Debt Ceiling, Through a Different Lens

A few people recently asked me about the U.S. Federal Government debt ceiling situation. It’s definitely a hot-button issue in the news cycle, and many people have vastly different opinions about it. I find it helps to reframe the discussion and look at it as if the US government were just a family, using the same ratios as the government is dealing with. With that context, here we go!

This couple has an annual household income of $269,000. It’s a pretty good income, for sure! However, their annual spending for needs and wants is closer to $361,000. Since they are $92,000 short and don’t have savings to pull from, they only have one viable option: put in on a credit card. They’ve been living off the credit card for many years now, having accumulated approximately $3.18M of credit card debt. Yikes! They know this probably isn’t the best approach, so they intend to do better in the future. But they always have enough money to pay the monthly payments, so they aren’t going to let it cramp their style right now.

Recognizing the need to have boundaries with their finances, they agreed they would never exceed $3.25M of credit card debt. They even shook on it and pinky swore! Never mind they’ve had this same discussion every few years for decades. They want to do better, but let’s face it, their annual spending is important! They don’t really see any other options right now than to borrow it, so they concede that’s what they need to do.

However, it’s causing a lot of tension in the marriage. Both spouses know they should do better but can’t agree on what to cut. One spouse wants to cut x, but the second spouse won’t budge on that category. The second spouse thinks they should cut y, but the first spouse is unwilling to let it go. Hence, they are at a stalemate. They certainly can’t stop making monthly payments on the debt (that would be irresponsible and reckless), so ultimately they will probably agree to increase their negotiated credit card debt ceiling. After all, they will definitely figure it out in the future…..or so they tell themselves. Thus, the madness continues.

Can you imagine if your friends, co-workers, or family laid that situation out over a dinner party? At best, you’d roll your eyes, and at worst, you’d tell them to get their crap together. But this is the exact situation we find ourselves in as a country. $2.69 trillion of annual tax revenues, $3.61 trillion of annual spending, and a $31.8 trillion debt balance. Last year alone we fell short of our budget by $920 billion dollars……which was funded by debt. Pure madness!!

We as families deserve better than this, and we as citizens deserve better from our leaders. While we can’t control what Congress does, we can control what happens under our own roofs. Let’s practice and model a better way. Maybe they will catch on someday……

Retiring Your Kids?!?!?!

I’ve seen this topic pop up from time to time in the past, but it seems to be gaining steam these days. Perhaps it’s a natural byproduct of more and more people understanding the power of compound interest. Mix that with people’s desire to hoard and the common belief that money=happiness, and it’s a perfect recipe for “winning.”Here’s the idea. If you, as a parent, invest $x today (or $y per month) when your child is a baby, you’ll effectively be able to “retire” them. In other words, if you build up enough investments early enough, there will be a huge sum of money in there by the time your kids reach their 40s, 50s, or 60s…..so they will be able to retire without having to put in any of the actual work themselves.

The math is true. You can absolutely do this. It’s quite possible if you really want to do this. I can even teach you how if you care to know the math. My question is this: Why would you want to ruin your children? Part of being an adult is having to figure it out. Do good work, be productive, serve others, be disciplined with our giving/saving/giving, invest consistently and patiently, and live a meaningful life. When we attempt to retire our kids through investing, it’s like asking our kids if they want to put a puzzle together, but you already put 90% of the pieces together for them. The point wasn’t to complete the puzzle, but rather the process of putting it together. That’s where the meaning lies.

I’ve seen so many people get absolutely ruined by having tons of money dropped on them early in life (or knowing early in life it will be dropped on them in due time). Some of it was planned, some was accidental, and some was situational. But in most cases, regardless of the reason, the meaning, motivation, and purpose can easily be zapped from their lives. Yes, they have wealth…..and wealth can buy a lot of things. But at what cost? I’ve seen the cost and I wouldn’t wish it upon my worst enemy. I thought the previous sentence might be an exaggeration, so I considered changing it. But after further contemplation, I’m not sure it is. When we completely remove the need to be productive, especially at an early age, it does a number on us mentally, emotionally, and psychologically.

Don’t ever forget the importance of the journey. It’s far more valuable and rewarding than the destination.