Finance and investing are guided by people’s behaviors. Morgan Housel, author of The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Talking about money is one of the most important skills to being a fiscally responsible and literate person. However, 44% of Americans surveyed would rather discuss death, religion or politics than talk about personal finance with a loved one.
Why? Two major reasons are embarrassment and fear of conflict, even though the consequences can be grave: 50% of first marriages end in divorce, and financial conflict is often a key contributor. Additionally, in our society it is considered rude to discuss money and wealth.
The reason so few people build wealth is because they fail to adopt smart financial habits that lead to wealth, according to Morgan Housel, author of The Psychology of Money. The smart financial habit formula for how to build wealth is to take action with enough consistency to achieve the goal. The formula is:
The distinguishing characteristic of people who achieve wealth is that they manage their money well and they have good money habits. The people who build wealth don’t necessarily earn the most. They aren’t the smartest. They don’t have any special training. They just have good money habits.
Daily habits are important because:
A daily habit of frugality saves small amounts every day that compound and grow over long periods of time to become substantial wealth.
“Doing well with money has a little to do with how smart you are and a lot to do with how you behave.”
“You can build wealth without a high income, but have no chance of building wealth without a high savings rate.”
“Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.” This soft skill and behavior are called the Psychology of Money.
“Physics isn’t controversial. It’s guided by laws. Finance is different. It’s guided by people’s behaviors.“
“There is a saying that an injustice to one is an injustice to all. No one is truly equal and free until everyone is equal and free. When a society allows anyone to be treated as less than equal and therefore less than fully human, we not only rob those people of their full humanity, we also become complicit in their mistreatment. Sometimes people think they can look the other way as long as ‘their group’ isn’t harmed. But that is an illusion because we are all connected by our humanity, and as history has proven over and over again, harsh and autocratic power will inevitably spread like cancer to maintain itself…”
As an investor, your general investing objectives are to grow your money and invest for the long-term.
Investing can seem challenging since there’s an overwhelming amount of investing information, choice of investment accounts, and strategies out there. Plus, the markets fluctuate and are volatile, and the idea of potentially losing money can create stress, fear and uncertainty.
The lesson for the investor: The fears you feel when you think about starting investing or during periods of market volatility are very similar to those many seasoned feel after decades of investing. The doubts. Negative thoughts. The fear and uncertainty that lead us to think about giving up. The encouragement you get from focusing on the future and your long-term goals. And the satisfaction of crossing goals of financial freedom that you thought were all but impossible.
Investing in stocks is an excellent way to grow wealth. For long-term investors, stocks are a good investment even during periods of market volatility — a stock market downturn simply means that many stocks are on sale. And for long-term investors, time tends to reward their behavior, though research has shown that it is as difficult to practice as it is uncommon.
Most investors never hold stocks long enough to benefit from the fact that the market rises over the long-term. Investors typically buy too late and sell too early. They routinely “greed in” and “panic out” of stocks. They hold stocks for just a few years — or worse, a few months — rather than carefully curating and diversifying a portfolio of stocks for the long-term, typically over decades.
By learning more about the process of investing in stocks, understanding the financial markets, and knowing what securities you are investing in— you can gain more confidence and understanding that you are on the right path, according to SoFi.
Investing your hard earned money
Historically, the return on stock investments has outpaced other asset classes like bonds and real estate, making them a powerful tool for those looking to grow their wealth over the long-term.
The average interest rate on a savings account at the top five U.S. banks this year was 0.08%, while the average return on the S&P 500 from 1950 through 2009 was 7%. So, what does this mean for your money? If you had $10,000 today and put it in a savings account with an interest rate of 1% (some banks have rates this high), you would have $11,046 in 10 years. If instead you took that money and invested it, earning an average annual return of 7% and compounding annually, you would have $19,672 in that same time period!
Next year is a fresh slate—we all get a “do over,” and this time we think we can all do better. What’s your financial goal for #2021? Share the emoji version of your goal in the comments. pic.twitter.com/d0LIFwNtfi
Everyone should have these two, what SoFi calls “bookend goals”, as their primary short-term and primary long-term goals:
Create an emergency fund and
Save for retirement
Getting started investing is simple.
Investing in stocks will allow your money to grow and outpace inflation over the long-term.
Investing is not just for the wealthy; it’s for anyone who wants to achieve their financial goals and achieve financial security. And your focus should be on the opportunities and rewards of achieving financial goals.
It’s important to understand your goals. Selecting an investment strategy depends on your goal amount (how much you want to save) and the time horizon (when you’d like to use that money).
Before you invest, you should make a list of all of your accounts (bank, investments, retirement, credit cards, other debt) and their interest rates. Know and calculate your personal net worth. And, know your cash flow. How much do you make after taxes? How much do you spend?
First goal: Emergency Fund
Your emergency fund is a cash account that you can easily access should an emergency arise—for example, if you face an unexpected health cost. This fund should be 6 -12 times the amount you spend monthly, depending on how risk-averse you are.
For example, if you’re unable to work, you may be comfortable with having three months saved. You want to keep your emergency fund money “liquid,” or available to access as soon as you need it. With that said, many savings accounts only pay you 0.01% interest on cash balances. This doesn’t keep pace with inflation, so you’re essentially losing money. Instead, you might consider opting for a high-yield savings account that earns 1% interest or more.
Ultimate goal: Retirement
Retirement should be your highest priority and your largest financial goal. Even if it feels very far away, it’s important to start saving early, diligently and purposely. You may share the same priority and retirement goals as many retirees, such as:
Essential Living Expenses
Reserves in an emergency fund to cover unexpected expenses
The stuff that brings joy, emotional well-being, and provides purpose like vacations and spending time with others
Leaving a legacy for your family, a charity, or something else
Remaining financially independent and understanding ways to ensure there is enough money to last a lifetime is of great importance to retirees.
Let’s say you and your partner will need $6,000 per month in retirement income (in today’s dollars). If you start saving at 40, you would need to save $46,000 per year to be on track for retirement at 67. However, if you start saving at 30, you need to save $32,000 per year. (Note: This assumes you’ll both receive Social Security.) This illustrates the importance of starting early and giving your money time to work for you.
Need to catch up? It’s never too late! You may need to save more or be more aggressive, but the most important step is to start saving (and investing) as soon as possible.
Investing should be for long-term goals
If you’re investing for a far-off goal, like retirement, you should be invested primarily in stocks or stock mutual funds and ETFs.
This is an important lesson for the investor: When you think about investing, you usually feel that you know exactly what you are looking for. In your mind, you have defined the plan that will lead to success and you begin to execute it hoping to be able to fulfill it to the letter. The truth is, it rarely happens. The path of the investor is full of surprises, of unintended consequences that you did not appreciate, of outcomes that you did not expect to face. Let yourself be surprised by them, live them and just like the best investors do, dare to take the first step that could take you to achieve financial freedom in retirement.
To start investing for retirement, most financial experts and institutions advise you to invest in an employer-sponsored tax deferred retirement plans. There are several investing options for longer-term goals like retirement and college, according to Navy Federal Credit Union. Here are a few you may consider:
As part of your employee benefits package, you may be offered a retirement plan such as a 401(k), 403(b), or 457 plan, Thrift Savings Plan (TSP), or pension. Your contributions to an employee-sponsored plan aren’t taxed until they’re withdrawn in retirement, and your contributions may even be partially matched by your employer.
Individual retirement accounts (IRAs): IRAs can operate standalone or in addition to an employer-sponsored plan. Depending on the type of IRA you have, you’ll either pay taxes when you contribute (as with a Roth IRA) or when you withdraw (as with a traditional IRA). A Roth retirement account that allows individuals to pay taxes on contributions to the plan at the time they are made, but when funds are withdrawn during retirement, they are tax-free.
529 college savings plans: 529 plans allow you to make large contributions, some with limits beyond $300,000, with withdrawals used for qualified K-12 and college expenses free from federal income taxes. These plans are a great way to save no matter your level of income or timeline for your or your child’s academic career.
Coverdell education savings accountA trust account designed to help fund educational expenses for individuals under age 18. The maximum yearly contribution is $2,000.
(ESA): ESAs let you save for school with a greater variety of investment options than 529 plans. If your gross income is under $110,000 (or $220,000 on a joint return), you can set aside up to $2,000 a year for college or K-12 expenses.
Brokerage accounts: Brokerage accounts allow you to purchase and sell investments, including stocks, bonds and mutual funds, through a brokerage firm. These investments aren’t insured and are subject to taxation, but you may be able to earn more in returns than with other savings vehicles, and you can use the money for any purpose, such as for retirement.
And, do not be too conservative or risk adverse with your investments. The most successful investors have done little more than stick with stock market basics. That generally means using a low cost S&P 500 index fund for the majority of your portfolio and choosing individual stocks only if you believe in the company’s potential for long-term growth.
Your Tolerance for Risk
“Practice patience in stock investing and give your investments a chance to grow into mighty oaks.”
Learning to invest means learning to weigh potential returns against risk, according to TD Ameritrade. Basically, no investment is absolutely safe, and there’s also no guarantee that an investment will work out in your favor.
Furthermore, the risk of losing money can be daunting and upsetting to typical retail investors. This is why it’s important for you to know your risk tolerance level. When it comes to your choice of assets, it’s important to understand that some securities are riskier than others. This holds true for both equity and debt securities (i.e., “stocks and bonds”).
Consequently, the best thing to do after you start investing in stocks, ETFs or mutual funds may be the hardest: Don’t look at them. It’s good to avoid the habit of compulsively checking how your stocks are doing several times a day, every day. Instead, stay focused on your values and long-term goals. and periodically check your investments.
Additionally, the toughest thing in stock investing is to do nothing. That’s right, nothing! Once you buy a stock and watch it move up, down and all around for a few weeks, there is an urge to take action.
Most investors lack patience, which is a shame, because almost every successful investor you’ll ever meet or read about has an abundance of patience. You should wait for the right time to buy. And, being patient means you are the best prepared when opportunities emerge.
Many times, the stocks you purchase don’t move much in price for many weeks after your initial purchase. But if you have the patience to stick with those stocks, a few can turn out to be huge winners. And in the end, those big winners are what make all the difference.
“The two greatest obstacles to accumulating wealth are debt (spending more than you earn) and taxes. By reducing your tax obligations and staying out of debt, you will be able to accelerate your journey to financial security.”
Taxes represent a major reduction in your income, which means you will have less money available to save, invest, and pay off debt. The myriad of taxes imposed by federal, state and local governments stand as the greatest obstacles of accumulating personal wealth. As a result, understanding how taxes impact your ability to build wealth and implementing strategies through financial planning to minimize your tax burden are essential actions.
In fact, when every tax is tallied – federal, state and local income tax (corporate and individual); property tax; Social Security tax; sales tax; excise tax; and others – Americans spend at least 29.2 percent or often much more (over sixty percent in some municipal jurisdictions) of their annual income in taxes and fees each year.
There are many different kinds of taxes, most of which fall into a few basic categories: taxes on income, taxes on property, and taxes on goods and services. There are strategies that can help you reduce the amount you pay each year, depending on your particular financial situation.
Taxes are one of life’s certainties. Tax planning and strategies are a few of the top ways retirees can boost their cash flow and portfolio returns in retirement.
Income from salary is subject to significant federal and state income taxes, thus, as your income increases, income taxes become greater as well. The United States federal government levies tax on its citizens and residents on their worldwide income. Non-resident aliens are taxed on their US-source income and income effectively connected with a US trade or business (with certain exceptions). For individuals, the top income tax rate for 2021 is 37%, except for long-term capital gains and qualified dividends (discussed below).
Surprisingly, U.S. taxpayers enjoy relatively low tax rates compared to other Developed Countries. It might seem like the U.S. Treasury takes a large chunk of your gross income every time you file a tax return, but the U.S. is actually on the lower end of the scale compared to other developed countries.
According to a 2020 analysis from the Organisation for Economic Co-operation and Development (OECD), U.S. tax revenues are 24.5% of its gross domestic product (GDP). That’s well below the average of 33.8% for the other 35 OECD-member countries.
Most states, and a number of municipal authorities, impose income taxes on individuals working or residing within their jurisdictions. Most of the 50 states impose some personal income tax, with the exception of seven: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, which have no state income tax. New Hampshire and Tennessee (until 1 January 2021) tax only dividend and interest income. Several states impose an income tax at rates that exceed 10%.
Tax obligations are a big consideration in many financial decisions, including retirement accounts, tax-advantaged investments like municipal bonds, and renting versus buying a house. These financial decisions are so important that knowing basic tax information is critical.
Income tax system
As with any progressive income tax system, U.S. taxpayers with higher incomes pay higher income tax rates. The result: half of U.S. taxpayers pay 97 percent of all income taxes.
The top 1 percent of earners alone pay over one-third of Federal income taxes.
Income taxes are only part of the story. Payroll taxes, sales taxes, and excise taxes are all regressive, meaning lower-income individuals contribute a greater share of their total income towards these taxes than do higher-income individuals. Yet, it turns out the U.S. federal tax system remains very progressive. Meaning, Americans with the highest incomes pay the largest share of all federal taxes.
Your long-term investing strategy could be impacted in a big way by taxes, so you may want to figure out the best strategies for investing to help maximize your gain and minimize your tax burden.
Smart tax investing
Making smart tax decisions can have a big impact on the amount of money you can have and spend in retirement.
Investing and withdrawing retirement funds in a tax-efficient way is among the top ways retirees can boost their returns and cash flow in retirement, according to an analysis published by researchers at Morningstar.
The best kind of long-range financial planning , which includes tax avoidance strategies, can help you today, according to Fideltiy Investments, possibly helps you out much more in the future, and leaves you in a better position than if you hadn’t planned at all.
Taxes are something every American pays, pays and pays at some point in their lives – they’re inevitable. Taxes represent and significant levy on your ability to accumulate wealth and take advantage of the miracle of compound interest.
Total effective tax rate
The working and middle class pay a higher tax rates than the richest people in America. For the working classes in America, tax rates increased steadily over the last several decades, according to Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley. The working and middle classes — the 50 to 90 percent of Americans with the lowest incomes — pay higher tax rates than billionaires.
When one considers all the taxes that Americans pay, such as state and local taxes, which account for a third of all taxes paid by Americans and are in general highly regressive, the total effective tax rate, which is the total amount of taxes paid as a percentage of income, the working and middle class pay an high percentage of their earned income in taxes than the wealthy.
While tax rates for 99% of taxpayers are progressive, the tax rates for increased levels of income in the top 1% actually decline, according to figures compiled from IRS.
The effective rate for the top 1% is 22.83%, while the rates for the top 0.1%, 0.01%, and 0.001% fall to 21.67%, 19.53%, and 17.60%, respectively. In other words, a household earning $250,000 (the 1% threshold) pays a higher rate than a household earning more than $30 million per year (0.01% threshold).
The Regressive American Tax System
How combined federal, state and local taxes fall on American adults, by income percentile. Three regressive taxes, consumption, payroll and residential property, account for most of the burden on the working and middle classes :
Source: NYT
When all taxes paid to the federal, state and local governments: the federal income tax, of course, but also state income taxes, myriad sales and excise taxes, the corporate income tax, business and residential property taxes and payroll taxes. In the end, all taxes are paid by people. The corporate tax, for example, is paid by shareholders, because it reduces the amount of profit they can receive in dividends or reinvest in their companies.
Here is a non-complete list of the different taxes and fees levied by federal, state, and local governments that Americans pay.
Income Taxes (federal, state and local – An income tax is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. tax system is known as a “progressive” system because it uses marginal tax rates instead of a single tax rate. The more you earn, the more of a percentage you’ll pay on your top dollars. Individual income taxes are the largest source of tax revenue in the U.S. You do not want to make financial moves just because you think a tax change is coming, but instead you should do so because it helps you toward your overall goals. Before making a decision, always consult with a tax advisor.
Capital Gain Taxes – In the United States, a tax is levied on all income generated from a taxpayer’s capital gains, which are profits from the sale of an asset that was purchased at a lower price. The most common capital gains are created from the sale of stocks, bonds, and property. You may be tempted to realize long term gains on highly appreciated stock you want to hold for the long term, and then buy it back later at a higher cost basis. Don’t let the tax tail wag the investment dog,” says David Peterson. “You should be buying and selling based on your view of the long-term value of the assets, not based on the tax consequences.”
Social Security – All taxes levied by the government to plan for a taxpayer’s retirement could be considered retirement taxes. In the United States, we pay into a social security system that provides income to retired workers from the general fund. Our tax is regressive as we all pay the same rate up to a specific cap. Then all income above the cap is not taxed.
Sales Taxes – Consumption taxes, also known as sales taxes, are levied at the point of purchase for specific goods and services. It is usually a percentage determined by the levels of government charging the tax. Due to individual state and local taxes, the exact rate you pay will vary widely by location.
Real Estate / Property Taxes – Property taxes are imposed on property by reason of its ownership. They are usually paid on real estate, but can also be paid on personal property, such as boats, automobiles, recreational vehicles, and other business inventories. It is based upon a jurisdiction’s assessment of the worth of a property based on its condition, location and market value, and/or changes to the amounts apportioned to various recipients of the tax.
Estate Taxes – The inheritance tax, also known the “death tax”, is a tax that arises from the death of a taxpayer and is imposed on the transfer of property upon the death of the owner. It was created to prevent the perpetuation of tax-free wealth within the country’s most affluent families. Once you give money away or fund an irrevocable trust, you can’t control it, so be sure that it’s what you desire. You want to stress test your plan to make sure you have the assets and income you need for your own retirement. With all financial planning, it’s important to make sure to think and plan for the long term. It can help to consult with a financial planner and a tax professional for support in assessing your own future needs and setting the right course, even if taxes do rise.
Business Taxes – Also known as corporate taxes, business taxes are direct taxes levied on the profits of businesses. However, expenses that are deemed necessary to the business can often be deducted to lower the amount of profits subject to tax, some business opt for the eis scheme option that helps them raise capital in a faster way.
Payroll Taxes – The U.S. government mandates that employers subtract payroll taxes from their workers’ paychecks each pay period, and then match the sums deducted. These payments are called FICA taxes because they are authorized by the Federal Insurance Contribution Act. Total FICA taxes on individual workers are 7.65 percent of income; 6.2 percent goes to fund the nation’s Social Security system, while 1.45 percent goes to Medicare. Self-employed individuals are liable for the entire 15.3 percent, although one half of that amount can be taken as an above-the-line business deduction on a person’s income tax return.
Excise Taxes – Any tax that is based on the value of the product being taxed is considered an excise tax. They are based on the quantity of the product. Common examples include those levied on alcohol, gasoline, and cigarettes.
Gift Taxes – A gift tax is a one that is levied on the transfer of a property by one taxpayer to another while receiving either nothing or something with a less than equal value in return. Selling something at less than its full value, or making an interest-free or reduced interest loan, may qualify as giving a gift.
Tariffs – An import or export tariff is paid when someone moves any good through a political border. Typically, it is used to “encourage” local businesses and “discourage” the purchase of foreign goods, as it increases the price for the foreign goods.
Highway and Bridge Tolls – Tolls are charged to drivers who cross through designated bridges, tunnels, and even some roads. They’re usually always paid in fixed amounts each time you drive pass through the restricted area. Tolls are frequently used to fund state projects, but can also be used for privately funded projects.
User Fees – They are taxes that are assessed by federal, state, and local governments on a wide variety of services, including airline tickets, rental cars, utilities, hotel rooms, licenses, financial transactions, business licenses, building permits and many others. Depending upon where someone lives, a cellphone, for example, may have as many as six separate user taxes, running up the monthly bill by as much as 20 percent.
Community Development District – Self-imposed assessments and fees by developers for the financing and management of new residential communities.
Tax avoidance strategies
Investors can maximize their tax savings by holding certain investments and funds in the appropriate type of account. This is called “asset location,” which boosts an investor’s after-tax rate of return.
For example, investors should generally consider holding stocks and stock funds in taxable accounts. These investments are more “tax-efficient” — meaning most of their return is from capital gains taxed at a rate that’s less than ordinary income.
Investors should generally hold dividend stocks, bonds and bond funds in retirement accounts. These investments are less tax-efficient, since most of their returns are dividends taxed as ordinary income.
Sequencing withdrawals
Sequencing withdrawals efficiently from different piles of savings can lead to a lower tax bill in the long run.
The prevailing wisdom is to pull money from taxable accounts first. Then, retirees can draw down tax-deferred 401(k) accounts and IRAs. Roth accounts should generally be tapped last.
“That’s a pretty good rule for the vast majority of people out there,” Blanchett said.
Taxes are secondary consideration to net return
Taxes are an important component of many decisions, but don’t let it get in the way of focusing on the take home return. It is financially better to get a 10% return and pay 20% in taxes for a net 8% return than to simply get a 7% tax-free return.
However, there are instances in which investors (and their advisors) can be more strategic. It requires paying attention to the marginal income tax rates.
At some point, you’ll have to pay taxes on gains you earn in the stock market. If you plan to sell anything that year and realize gains, a bad market day can provide a nice opportunity to reduce your tax bill. If you have investments you plan to shed anyway, sell them on down days to realize the loss. Then at tax time, those losses can be used to balance out your investment gains and lower the bill you’ll have to pay to Uncle Sam.
In investing, where you put your investments—meaning the type of account you choose—can make a major difference in how much you can earn, after tax, over time. That’s because different investments are subject to different tax rules, and different types of accounts have different tax treatment. Sorting your investments into different accounts—a strategy often called active asset location—has the potential to help lower your overall tax bill.
3 main types of investing accounts
Many investors have several different types of accounts that can be aligned with specific investing goals. Some are subject to taxes every year, while others have tax advantages. Here are the 3 main investment account categories:
Taxable accounts such as traditional brokerage accounts hold securities (stocks, bonds, mutual funds, ETFs) that are taxed when you earn dividends or interest, or you realize capital gains by selling investments that went up in value.
Tax-deferred accounts like traditional 401(k)s, 403(b)s and IRAs allow payment of taxes to be delayed until money is withdrawn, when it is taxed as ordinary income.
Tax-exempt accounts like Roth IRAs, Roth 401(k)s, and Roth 403(b)s require income taxes to be paid on all contributions up front, but then allow the investor to avoid further taxation (as long as the rules are followed). Fully tax-exempt accounts such as health savings accounts (HSAs), allow you to make pretax or deductible contributions, earnings, or withdrawals, if used for qualified health expenses.
Ideally you will first maximize your tax-deferred options such as your 401k and IRA first, since these investments can grow tax free from capital gains and dividends. Once you maximize these, continue investing in your brokerage account or real estate. Simply put, there is no tax on wealth. The more you invest, the more you will reduce your tax bill to your net worth.
While many things can drain your net worth, the most insidious are debt and taxes. By reducing both, you will be able to achieve financial freedom far faster.
By using strategies that reduce income taxes, you’ll be able to keep more of your income, rather than turning it over to the tax authorities. One method is to invest as much of your cash as possible which minimizes your taxes to your net worth.
The easiest and best way to shield your income from taxes is retirement plans. Instead of surrendering, tax advisors recommend implementing proven tax strategies to reduce the burden. Maximize your after tax deductions such as your 401k and IRA, and then invest the rest in stocks, ETFs, and real estate.
You must protect your wealth from destructive forces, such as debt, taxes and inflation, which all can erode wealth. Add to these another wealth destroyer: overspending.
Americans are drowning in debt. Before COVID-19, Americans were merely treading water in dangerous seas. But once the economy turned ugly, jobs went away and nest eggs cracked, those with the most debt, sunk, according to the Bill “No Pay” Fay the founder of Debt.org. Many people were forced into insolvency or foreclosure, unable to pay their obligations or provide for their families.
Today, debt is almost a fact of life for most Americans. When you owe money to someone, you are in debt. Owing money is not always bad. Debt allows you to buy homes and cars, send our kids to college, and have things in the present that we can pay for in the future and nearly everyone has at least one credit card. Indeed, capitalism essentially was built on the extension of credit and the ensuing debt it creates. But credit’s convenience can easily lead to spending more than you earn or budget. And, debt becomes bad and financial bondage when you owe money you cannot pay back.
Debt is rampant
“Most American’s spending habits are based on the amount of available credit they have, not on their cash flow (income) or checking account balance”
According to the New York Federal Reserve, consumer debt was approaching $14-trillion in the second quarter of 2019. This includes mortgages ($9.14-trillion), auto loans ($1.65-trillion), student loans ($1.44-trillion), and credit card loans ($829-billion). It was the 24th consecutive quarter for an increase.
Living without debt these days is next to impossible. Debt falls into two categories: good debt and bad debt. It’s good to know that all debt (or money owed) isn’t created equal, and it’s even better to know the difference, according to Navy Federal Credit Union. Before buying anything on credit, it’s a good idea to determine whether you’re accruing good debt or bad debt.
Good Debt:
Good debts are those that create value and can be seen as an investment. Think mortgages, loans for college education or business loans. School loans and mortgages often have lower interest rates than other kinds of debt. Student loans can increase your ability to command a larger income. An ideal situation in a home loan is that the property increases in value over the course of the loan term, an increase that could offset the interest paid on your loan.
Bad Debt:
Bad debt comes into play when you purchase items that quickly decrease in value and don’t generate income. Bad debt often carries a high interest rate—think store credit cards and payday loans or cash advance loans. The rule of thumb for avoiding bad debt is: If you can’t afford it, don’t buy it. Every month that you make a partial payment on a high-interest loan, that item loses value while the price you paid for it increases.
When it comes to your credit history, well-managed debt can actually help improve your credit score. When purchasing on credit, know what you’re getting into and take on only as much debt as you can afford to pay off.
For many, using credit is a normal part of handling their finances. For others, using credit can lead to uncontrolled spending, anxiety, and even bankruptcy. It’s important to recognize your own spending and savings habits so you remain in control.
Knowing when and where not to use credit –and what type of credit to use –can help you avoid getting in over your head. Borrowing for higher education is probably a good idea as it should result in a higher earned income later. Charging extravagant vacations, and for expensive dinners and gifts that you really can’t afford is not a good idea.
Installment credit and credit cards
“Your biggest enemies are your bills. The more you owe, the more you stress. The more you stress over bills, the more difficult it is to focus on your goals. More importantly, if you set your monthly income requirements too high, you eliminate a significant number of opportunities.” Mark Cuban
There are two major types of household debt: installment and revolving credit.
Installment debt is paid off in a specified period of time with predetermined periodic payments. Conventional mortgages are the best example.
Revolving credit is a line of credit that is instantly available, usually through credit cards. As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, which can extend your payoff period and the interest you pay.
Installment debt is excellent for big-ticket purchases like a home mortgage and should be accounted for in your monthly budget. Compared with credit cards, interest rates for installment debt are usually relatively low.
According to statistics collected by the Federal Reserve and other government data, credit card debt is the third highest source of household debt behind mortgages and student loans, with an average owed of $15,863.
The modern-day credit card — which entered the culture in the late 1950s — has meant far greater buying power for U.S. consumers, but also financial disaster for many individuals and families.
Consider these statistics about credit cards in America :
More than 189 million Americans have credit cards.
The average credit card holder has at least four cards.
Credit cards are a convenient way to buy virtually anything at any time, but you need to use them intelligently and be aware of the interest costs. And, you might not realize it, but every time you use your credit card, you’re essentially taking out a loan. The purchases you put on your card are bought with your line of credit, and you’re responsible for paying your credit card company back for whatever you buy. When used responsibly, a credit card can be a great tool for building credit history; used incorrectly, it can lead to debt.
Credit cards can offer the temptation to overspend, but you can curb that urge by using these tips to be smart about your spending:
Budget. Budget. Budget. Keep track of your finances with an up-to-date budget that accurately reflects your income and output. Knowing your finances is a huge step in knowing how much you can afford.
Borrow only as much as you repay. A good rule of thumb is to not tie up more than one-third of your income in debt, including mortgage, credit cards and installment loans. Borrow only as much as you can pay back in a reasonable time, while staying on top of the daily necessities.
Pay bills in full and on time. Don’t overextend your funds. Be mindful of when your credit card bills are due and make a concerted effort to pay them off in full each month.
Check your credit report regularly. By keeping an eye on your credit report, you can monitor your status and whether there are mistakes that could negatively affect your score. You can check your credit report for free on an annual basis at
Remember that you have to pay back every charge you make. In a nutshell – don’t charge things you can’t afford. Try to pay your entire balance each month to avoid finance charges and be sure to make the payments on time to avoid late payment fees.
Credit is a powerful tool. It’s convenient and especially useful in emergencies. But it’s also easy to let it get out of hand. Why should you be concerned? https://t.co/dnUBxv0Cyd
Assessing your financial situation helps you to manage your debt efficiently. And with respect to wealth destroyers — taxes, inflation debt and overspending — the last two can have the most destructive effect on your wealth if not kept in check. They are the forces over which you can manage and have the most control.
Keeping Debt Manageable
Compounding interest can be a powerful tool to have in your arsenal. It can be very beneficial in accumulating wealth and in creating large sums of money over time if wielded correctly. But unfortunately, debt has a best friend forever (BFF) and it is the darker side to compounding interest – compounding debt.
When you get into debt, it’s you that incurs interest on what you owe. And if you don’t have a solid repayment plan, that can easily spiral out of control. If you’re stuck in the vicious circle of compounding debt, it’s important to quickly get out as fast as you can. The less you owe the less interest you incur so pay as much as you can as often as you can.
The simplest way to maintain a manageable amount of debt is to ensure you never owe more than you can pay, but simple isn’t always easy. Follow these tips from Navy Federal Credit Union to better manage your debt:
Know how much you owe. Make a list of all of your debts. Include the debt total, monthly payment, interest rate and due date. Track your progress by updating the list regularly as you make payments. As the old adage goes, you can’t manage what you don’t measure.
Pay your bills on time each month. Set up automatic payments so you don’t miss payments and incur late fees. Determine which bills are due first and pay them in order. Pay more than the minimum on each bill if you’re able. Paying the minimum on high-interest debt usually doesn’t help you make real progress, but if that is all you can pay, it does keep debt from growing.
Pay off the high-interest debts first. High-interest debt costs you the most, so you’ll want to immediately wipe it out. The faster you pay these debts off, the less interest you’ll pay. The thinking behind this solution is that if you let the debt with the highest interest rate sit for a long time, it will cost you a bundle in interest payments so attack it immediately. Waiting to pay off high-interest debt likely will cost you thousands of dollars and increase the amount of time you spend in debt.
Start an emergency fund. That way, should an unexpected expense come up, you won’t have to add to your debt to pay it.
Eliminate Your Debt Before You Invest
“If you’ve got $25,000, $50,000, $100,000, you’re better off paying off any debt you have because that’s a guaranteed return.” Mark Cuban
Bottomline about paying off debt is that you must be committed to the process. It’s likely you didn’t incur the debt overnight and it’s even more likely you won’t get out of debt overnight. A study published in the Journal of Marketing Research says that the act of closing accounts after they’re paid off, regardless of size, is a better predictor of whether you’ll get out of debt in the long run.
“Credit is a financial tool, debt is a financial problem.”
“All-electric and self-driving vehicles have the potential to make the world a better place.” General Motors
The global electric vehicle market is heating up and China wants to dominate, according to CNBC. Historically, China has lagged far behind North America and Western Europe in vehicle innovation, design and production.
The country has invested at least $60 billion to support the electric vehicle (EV) industry and it’s pushing an ambitious plan to transition to all electric or hybrid cars by 2035. Tesla entered the Chinese market in 2019 and has seen rapid growth.
China sold roughly one million more EVs than the U.S. in 2020. But there are signs the U.S. is getting more serious about going electric.
President Joe Biden announced a goal to reach net-zero emissions by 2050 and investments in green infrastructure. Additionally, POTUS announced plans to replace the federal government’s fleet of cars and trucks with electric vehicles assembled in the U.S.
As of 2019, the U.S. government had 645,000 vehicles that were driven 4.5 billion miles and consumed 375 million gallons of gasoline and diesel fuel, according to the General Services Administration (GSA).
General Motors (GM) announced recently that between 2020 and 2025 they will invest more than $27 billion in EV and autonomous vehicles (AV) product spending, exceeding GM’s gas and diesel investment.
Cadillac’s first fully electric EV
Furthermore, GM has a “vision of a future with Zero Crashes, Zero Emissions and Zero Congestion” and they plan to produce 30 new global EVs by 2025 in which forty percent of the company’s U.S. entries will be battery electric vehicles during that time.
The CNBC video details how China came to dominate the market and whether it’s too late for the U.S. to catch up.
Yet, by mid-decade, GM is aiming to sell a million EVs per year in their two largest markets – North America and China and they’re committed to be carbon neutral in both their global products and operations by 2040. Eventually, GM intends to offer EVs across all their brands and span the global EV market from low-cost EV vehicles to the upscale Cadillac CELESTIQ.
The best COVID-19 vaccine for you is the vaccine you can get in your arm the soonest.
There are three vaccines approved for emergency use by the Food and Drug Administration and some people are tempted to shop around. Some people may want the convenience of the Johnson & Johnson single-dose shot and its low rate of side effects. Others may be interested in the extremely high efficacy of the Pfizer and Moderna two-shot mRNA vaccines.
Bottom line: You should get the vaccine that’s available soonest. All three vaccines approved for emergency use have been shown to be safe and effective against severe complications of COVID-19, the disease caused by the novel coronavirus SARS-CoV-2, according to the Centers for Disease Control and Prevention.
In clinical trials, all three vaccines prevented hospitalizations and death, the worst outcomes of the virus. While these were not the primary outcomes measured (symptomatic infections were), this effectiveness continues to play out in post-vaccination studies. Very few people who have been fully vaccinated are getting sick and even fewer are hospitalized.
All three vaccines produce side effects in patients — but not all patients. Although, there are slight differences in side effects. People who get the J&J vaccine tend to experience fewer of them, but each vaccine produces side effects, mostly mild, in some patients. These side effects are short-lived.
The most common side effect is pain, redness or swelling at the injection site. Other people experienced tiredness, headache, muscle pain, chills, fever or nausea. But most of these side effects were mild to moderate and went away quickly.
Remember, these side effects are a sign that your body is reacting to the vaccine and building immunity to the virus (if you don’t have side effects, that doesn’t mean the vaccine isn’t working), according to Dr. Andrea Klemes, the Chief Medical Officer of MDVIP. They’re a small price to pay to get that protection. They’re also rarer in the general population than they were in clinical trials participants with a higher frequency after the second dose. About 372 out of every million administered doses of the Moderna and Pfizer vaccines lead to a non-serious reaction report, according to the journal Nature. The most frequently reported side effects are headache (22.4%), fatigue (16.5%) and dizziness (16.5%), according to the Centers for Disease Control and Prevention.
The bottom line: You’ve waited this long for the vaccine; you shouldn’t shop around when the opportunity to get the vaccine presents itself. The faster everyone gets vaccinated, the faster we will be able to return to normal.
“A budget is telling your money where to go instead of wondering where it went.” John C. Maxwell
Spending within your means may sound like a simple rule to follow, but many Americans spend more than they save, which can result in debt. The good news is that it’s completely avoidable, and it’s reversible over time. With a little budgeting, planning, tracking and adjusting your spending, you can live happily within your means.
Keeping your personal finances in tip-top state does takes some planning, effort and time. Yet, many people live above their means and don’t even realize it. More than three-quarters of American workers (78 percent) are living paycheck-to-paycheck to make ends meet, according to survey conducted by Harris Poll on behalf of CareerBuilder in 2017. Thirty-eight percent said they sometimes live paycheck-to-paycheck, 17 percent said they usually do and 23 percent said they always do.
To improve your financial health and money management awareness, the one piece of advice you hear most often from financial experts is to create a budget.
“Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals.”
Budgeting is one of the single most effective tools for money management. Making a budget simply means examining your income and expenditures in order to determine exactly how much money you have coming in and where you’re spending it. Once you’ve got a clear understanding of your current budget – what income you’re receiving and what expenses you’re responsible for – take a closer look and find places where you can spend less.
A budget will help give you a clearer picture of how much money you have coming in (income) and how much is going out (expenses). It’ll set guidelines for your expenses that will help you understand how much you can set aside for those bigger ticket items like a house and long term goals, like saving for retirement or an emergency fund. A budget is a personal cash flow roadmap. It can span a week, month, quarter—three months—or any set length of time. They are created by individuals and businesses.
Begin planning your monthly budget by figuring out how much you have coming in versus how much is going out every month. Ultimately, you want to end up with a blueprint that specifically breaks down your cash flow (income minus expenses), so you know how much you can spend and how much you can save each month. Building a budget starts with a few simple steps.
Budgeting is Important
“When making a budget, the idea is to make sure your expenses don’t exceed your income.”
A budget is a foundational piece of a financial plan. If you’re serious about reaching your financial goals, making a budget and sticking to it can help you achieve them. Here are some of the benefits of making and following a budget:
Live within your means: If you haven’t been budgeting up to this point, you may often wonder at the end of the month where all your money went. It’s even possible that you’re running a deficit and taking on credit card debt to cover the difference. A budget can help you live within your means when you use it to set clear boundaries for your spending.
Pay off debt: Making a budget is about taking control of your finances. If you’re working to get out of debt, decide how to allocate your spending to prioritize paying more toward debt payments. For example, if you notice that you spend a lot on entertainment, you can set a budget to only allow yourself to spend up to a certain amount on that category. Then use the savings to pay down debt.
Save money: Long-term savings goals are also an important part of a personal budget. Think about setting aside money each month to save for retirement, a vacation or a home down payment. In the short term, make sure to save enough for an emergency fund. A budget can give you better control over how you spend your money, allowing you to cut back on spending and save more.
Reach financial goals: You likely have financial goals you’re working toward. But if you don’t have a budget, it can be tough to know where to focus your efforts and make meaningful progress. A budget can help you decide how much money to allocate for each goal to keep yourself accountable.
While these are general benefits of budgeting, take a moment to think about why you want to budget. Whether it’s due to a short-term need, long-term goals or simply to understand where your money goes, knowing your reasons for budgeting can motivate you to keep up with it.
Step 1: Look at your paycheck.
To create a budget, you first need to know your net monthly income, or after-tax income. This is your monthly take-home pay, not your total salary — an important distinction when figuring out how much you can spend on a monthly basis. Knowing this number is the first step to creating a spending strategy.
To start, make a list of all your sources of income coming in the door every month. Every paycheck you get. Maybe a regular side hustle. Do you get alimony or child support? What about income from investments? Everything.
Step 2: Distinguish your essential needs from your wants and discretionary spending.
Start listing your expenses. Start with the big stuff: rent, car payments or transportation, utilities, groceries, any debt payments you need to make — things like that. Now it’s time to make a list of your essential expenses. This involves separating your “wants” from the “needs.” Needs usually include things like:
Housing costs (monthly rent or mortgage payment)
Transportation costs (car payment, fuel, public transportation)
Utilities
Food
Insurance
Internet, cable, and phone bills
Once you’ve tallied those costs, add them up and deduct your needs total from your after-tax income. Make note of that number. What about everything you spend money on that you like, but maybe don’t need? Eating out, entertainment, that new pair of shoes. Add those as a list to your expenses. Treating yourself is great! But you want to do it within your budget.
Step 3: Calculate how much your wants cost you.
Next, outline all the things you spent money on that don’t fall into the “needs” bucket, and tally up the total. The easiest way to do this is to look at your credit card statements from the last month or two. If you use cash to pay for things, keep a log for several days (or better yet, a couple weeks) of all your expenses.
Once it’s all written down, use a critical eye and note where you’re being your own worst enemy by overspending or wasting money on things you don’t need (or even want). Strategize on how you can modify your behavior to reduce these unnecessary expenses.
While it’s a-okay to splurge on occasion, it’s important to do so in moderation.
Step 4: Add up all your costs.
Jot down the total amounts of your “needs” and “wants” and see how they stack up against a common rule of thumb: the 50/30/20 budget. This popular money management plan says you should spend 50 percent of your take-home pay on needs, 30 percent on wants, and put the remaining 20 percent toward savings, investments, and any debts you may have, like school loans or revolving credit card debt.
Don’t panic if your current financial picture doesn’t align with this ideal ratio. It can be difficult to stick to this plan, especially if you’re new to the workforce and possibly paying down student loan debt.
But that’s exactly why a budget can be so useful. Matching up how much you spend to established guidelines can be a helpful way to identify where everything’s lining up — and where you can put in a little more effort and reduce your spending.
Step 5: Keep it up.
Now that you have your budget created, here comes the harder part: sticking to it.
The primary part of your budget should always cover your needs. What’s left over is split between the things you want and your savings. When it comes to minding your numbers, try out some of these tips:
Be a stickler and set aside some savings for an emergency fund. It’s smart to have it an intrinsic part of your budget.
While putting 20 percent of your take-home pay toward savings and debt isn’t technically considered a “need,” you should treat it as one. Avoid dipping into that bucket to pay for “wants,” so you can pay down debts and afford future unknowns, should something arise. In fact, you could remove temptation by setting up monthly automatic savings transfers.
Break it down. If a budget isn’t as manageable, try chopping it up into monthly or weekly segments. A shorter time frame can make it easier to stay on track. That way, you won’t discover that you’re already pushing the limit of your budget.
Review regularly. Along those same lines, keep track of your purchases as they happen instead of totaling them up at the end of the month. Checking your balance online or reviewing your recent credit card charges is a great reality check for daily expenditures.
Get everyone on board. If other people, like your spouse, are supposed to follow your budget, make sure they’re on board with the financial goals you’re trying to meet. To help create a comprehensive budget, most financial advisers recommend following the 50/30/20 model for budgeting. This model suggests you use 50% of your take-home pay for essential needs, 30% for wants or discretionary spending, and 20% for savings.
Trim your expenses if your budget proves your expenses outweigh your income. One of the easiest ways to trim your expenses is to evaluate how much money you’re spending on the things you want but don’t necessarily need. For example, a night out with friends costs an average of $81, which really adds up if you go out multiple nights a week. This doesn’t mean you can’t go out and have fun, but you may need to limit your spending to make your budget work.
Another way to cut your expenses and get control of your finances is to see if you can lower the cost of certain services. Contact cellphone, internet and cable television providers to see if a competitor offers a better deal or if you can save money by bundling. Consider dropping premium cable television channels and opt for an economical basic package.
Setting goals
Successful budgeting starts with aligning your spending with your priorities. Creating goals and rewards is a fantastic way to increase your chance of budgeting successfully. For example, set a goal to save a specific amount to pay off debts by spending less on unnecessary expenses like dining out, buying lattes or shopping. Put this money into a savings account to earn interest. When you meet your savings goal, reward yourself with a reasonable splurge on something fun. Typical goals and priorities include:
Planning and paying for college and post graduate educational expenses
Saving a down payment to buy a home or paying off the mortgage early
Paying off high-interest student loans and credit card bills
Saving and investing for early retirement
Budgeting doesn’t have to be the complicated or intimidating task that it’s often made out to be. Follow this simple process, and your monthly budget will help keep your finances in check.
Now you have the beginnings of your monthly budget! It’s most efficient to build this your budget in a spreadsheet or budgeting software. Then add new expenses as you spend.
Keep it Simple: The 50/30/20 rule
Tracking your finances doesn’t have to be complicated. A budget starts with a list of your income and your expenses, and following a simple strategy as the 50/30/20 rule.
The 50/30/20 rule is a popular budgeting method that splits your monthly income between three main categories. It’s pretty straightforward: You split your money between your needs, wants and savings, according to those ratios.
Here’s how it breaks down, according to NerdWallet:
Monthly after-tax income. This figure is your income after taxes have been deducted and the cost of payroll deductions for health insurance, 401(k) contributions or other automatic savings have been added back in.
50% of your income: needs. Necessities are the expenses you can’t avoid. This portion of your budget should cover costs such as:
Housing.
Food.
Transportation.
Basic utilities.
Insurance.
Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment bucket.
Child care or other expenses that need to be covered so you can work.
30% of your income: wants. Distinguishing between needs and wants isn’t always easy and can vary from one budget to another. Generally, though, wants are the extras that aren’t essential to living and working. They’re often for fun and may include:
Monthly subscriptions.
Travel.
Entertainment.
Meals out.
20% of your income: savings and debt. Savings is the amount you sock away to prepare for the future. Devote this chunk of your income to paying down existing debt and creating a comfortable financial cushion to avoid taking on future debt.
How, exactly, to use this part of your budget depends on your situation, but it will likely include:
Starting and growing an emergency fund.
Saving for retirement through a 401(k) and perhaps an individual retirement account.
Paying off debt, beginning with the toxic, high-interest type.
Making a budget can be an important step in the right direction for you. But budgeting for the sake of budgeting isn’t fun. As you work with your budget each month, remind yourself of the reasons why and purpose you’re doing it. Also, evaluate your progress periodically to make sure you’re on track to meeting your financial goals.
“One of the best ways to build wealth over time is to invest!” The Motley Fool
The stock market is a fantastic tool to build wealth. If you don’t have much money to spare, The Motley Fool video below explains how to start investing with just $100 or less.
Good investing has little to do with how smart you are and a lot to do with how long you stay invested for.
“America has been on an unsustainable fiscal path for many years, since long before this pandemic.”The Peter G. Peterson Foundation
The new $1.9 trillion stimulus spending package, on top of trillions already spent to revive the economy, is driving the national debt to unprecedented levels.
History shows that high government debt often leads to inflation, and an uptick in inflation is expected this year as the economy recovers.
The $1.9 trillion federal stimulus package will help many families, businesses, and state and local governments hard hit by the pandemic. But it is also fueling concerns about the ballooning federal debt, inflation, and how investors can protect themselves.
The Congressional Budget Office projected that the federal budget deficit will rise during the second half of the decade and climb steadily over the following 20 years. By 2051, the federal debt is expected to double as a share of the economy.
The projections by the nonpartisan office forecast a more challenging long-term outlook, as interest costs on the national debt rise and federal spending on health programs swells along with an aging population. “A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the U.S. dollar, making it more costly to finance public and private activity in international markets,” the CBO report said.
Our federal fiscal budget has structural problems, driven by well-known and predictable factors that include an aging population, rising healthcare costs and compounding interest—along with insufficient revenues to meet our commitments, according to The Peter G. Peterson Foundation.
Over the last 20 years, the federal government’s debt has grown faster than at any time since the end of World War II, running well ahead of economic growth. In addition to COVID-related spending, rising federal debt has been driven by longer-term trends including increasing Social Security and Medicare spending for an aging population. Today, according to the Congressional Budget Office, the federal debt is $22.5 trillion, more than 100% of gross domestic product (GDP).
Why debt matters
New Fidelity research suggests that higher debt can slow economic growth, and ultimately lead to higher inflation and more volatile financial markets. Warns Dirk Hofschire, senior vice president of asset allocation research at Fidelity Investments: “Debt in the world’s largest economies is fast becoming the most substantial risk in investing today.”
In the short term, Fidelity’s director of global macro Jurrien Timmer says a market consensus has emerged that inflation will rise in the second half of 2021: “An inflationary boom could result from the combination of COVID infections falling, vaccinations rising, ongoing massive fiscal stimulus, pent-up consumer demand, and low interest rates.”
FEDERAL DEBT IS ON AN UNSUSTAINABLE PATH
Longer term, Hofschire says, “The rise in debt is unsustainable. Historically, no country has perpetually increased its debt/GDP ratio. The highest levels of debt all topped out around 250% of GDP. Since 1900, 18 countries have hit a debt/GDP level of 100%, generally due to the need to pay for fighting world wars or extreme economic downturns such as the Great Depression. After hitting the 100% threshold, 10 countries reduced their debt, 7 increased it, and one kept its level of debt roughly the same.”
Only time will tell which way the US goes and when. But Hofschire thinks “government policies are likely to drift toward more inflationary options.” Among them:
Federal spending aimed at lower- and middle-income consumers
Increased public works spending not offset by higher taxes
Protectionist measures with a “made in America” rationale
Infrastructure upgrades targeting sectors such as renewable energy, 5G telecom, and health care
Higher inflation targeting by the Federal Reserve
Mandatory pay increases for workers benefiting from government assistance
In the longer term, if further free-spending fiscal policies are adopted while interest rates stay low and credit remains abundant, the likelihood of inflation could increase. But history suggests the magnitude and timing is uncertain. Many predicted an inflation surge the last time the federal government embarked on major fiscal and monetary stimulus after the global financial crisis, but inflation mostly failed to appear.
THE GROWING DEBT IS CAUSED BY A STRUCTURAL MISMATCH BETWEEN SPENDING AND REVENUES according to The Peterson Foundation
Why the national debt matters, according the The Peter G. Peterson Foundation:
High and rising federal debt matters because it reduces the county’s flexibility to plan for and respond to urgent crises.
Debt matters because growing interest costs make it harder to invest in our future — to build and sustain infrastructure, enhance education and support an economy that creates job growth and rising wages.
Debt matters because it threatens the safety net — critical programs like Social Security, Medicaid, Medicare, SNAP and Unemployment Compensation are essential lifelines for the most vulnerable populations.
Debt matters because America faces emerging and ongoing challenges that will require fiscal resources to keep the country safe, secure and strong — challenges like socioeconomic injustice, climate change, affordable health care, wealth and income inequality, international conflicts and an increasingly complex and competitive global economy.
Debt matters because the nation should care about its children and grandchildren. Borrowing more and more today reduces the opportunities and prosperity of the next generation.
The U.S. faces a range of complex, unprecedented health, economic and societal challenges, set against the backdrop of a poor fiscal outlook that was irresponsible and unsustainable before the crisis.
Building a brighter future for the next generation must become an essential priority for America, and the high cost of this health and economic crisis only makes that challenge more urgent. Once America has emerged from the pandemic, it will be more important than ever for its elected leaders to address the unsustainable fiscal outlook and manage the burgeoning national debt, to ensure that America is more prepared, better positioned for growth, and able to meet its moral obligation to future generations.
* The Peter G. Peterson Foundation is a non-profit, non-partisan organization that is dedicated to increasing public awareness of the nature and urgency of key fiscal challenges threatening America’s future, and to accelerating action on them. To address these challenges successfully, we work to bring Americans together to find and implement sensible, long-term solutions that transcend age, party lines and ideological divides in order to achieve real results.
