like winning the lottery, perhaps), we believe the problem will just take care of itself. . . .

4. We can make tough changes. I recognize that some people are literally counting every penny when it comes to keeping a roof over their heads and food on the table. But for the rest of us, we can choose to make the issue personal.

This last option demands asking questions many of us have avoided, including one of my personal favorites. Could we say “no” to something now so we can say “yes” to something later? We know there are people who spend less than us and are just as happy, if not happier. Yet we seem to be satisfied with telling ourselves that it just isn’t possible to cut back — on anything. . . .

Every day we make choices. Some of those choices are driven by circumstances we don’t control, like going to the emergency room with a case of appendicitis. But other choices are just that, choices, which means we have options. How much we save falls into this latter category the vast majority of the time.

Letting ourselves get sucked into the bigger question of whether Americans are saving enough allows us to ignore our personal reality for another day. . . .

I hope it’s clear that this issue isn’t about anybody else. It is about our individual situation alone. The next time we hear, “Americans aren’t saving enough,” what we really need to know is whether we’re saving enough ourselves."

Summing Up

Even if it's not in vogue currently, living within our means is by no means a thing of the past.

It will be a thing of the future too, if for no other reason than the following --- if something can't go on forever, it won't.

And that's true regardless of how much "government enabling" and other easily accessible credit is available in the form of student loans, car loans, home loans and credit card loans. It all adds up, and inevitably the "chickens will come home to roost."

So let's each resolve to clean up our act and let our friends, neighbors and government knows best gang fend for themselves.

That's my take.

Thanks. Bob.

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