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The Government and your financial plans

“A Democracy cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy.”

Alexander Tytler (typically credited with this quote)

The Clarion Ledger recent published two articles in the August 9th Sunday edition, Bleak Picture for City Budget and The State Budget Blues.
 According to the articles, the city of Jackson’s problems are: Sales tax revenues are down, a potential revenue increase from annexed property taxes is offset by devaluation of the Metro Center, and a $2.5 million bond debt payment is due annually beginning in January 2010.
 At the state level, federal funds have financed 50 percent of the 2009 budget. These funds are expected to decrease. A Congressional Quarterly report estimated Mississippi’s 2013 revenue will fall short by 9.8%. The city and the state’s incomes are decreasing while their expenses are increasing.
 Federal debt is $9.9 trillion and estimated to grow over $15 trillion in 2011. As a country, we have experienced extremely high debts in our history. To be historically fair, we should compare the debt to the Gross Domestic Product, or the value of the goods and services that we produce in our country. The GDP is our country’s annual income. In 1950 the country’s debt to GDP was 94%. At that time our country owed 94 cents of every dollar that we earned. In 2008 the country’s debt to GDP was 70 cents of every dollar earned. It is estimated that in 2011 our country will owe $1.01 for each dollar earned or approximately $51,500 per person. (FY 2010 Budget Historical Tables, pages 127-128, The Office of Management and Budget).
 A government entity can raise revenue by raising taxes or taking loans by issuing bonds. The government does not create revenue in any way. Many fear that the ability to raise debt and the wisdom of doing so is running out. A tax increase may be the only option for our government to raise income.
 The U.S. is still one of the most extraordinary countries in the history of the world. It is fantastic to witness how God has used our country. However, our extravagance is catching up with us.
 Typical Americans have managed money a little better than their government. Many citizens of all income levels are doing a great job. Statistics show that individuals are attempting to manage their household finances. Today, 18 cents of every dollar of take-home income is paid on debt. (09q1, Financial Obligations Ratios, the Federal Reserve Board). This is a far better amount than the 50 cents on the dollar being paid to debt that banks would accept a few years ago.
 So how can we protect ourselves from this national mess? We find the answer in the book of Proverbs.
 King Solomon wrote in Proverbs 21: 5, “The plans of the diligent lead to profit as surely as haste leads to poverty.” Pay attention to financial plans. Each person is responsible for their financial actions. Use the benefits that are available wisely, such as employer benefits and/or government benefits. These benefits are not free; we have earned them by working and paying taxes. However, do not depend on them solely for support.
 Solomon also wrote, “Listen to advice and accept instruction,” Proverbs 19:20. No one person has all of the answers. Therefore, find advice for financial plans.
 Again, Solomon wrote, “The borrower is servant to the lender,” Proverbs 22:7. Stay out of debt. If debt must be used, manage that debt wisely. We serve anything that we go into debt for.
 Our Government’s decisions affect us tremendously. Voters have a voice in the government. However, no single person bares responsibility for these tremendous decisions.
 Each individual is responsible for the economy in their household. Take responsibility for your financial plans, thoroughly consider advice received and manage money carefully.

September 15, 2009

Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser.  Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC.  SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS.

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