Countries reduce their deficit by cutting spending and raising taxes. Neither move is very popular. On The Goldstein on Gelt Show I spoke with David Leonhardt, Washington Bureau Chief of The New York Times, about possible solutions to governments’ deficits. Leonhardt noted that despite cuts in spending and raising taxes America still has a deficit problem.
“What I particularly worry about,” he said, “is that we’re also not spending money now on the kinds of things that might lead to economic growth later.”
He thought that maybe America was looking at the short-term, to the detriment of her long-term economic stability: “We are cutting spending on things like medical research, early childhood education, higher education, infrastructure spending, and clean energy research … the things that actually bring a return.” (To learn more about Leonhardt’s opinions, click here to listen to the interview, or check out his new book, Here’s the Deal.)
Solving the deficit on the home front
It may be easy for a politician to ignore the long-term effects of his decision, since chances are he won’t be in power decades from now. However, when you make financial decisions for your own future, chances are you will be around decades from now, so your decisions need to be responsible for both the short and long term.
The lessons of governmental spending and cuts can also be applied to the way you spend and invest your household’s money. If you can’t make ends meet, it’s important to cut spending. But how? Do you cut your spending on things that might save you a bit now, but will have little effect in the long term? Or can you think of more effective ways to increase income – like making a more effective asset allocation or creating a financial plan?
Make the best use of your resources, both now and in the future. Look at your entire financial picture, both the current situation and future income/expenses, and make wise decisions that best serve both your present and future needs. Balance your budget and eliminate your deficit to make your household’s economic situation secure… and don’t learn from the government how to handle money!
(The opinions expressed on the Goldstein on Gelt show are those of the guest, and not necessarily my opinion or the opinion of Portfolio Resources Groups, Inc.)
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published January 21, 2015.