We have had a major crisis in our house recently that started with a heated conversation about our budget, and I thought that I would share the events that led to our household meltdown so that we might learn from my mistakes and apply those lessons to our national debate about money.
It was budget time in my house, and I thought that it might be a good idea to try and tackle the mounting debt that my family has incurred after years of operating on a budget that was unsustainable. You see, we have a deal with our bank that is pretty sweet – we deposit all of the money that we make, and then we just write checks for our bills and whatever other expenses we encounter. The bank cashes our checks until we run out of money, then, they just put the rest on a revolving line of credit that is owned by China.
So far, you may not be able to see the similarities between my household crisis and our national financial debate. But there is more.
Our debt was getting a little cumbersome, and I realized one day that we were spending a good deal of our monthly income on interest. On top of that, the interest that I was paying was not reducing the amount of money that I owed! It was frustrating, so I decided to get that debt paid off. This seemed like a reasonable effort, because the bank was still willing to loan me money in the process, so I could cut my spending to pay off the debt and not affect my quality of life at all. Confusing? Let me explain.
I decided that we could tackle our debt if we could just squeeze out some money from the budget so that the bank wouldn’t have to loan me quite so much money. If I borrow less, then I owe less, then my debt, eventually, goes down. It is that simple. Well, almost.
The problem is that I still have to pay the interest on the debt. Also, my spouse wouldn’t let me stop paying on the house, so that was not something that I could cut. She buys the groceries, so I don’t really have much say over that, so that turned out to be a fixed cost, too. What I did to squeeze some money out of the budget seemed ingenious to me at the time.
I listed out all of our expenses, then I just crossed out the items that my wife wouldn’t let me cut or that I owed the bank (I didn’t want to get on their bad side because I needed them to make the plan work). Everything else was fair game.
The first thing that I cut was entertainment. That was easy. I just took all of the money out of the budget for birthday parties, skating lessons, tee ball, restaurants, etc. I saved a bunch there. Then, I cancelled our preschool for our youngest child. She isn’t in school yet, so it isn’t mandatory that she go to a day care. That was an amazing amount of money. It made my head spin thinking about all of the money that I wouldn’t have to borrow on that one. After that, I went for transportation. We spend too much on gas, so I cut that part of the budget in half, and I figured I could walk to work so I cancelled my bus pass and took out any money for public transportation in general. Car maintenance went too; because I read somewhere that people should do their own car maintenance as it keeps them in touch with their vehicles. I was really making progress, but my spouse is not a progressive and was totally against any kind of change, so she yelled and screamed and told me that I had no idea what I was doing. The problem is that she wouldn’t even look at the graphs and charts that I had made, so she didn’t have all the information.
Anyway, when all was said and done, I had cut our budget by 18 percent. That meant that I was only going to be borrowing 31 percent of our monthly budget, down from our previous 49 percent. It was quite a victory for me, and I set about implementing all of the new lifestyle changes that we would have to make to accommodate our new budget.
That was when the problems started. My spouse and I had to rotate days off to take care of my daughter, who was home all the time now. At the same time, it took a lot longer to walk to work in the rain and snow than I had expected, so I was late almost every time I went to work, which was only a few days a week. The car ran out of gas mid-month, so I wanted to take the bus to pick up my kids from school, but I had no buss pass. My spouse had spent the loose change to take the kids out for ice cream, so I had no way to ride the bus. I had to walk to the schools to pick up my children, which took a long time because I had to carry my preschooler. The school told me that I would have to pay for after school care from now on since it takes me so long to pick up my children. My wife lost her job shortly after for missing too many days at work, which was a mixed blessing because I was free to go to my job every day. At the end of the month, though, we had half as much income and my job was hanging on by a thread. We were out of money because my paycheck barely covered rent and the car payment, so we had to take out a small cash loan to eat. Much to my dismay, everyone was in a foul mood, stuck at home with the thermostat turned down and a meager dinner of rice and beans. I talked to the bank, though, and I explained to them that in an effort to cut my domestic spending I had created a situation where we couldn’t survive, so they agreed to extend our revolving credit account to cover my wife’s old salary.
In the end, our quality of life came out about the same, because I realized that there are some things that we just can’t cut from the budget. My wife now has a part time business selling yarn on ebay, and we have to borrow about 86 percent of our income to survive, but at least I learned an important lesson about how budgets work.
Thank goodness that I didn’t do more damage than I did. We may not have recovered from a serious lack of judgment.
Lack of judgment, however, is exactly what is happening in our current national financial debate. There is very little argument that we need to curb the deficit spending and that we need to reduce the national debt, but this problem has been compounding for four decades, and it will not be resolved this year. Something similar to this story did happen to my family, when we realized that we had too much debt and needed to pay it off. What we actually did was to pay the rent, keep the lights on, and buy our food first, and then everything else went to paying off our debt. It was true that we had to cut out some things, and we did have to sacrifice to make our goal of getting out of debt a reality, but there are some things that we just could not cut from the budget. Child care, for instance, was necessary for both of us to work so that we could make enough money to reach our goal.
Much of the current rhetoric on Capital Hill is short sighted and will do more harm than good. When you have to borrow money to pay your car payment, cutting your children’s preschool from the budget won’t help the situation. When the government is literally borrowing money to make the payments for the wars in Iraq and Afghanistan, or borrowing money to give to banks and auto makers who have borrowed money to stay in the business of loaning money to consumers, then cutting funding for community action programs won’t help the situation at all. In fact, the families who rely on those programs, families that are out of work or underemployed as a result of this debacle, will see the same results as the misguided man of the house saw in my illustration. Things will get worse, and our tax revenues will shrink, and we will have to borrow more money to pay our bills.
There is one thing that I can agree with the Tea Party about. The United States is gluttonous. We spend too much money. But that is where our tenuous similarities end. In order to change our national budget, we would have to change our national identity. We would have to drive smaller vehicles, live closer to work, save more money per family, shut down the “Title Loan” and “Payday Loan” industries, and, Heaven forbid, pay off our credit cards. Believe it or not, taxes are not as much of a burden on our society as interest a payments and having a negative net worth. We are a debt culture, and if that does not change, then cutting off money to hungry kids in elementary schools will not change anything about our national debt. It will only leave our children hungry.