Category Archives: Budget

FY2024 Government Shutdown Averted

Posted on by

President Biden has signed H.R. 5860, the continuing resolution to fund the government through November 2023, into law. Averting a government shutdown. 

Funding for the government would have run out at the end of the fiscal year 2023 at midnight Saturday.

However, on the final day of fiscal year 2023, the Senate unanimously agreed to take up the House-passed short-term funding bill on Saturday night, effectively ending the chance of a government shutdown this weekend and ”kicking the proverbial can” on big funding fights into November. The continuing resolution (CR) passed the House, 335–91, and the Senate, 88–9.

President Biden signed into law the 45-day stopgap funding measure, averting a government shutdown that would have been triggered at midnight.

Government shutdowns can cost the American economy billions of dollars as a wide range of federal functions are suspended. Essential workers, such as members of the military and air traffic controllers, continue to work without pay, but hundreds of thousands of others are furloughed.

50/15/5 Budget for Saving and Spending

Posted on by

Key takeaways

  • Consider allocating no more than 50% of take-home pay to essential expenses.
  • Try to save 15% of pretax income (including any employer contributions) for retirement.
  • Save for the unexpected by keeping 5% of take-home pay in short-term savings for unplanned expenses.
  • Budget. The 50/15/5 rule is Fidelity’s simple guideline for saving and spending: Aim to allocate no more than 50% of take-home pay to essential expenses, save 15% of pretax income for retirement savings, and keep 5% of take-home pay for short-term savings.

50/15/5 Budget is an easy plan for managing your saving and spending

50/15/5 Rule Budget are simple guidelines for saving and spending and managing your money. Track your money using 3 categories:

  • Allocate no more than 50% of take-home pay to essential expenses,
  • Save 15% of pretax income for retirement savings, and
  • Keep 5% of take-home pay for short-term savings.

Fidelity Investment’s research found that by sticking to these guideline, there is a good chance of maintaining financial stability now and keeping your current lifestyle in retirement.

Essential expenses: 50%

Some expenses simply aren’t optional—you need to eat and you need a place to live. Consider allocating no more than 50% of take-home pay to “must-have” expenses, such as:

  • Housing—mortgage, rent, property tax, utilities (electricity, etc.), homeowners/renters insurance, and condo/home association fees
  • Food—groceries only; do not include takeout or restaurant meals, unless you really consider them essential, i.e., you never cook and always eat out
  • Health care—health insurance premiums (unless they are made via payroll deduction) and out-of-pocket expenses (e.g., prescriptions, co-payments)
  • Transportation—car loan/lease, gas, car insurance, parking, tolls, maintenance, and commuter fares
  • Child care—day care, tuition, and fees
  • Debt payments and other obligations—credit card payments, student loan payments, child support, alimony, and life insurance
    • Keep it below 50%: Just because some expenses are essential doesn’t mean they’re not flexible. Small changes can add up, such as turning the heat down a few degrees in the winter (and turning your AC up a few degrees in the summer), buying—and stocking up on—groceries when they are on sale, and bringing lunch to work. Also consider driving a more affordable car, carpooling, or taking public transportation.
    • Consider a high-deductible health plan (HDHP), with a health savings account (HSA) to reduce health care costs and get a tax break. If you need to significantly reduce your living expenses, consider a less expensive home or apartment. There are many other ways you can save. Take a look at which essential expenses are most important, and which ones you may be able to cut back on.

Retirement savings: 15%

It’s important to save for your future—no matter how young or old you are. Why? Pension plans are rare. Social Security probably won’t provide all the money a person needs to live the life they want in retirement. In fact, we estimate that about 45% of retirement income will need to come from savings. That’s why we suggest people consider saving 15% of pretax household income for retirement. That includes their contributions and any matching or profit sharing contributions from an employer. Starting early, saving consistently, and investing wisely is important, as is saving in tax-advantaged retirement savings accounts such as a 401(k)s, 403(b)s, or IRAs.

How to get to 15%: If contributing that amount right now is not possible, check to see if your employer has a program that automatically increases contributions annually until a goal is met. Another strategy is to start by contributing at least enough to meet an employer match, and then if you get a raise or annual bonus, add all or part of these funds to your workplace savings plan or individual retirement account until you have reached the annual contribution limit.

Short-term savings: 5%

Everyone can benefit from having an emergency fund. An emergency, like an illness or job loss, is bad enough, but not being prepared financially can only make things worse. A good practice is to have enough put aside in savings to cover 3 to 6 months of essential expenses. You can start with $1,000 or a month’s worth of expenses, and then gradually build up to 3 to 6 months’ worth. Think of emergency fund contributions as a regular bill every month, until there is enough built up.

While emergency funds are meant for more significant events, like job loss, we also suggest saving a percentage of your pay to cover smaller unplanned expenses. Who hasn’t been invited to a wedding—or several? Cracked the screen on a smartphone? Gotten a flat tire? In addition to those, there are certain categories of expenses which are often overlooked; for example, maintenance and repairs of cars, field trips for kids, copays for doctor’s visits, Christmas gifts, and Halloween costumes, to name a few. Setting aside 5% of monthly take-home pay can help with these “one-off” expenses.

It’s good practice to have some money set aside for random expenses so you won’t be tempted to tap into your emergency fund or pay for one of these things by adding to an existing credit card balance. Over time, these balances can be hard to pay off. However, if you pay the entire credit card balance every month and get points or cash back for purchases, using a credit card for one-off expenses may make sense.

How to get to 5%: Having this money automatically taken out of a paycheck and deposited in a separate account just for short-term savings can help a person reach this goal.

50/15/5 Budgeting guidelines serve as a starting point

Our guidelines are intended to serve as a starting point. It is important to evaluate your situation and adjust these guidelines as necessary. If you’re close to the 50/15/5 target spending and saving amounts, good job. And for those staying within the guidelines, any remaining income is theirs to save or spend as they would like.

Some ideas: First, pay down high-interest debt. For other goals, like paying for a child’s college or wedding, you could use the remaining income to save for them. And finally, for those who want to retire early or haven’t been saving diligently, putting it toward retirement savings may make sense.

The good news is that it isn’t about micromanaging every penny. Analyzing current spending and saving based on our 3 categories can give you control—and confidence. Most everyone’s financial situation will change over time. A new job, marriage, children, and other life events may change cash flow. It’s a good idea to revisit spending and saving regularly, particularly after any major life events.

References:

  1. https://www.fidelity.com/viewpoints/personal-finance/spending-and-saving

National Debt and Federal Spending

Posted on by

Higher taxes, alone, are not the solution to out-of-control federal government spending. Americans need to understand and address the problem.  And, they need to convince politicians and bureaucrats to end their unfettered spending habits.

The national debt enables the federal government to pay for federal programs and services even if it does not have funds immediately available. Increased in federal government spending further increases the deficit.

The federal government spends money on a variety of goods, programs, and services to support the American public and pay interest incurred from borrowing.

  • If the government spends more than it collects in revenue, then there is a budget deficit.
  • If the government spends less than it collects in revenue, there is a budget surplus.

From FY 2019 to FY 2021, spending increased by about 50%, largely due to the COVID-19 pandemic. In fiscal year (FY) 2022, the government spent $6.27 trillion, which was more than it collected (revenue), resulting in a deficit.


Federal government spending pays for everything from Social Security and Medicare to military equipment, highway maintenance, building construction, research, and education. This spending can be broken down into two primary categories: mandatory and discretionary. These purchases can also be classified by object classand budget functions.

Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.

References:

  1. https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/
  2. https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/

The National Debt Limit

Posted on by

More than half of the U.S. National Debt is owed to the US public and more than one quarter is owed to foreign entities.

The debt limit, or debt ceiling, is a restriction on how much the federal government can borrow to pay its bills and allocate funds for future investments.

When Congress appropriates or directs government money to be spent, the government is obligated to pay those funds, creating a bill it must pay. The federal government spent 68% more than it collected in fiscal year 2021, resulting in a $2.8 trillion deficit. The deficit decreased from fiscal year 2020 when the federal government spent 91% more than it collected, according to USAFacts.

This bill, also known as the national debt, is the amount of money the federal government has already borrowed to cover outstanding expenses in past fiscal years.

The national debt is composed of debt held by the public in the form of government securities and intragovernmental debt, debt which one part of the federal government owes to another.

The U.S. Gross Domestic Product in December 2022 was $26.13 trillion, according to the Bureau of Economic Analysis. The Gross domestic product (GDP) is the value of all goods and services produced in the US. This number is used to measure the health of the economy by observing when GDP is growing or shrinking.

The U.S. National Debt ceiling is currently set at $31.4 trillion.

In December 2021, Congress increased the debt ceiling to $31.38 trillion.

When the national debt exceeds the debt ceiling, the federal government cannot increase its outstanding debt any further. Therefore, the Treasury Department can use extraordinary measures authorized by Congress to manage the federal government’s finances and remain under the debt limit.

These measures can include suspending investments into government saving, retirement, and health plans, halting the sale of Treasury bonds and other government securities, or shifting money between government agencies to pay off intragovernmental debts.

Source:  USAFacts.

4 Steps to Build, Manage and Preserve Wealth

Posted on by

The requirements for building, managing and preserving wealth are simple, mundane and practical, if you choose to pursue it. The requirements are:

  • Commitment so that you prioritize the steps, habits and behaviors necessary to build wealth; otherwise, life will just get in the way.
  • Planning and creating systems based on proven principles and strategies that actually work.
  • Action because nothing happens without persistent, disciplined action over the long term to reach the your wealth goals.

What is “Wealth-Building?”

Wealth building is the process of generating long-term income through multiple sources. The sources includes savings, investments, and any income-generating assets. The wealth building definition requires proper financial behaviors, planning and goal,setting. Many individuals turn to wealth building as a way to achieve financial freedom and acquire cash flow to fund their lifestyle and retirement.

The 4 Steps to Building, Managing and Preserving Wealth

To build wealth, you must follow four simple steps: make money, save money, invest money and manage cash flow. Before investing, it is essential to have a reliable source of income. After securing a reliable source of income, it is recommended save regularly and paying yourself first. Finally, it is time to invest in assists and manage your cash flow.

1. Making Money

This step may seem obvious and is fundamental to wealth-building. A small amount of regular savings from your income can compound into a substantial amount. An important question to ask yourself is whether or not your current job can provide you with a regular amount of savings for 40 to 50 years. If not, it may be time to look for ways to increase your income.

The two basic types of income are earned and passive. Earned income comes from your employment, while passive income comes from investments. To increase your earned income, you may first have to make changes in your occupation. Consider investing in your education and other forms of training to help you become a stronger candidate for your desired job.

2. Saving Money

The second key to wealth-building is setting aside a portion of your earned income regularly. Once you have saved enough, you can start investing to grow passive income. Here are a few ways to to start saving money:

  • Keep track of your spending each month, and then eliminate the spending that you don’t need or does not align with your values
  • Adjust your budget to the point in which you’re saving every month.
  • Always have about 6 months’ worth of expenses saved in case of emergencies. Having a cushion will help prevent you from derailing your finances every time something unexpected happens.
  • Contribute to your retirement plan. If your employer offers a matching plan, definitely take advantage of it. Don’t leave free money on the table.

3. Investing Money

Once you have saved, you can start investing your money. However, to build a diverse investment portfolio, you will have to take a few risks. It is important to research how much asset allocation is appropriate for you. While you can do this research yourself, using a financial advisor is also recommended for new investors. They can help you gain clarity on your investment goals, time horizon, and how much risk you can stomach. Based on these insights, they can help you build a diversified portfolio that is risk-averse, moderate, or aggressive, based on your preferences.

4. Managing Cash Flow

Cash flow is king!

Your net worth, which is how wealth is measured, is an extremely important factor in wealth building. However, to live the lifestyle of your dreams, you must be able to generate positive cash flow from your wealth.

Cash flow is defined as income (cash in) minus expenses (cash out). And, the simpler your lifestyle and the better you manage your spending and expenses, the less income is required from your investments to live the life of your dreams and to achieve financial freedom.

To create a wealth building system, you can establish long term investing strategy and portfolio, and achieve financial freedom. Choosing the right wealth building assets comes down to which opportunities best suit your financial goals. With the right planning, investors can be well on their way to building, managing and preserving wealth.

In short, successful building, managing and preserving wealth are necessary requirements to achieve financial freedom. And, financial freedom buys you time and with time you can discover and experience what you really want out of life.

References:

  1. https://financialmentor.com/category/wealth-building/wealth-program-system
  2. https://www.fortunebuilders.com/wealth-building-assets/

Budgeting 50-30-20 Strategy and Cash Flow

Posted on by

Managing your money and tracking your finances is essential in building wealth, but it doesn’t have to be complicated or painful process. It can be as simple as creating a budget. And, a budget starts with listing of your income and your expenses.

One simple strategy for tracking your personal cash flow (income and expenses) is the 50-30-20 budgeting strategy. With this budgeting strategy, you divide your income into three broad categories: necessities, wants, and savings and investments, according to those ratios.

—- 50% of your income should go toward things you need

This category includes all of your essential costs, such as rent, mortgage payments, food, utilities, health insurance, debt payments and car payments.

If your necessary expenses take up more than half of your income, you may need to cut costs or dip into your wants fund.

—- 20% of your income should go toward savings and investments

This category includes liquid savings, like an emergency fund; retirement savings, such as a 401(k) or Roth IRA; and any other investments, such as a brokerage account.

Experts typically recommend aiming to have enough cash in your emergency fund to cover between three and six months worth of living expenses. Some also suggest building up your emergency savings first, but, you don’t just want to save this money.

You want to invest it and make it work for you. That means contributing to your employer’s 401(k) plan if they offer one or saving in other retirement accounts, such as a Roth IRA or traditional IRA.

—- 30% of your income should go toward things you want

This final category includes anything that isn’t considered an essential cost, such as travel, subscriptions, dining out, shopping and fun.

This category can also include luxury upgrades: If you purchase a nicer car instead of a less expensive one, for example, that dips into your wants category.

But think about what matters to you before spending this money. As research shows, how you spend is oftentimes more important than your overall income or the amount you spend in total.

Money experts suggest you spend on experiences, such as trips or classes, rather than things. “All of the best psychological research on money and happiness tell us that spending money on experiences brings more (and more lasting) happiness than spending money on material objects,” says Ron Lieber, New York Times columnist and author.

There isn’t a one-size-fits-all approach to money management, but the 50-30-20 plan can be a good place to start if you’re new to budgeting and are wondering how to divide up your income.

References:

  1. https://www.cnbc.com/2021/06/25/best-free-budgeting-tools-2021-how-to-make-your-own-spreadsheet.html
  2. https://www.cnbc.com/2021/05/11/how-to-follow-the-50-30-20-budgeting-strategy.html
  3. https://www.cnbc.com/2019/07/22/use-the-50-30-20-formula-to-figure-out-how-much-you-should-save.html

Planning and Achieving Financial Freedom

Posted on by

Financial freedom can be an elusive—and hard-to-define—goal.

Financial freedom is often said to be in the eye of the beholder. To some it may mean freedom of debt and being able to fund your lifestyle with your cash flow; to others it may mean early retirement on a Caribbean island. Whatever your financial goals or definition of financial freedom, there are ways and things you can learn to help you get your financial house in order.

Once you’ve decided that financial freedom is one of your top goals, you can start taking steps to achieve it. Thus, the first step toward achieving financial freedom is to define exactly what it means for you. You can’t generally achieve something that you haven’t defined. So, once you’ve defined what financial freedom means to you, you can start taking steps toward your goals.

“What then is freedom? The power to live as one wishes.” Marcus Tullius Cicero

Just because you have money does not mean you have financial freedom. There have been numerous people, especially professional athletes and entertainers, who have earned millions of dollars and subsequently lost it all through reckless spending and debilitating debt. Thus, even if you have a lot of money, if you don’t know how to manage and make your money work for you, it will more than likely disappear.

Financial freedom typically means having enough savings, financial assets, and cash on hand to afford the kind of life you desire for yourself and your families. It means growing savings and investments to a level that enables you to retire or pursue the career you want without being driven to earn a wage or salary each year. Financial freedom means your money and assets are working hard for you rather than the other way around…you’re working hard for your money.

In other words, financial freedom is about much more than just having money. It’s the freedom to be who you really are and do what you really want in life. It’s about following your passion, making choices that aren’t influenced by your bank account, net worth or cash flow, and living life on your terms.

Track your expenses

It’s difficult to know how to save money if you don’t have a good idea of where your money is going. Carefully track your spending habits for a typical month. Doing this will help you to become more conscious of your discretionary expenditures. It will also reinforce what expenses are essential and remind you to plan for unexpected expenditures, like medical emergencies and car repairs. Therefore, it is vital to understand and to know where your money is going.

Make a budget

Once you’ve taken inventory of your expenses, next step is to create a budget. While budgeting can sound like a cumbersome task, you may want to start by using a budgeting calculator to get a feel for how you are currently spending your money and how you’d like to change your spending.

One popular budgeting method is the 50/30/20 rule. The 50/30/20 rule is a way to divide your post-tax income based on your needs, wants and savings. The rule states that people should spend 50% of their income on their needs. This includes health insurance, housing, transportation, and groceries. Then, the guideline states that people should spend 30% of their income on wants or non-necessities such as entertainment, travel, and more. Finally, the last 20% of a person’s income should be saved or invested. This might include retirement savings and building a stock portfolio.

Once you have created a budget, don’t put it in a drawer and forget about it. Instead, make it a working and living document that you check and refer to often. Spend a half-hour per month reviewing how your actual expenses match your budget and make adjustments as necessary.

Automate your savings

Automating your savings and investing is one of the easiest steps you can take to ensure that you are on the path to financial freedom. You can set automated contributions to your employer-sponsored investments, including your 401(k) contributions and employee stock options.

When your savings and investing are automated, your money will continue to grow without you having to think about it. This will help you to reach your financial goals easily and quickly.

Have some percentage (10% to 20%) of your paycheck automatically deposited into a separate account—whether it’s a savings account, a 401(k) or an IRA. Money that isn’t easily accessible is not easily spent.

Unfortunately, many Americans are not saving enough to maintain their current standard of living during their retirement years. It was found that about 21% of Americans have nothing saved for retirement, according to the Northwestern Mutual’s 2018 Planning & Progress Study.

Start investing early

Follow the adage, the best time to start investing was twenty years ago; the second best time is today. You should start investing in a tax deferred account, preferably with your employer matching a portion or all of your contribution.

Planning for retirement is a marathon and not a sprint. Even if you are starting small, the most important thing is to get started. Therefore, it will likely take decades to reach your goal. Therefore, it is important to remember why you want to achieve financial freedom. Keeping your purpose, goals and the bigger picture in mind will help you navigate the day-to-day financial decisions.

Once you become financially free, you have more choices of how to live your life and spend your days.

When you decide that you want to start working toward financial freedom, it is important to remember that you will not become financially free overnight. However, according to certified financial planner David Rae, in a 2018 article in Forbes magazine, there are eight hierarchies of financial freedom that you can work towards:

  1. Level 1: Not Living Paycheck to Paycheck – The first level of financial freedom is building up an emergency fund and paying off any credit card debt. Unfortunately, living paycheck to paycheck is the reality of millions of Americans. According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2017, some 40% of households could not cover a $400 unexpected expense.
  2. Level 2: Enough Money to take a sabbatical from your work – Accumulating enough money to be able to take a break away from work can be rewarding. This does not mean you have to quit your job, but it sure is a good feeling to know you can.
  3. Level 3: Enough to be Financially Happy and still Save – it’s about enjoying your life and having the money to do it. There can be peace when you are earning enough to save, doing the things you enjoy and still having extra at the end of the month.
  4. Level 4: Freedom of Time – Many people desire more flexibility with their schedules. Freedom of time and financial independence go hand in hand. Together, they are about following your passion, or spending more time with family, and not going completely broke doing it.
  5. Level 5: Enough for a Basic Retirement – Think about what your bare minimum retirement would look like. By knowing your bare minimum retirement, and knowing that you have enough money saved to at least cover some standard of living in your retirement, will also influence other life choices you may make along the way.
  6. Level 6: Enough to Actually Retire Well – Knowing you are on track to accumulate a nest egg to support that lifestyle is a big win. Well done to those who have accumulated enough assets, or passive income streams, to be in a position to retire well.
  7. Level 7: Enough for Dream Retirement – It would feel great knowing that you are on track to have enough money to retire and be able to live your dream life. What is stopping you from getting there.
  8. Level 8: More Money Than You Could Ever Spend – Having more money than you expected to spend is great. Building enough wealth so that you could not possibly spend all of it is another.

Bottomline is that if you want to be financially free, if you want to be able to live the lifestyle of your choosing while responsibly managing your finances, you need to become a different person than you are today and let go of the financial mindset that has created your current financial predicament and has held you back in the past.

Attaining financial freedom, which means having enough savings, investments and cash flow to live as you desire, both now and in your later years, requires a continuous process of growth, learning and emotional strength. In other words, whatever has held you back and provided you comfort in the past or kept you less than who you really are will have to be replaced. You will have to become comfortable for awhile being uncomfortable. And in return, the financially empowered, purposeful, and successful you will emerge — like a butterfly shedding its cocoon.

References:

  1. https://www.richdad.com/what-is-financial-freedom
  2. https://smartasset.com/financial-advisor/financial-freedom
  3. https://www.forbes.com/sites/davidrae/2019/04/09/levels-of-financial-freedom

Financial Planning and Investing

Posted on by

“Take control of your finances, savings and wealth building with a financial plan.”

Whether you have short-term financial needs — such as planning for an upcoming vacation or holiday spending — or long-term plans like retirement, financial planning can help you organize your finances by evaluating your expenses and income. Yet, a 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement.

Futhermore, the Northwestern Mutual research finds a third (32%) of Americans say their financial discipline has improved during the pandemic, and 95% say they expect their newfound habits will stick after the health crisis subsides.

Among the financial behaviors that people say they’ve adopted as a result of the pandemic and expect to maintain going forward are:

  • Reducing living costs/spending (e.g., cancel subscriptions, eat out less, etc.) – 45%
  • Paying down debt – 34%
  • Increasing investing – 33%
  • Regularly revisiting financial plans – 29%
  • Increasing use of tech/digital solutions to manage finances – 28%
  • Increasing retirement contribution/savings – 25%

A financial plan can show if you’re on track to meet your money and savings goals. Financial planning can include strategies for paying off debt, starting an emergency fund, saving up for a large purchase like a house, or building wealth.

Investors who stick to a financial plan have an average total net worth that’s 2.5 times greater than those who don’t follow one, according to Charles Schwab. Financial planning helps you understand where you are today. It also creates a roadmap to get you where you want to be in the future.

Investing is key to building wealth.

Time is on your side and key when it comes to building your wealth. That’s the magic of compound interest. Compound interest is interest earned on interest. Basically, it’s the reason why investments earn more money over time.

But before you start investing, it’s crucial that you’re financially prepared. Consider these four signs you’re ready to invest:

  • Have a long-term financial plan and strategy.
  • Have an emergency fund.
  • Research and prepare to invest.

Investing all depends on tim ane in the market and your unique financial situation. These signs are a good step to getting your finances in order. But consult a financial professional for comprehensive investment advice.

As a result of the personal finance challenges experienced by Americans during the pandemic, the 2020 Northwestern Mutual study found that  there was mounting interest in personal  financial planning that may be here to stay. “Personal finance is a lifelong journey; it’s not something you look into once and say, ‘OK, I checked that box,’ and move on,” explains Matthew Pelkey, OppUs’ director of financial education. “Just the simple act of looking into things you can do to be more deliberate in your financial life will give you that agency over your finances — and create the habits that are really what produce good financial health.”

Financial planning can equip you to handle life’s many unexpected financial twists and turns. Although, it will vary, depending on your stage in life. You don’t need to know everything — but knowing and planning for the essentials will provide a solid foundation. Always remember the adage:  “Failing to plan is planning to fail.”

  • References:
    1. https://news.northwesternmutual.com/planning-and-progress-2020
    2. Strategic Business Insights, MacroMonitor 2018-2019 Report, February 2019.
    3. https://www.opploans.com/oppu/articles/financial-planning/

    The Debt Ceiling and Congressional Brinkmanship

    Posted on by

    “I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.” Warren Buffett, Chairman and CEO, Berkshire Hathaway

    Around October 18, Treasury Secretary Janet Yellen and the U.S. Treasury Department have warned Congress that the government will no longer be able to pay all its bills unless the $28.5 trillion statutory debt ceiling is increased or suspended.

    Source: Congressional Research Service, Congressional Budget Office, and the Treasury Department. Data as of 05/01/2021.

    Moreover, Secretary Yellen believes the economy would fall into a recession if Congress fails to address the borrowing limit before an unprecedented default on the U.S. debt.

    While the U.S. has never failed to pay its bills, economists say a default would tarnished faith in Washington’s ability to honor its future obligations on time and potentially delay Social Security checks to some 50 million seniors and delay pay to members of the U.S. armed services.

    “If you ask the question of Americans, should we pay our bills? One hundred percent would say yes. There’s a significant misunderstanding on the debt ceiling. People think it’s authorizing new spending. The debt ceiling doesn’t authorize new spending; it allows us to pay obligations already incurred.” Peter Welch (D-VT), U.S. House of Representatives Democratic Caucus Chief Deputy Whip

    Increases to the debt ceiling aren’t new. They’ve occurred dozens of times over the last century, mostly matter-of-factly, a tacit acknowledgement that the bills in question are for spending that Congress has already approved.

    One thing separating today’s debt debate from those of the past is the larger-than-ever national debt, according to Fidelity. Publicly held US debt topped 100% of GDP in 2020 and is expected to reach 102% by the end of 2021.

    And the debt is projected to increase significantly in the future. The Congressional Budget Office (CBO) projects a federal budget deficit of $2.3 trillion in 2021—the second largest deficit since 1945.

    Source: Congressional Budget Office, as of February 11, 2021.

    Failure to address the current challenge could shake global markets even before the Treasury has exhausted its available measures to pay bills. A U.S. debt default, whether through delayed payments on interest owed on U.S. Treasuries or on other obligations, would be unprecedented.

    The effect would be one of perception. And, perception can be tied to the reality that someone isn’t going to be paid on time, whether it be government contractors, individuals who receive entitlement payments, or someone else. The damage to U.S. credibility would be irreversible.

    Even if a default were only technical—if payments other than interest on debt were delayed—the United States could no longer fully reap the benefits bestowed on the most reliable debtors.

    Interest rates would likely rise, as would financing costs for businesses and individuals. Debt ratings would be at risk. The government’s own financing costs, borne by taxpayers, would increase. Stock markets would likely be pressured as higher rates made companies’ future cash flows less predictable. Such developments occurring while economic recovery from the COVID-19 pandemic remains incomplete makes the potential scenario all the more important to avoid.

    Let it be said that no one doubts the ability of the United States to pay for its obligations, according to Vanguard. There is a minimal credit risk posed by the United States is supported by its strong economic fundamentals, excellent market access and financing flexibility, favorable long-term prospects, and the dollar’s status as a global reserve currency.

    The House has passed a measure that would suspend the debt ceiling through mid-December of 2022, and the bill now goes to the Senate. Republicans in the Senate oppose any effort to raise the borrowing limit and appears intent on making Democrats address it as part of their sprawling investment in social programs and climate policy under reconciliation.

    Senate Democrats could lift the debt ceiling without the GOP votes through reconciliation, although that would come with downsides. Under reconciliation, a simple majority of senators can pass a very small number of budget bills each year. The process is sufficiently complex that it would probably take a couple of weeks and distract Democrats from their negotiations over Biden’s “Build Back Bette” agenda.

    Thus, the Democrats resist raising the debt ceiling through reconciliation if it means potentially sacrificing other policy goals. And, the rules for reconciliation would require Democrats to specify a new limit for the national debt which would expose them to potentially uncomfortable GOP political attack ads.

    Republicans insist that since Democrats control both the executive and the legislative branches and are in a socialistic tax-and-spend binge, they should bear sole responsibility for dealing with the debt limit, which is rearing its ugly head again because the suspension included in a two-year 2019 budget deal expired on July 31.

    Democrats argue that Republicans should share the burden of this unpopular chore, since (a) much of the debt involved was run up under Republican presidents and (b) Democrats accommodated Republicans on debt-limit relief during the Trump presidency.

    For long term investors, it’s clearly in the best interest of the country to resolve any debt-ceiling issues, according to Fidelity. And, it’s important to understand that there will always be times of uncertainty. It’s important to take a long-term view of your investments and review them regularly to make sure they line up with your time frame for investing, risk tolerance, and financial situation.

    References:

    1. https://investornews.vanguard/potential-u-s-debt-default-why-to-stay-the-course/
    2. https://www.cnbc.com/2021/10/05/debt-ceiling-us-faces-recession-if-congress-doesnt-act.html
    3. https://nymag.com/intelligencer/2021/10/democrats-can-raise-debt-ceiling-via-reconciliation-bill.html
    4. https://www.fidelity.com/learning-center/trading-investing/2021-debt-ceiling

    Own Your Net Worth and Cash Flow

    Posted on by

    8 out of 10 women will be solely responsible for their financial well-being. Some women will be ready. Many won’t. UBS Wealth Management Report

    As women’s life expectancies increase and the rate of divorce for individuals over age 50 continues to climb, more women will find themselves solely responsible for their own current and long term financial well-being.

    UBS Wealth Management embarked on research–Own Your Worth–to explore women’s thoughts and feelings, the challenges they faced, lessons they learned and advice they would impart to other women.

    With the wisdom of hindsight, nearly 60% of widows and divorcees regrettably wish they had been more involved in long-term financial decisions while they were married, according to UBS’ findings. A full 98% of them urge other women to become more involved early on.

    Unfortunately, too many women ignore the advice of widows and divorcees. In direct contrast to the advice, many married women are taking a lesser role in managing the household finances. In a counterintuitive twist, Millennials are the most willing to leave investing and financial planning decisions to their husbands.

    Fifty-six percent of married women still leave investment decisions to their husbands, according to UBS. Surprisingly, 61% of Millennial women do so, more than any other generation. What’s more, most women are quite content with their backseat role when it comes to investing and financial planning.

    UBS’ research reveals many reasons for women’s abdication, from historical and social precedents to family, gender roles and confidence levels.

    So. why do women minimize their role in major financial decisions? According to USB’ research, the reasons vary:

    • Gender roles run deep – Gender roles are ingrained from early in life and often prove hard to shake. In many cases, married couples are simply imitating the gender roles they witnessed growing up.
    • Men are still the breadwinners – Within families, 70% of men are the main breadwinners, in part because of the gender pay gap and the career breaks women take to raise children.
    • Time constraints are challenging – Whether married or not, women have many demands on their time. They take on the majority of household duties, including childcare and chores, as well as paying bills and tracking spending.
    • Competence vs. confidence – Together, history and society have conspired to affect women’s financial confidence. Both women and men think men know more about investing, and women are less confident than men in making major financial decisions. Women consistently underestimate their own abilities while overestimating what is required to be financially involved.

    Yet, most study respondents participated in some financial decisions while married, from handling cash flow and bills to saving and investing. Regardless of their level of engagement, however, most agree it wasn’t enough. The research shows:

    • 59% of widows and divorcees wish they had been more involved in long-term financial decisions
    • 74% don’t consider themselves very knowledgeable about investing
    • 64% of widows blame themselves for not being more financially involved (53% of divorcees)
    • 56% of widows and divorcees discover financial surprises
    • 53% would have done fewer household chores to find more time for finances
    • 79% of women who remarry take a more active role

    USB recommends three actions to take today

    The advice from women who have been there is clear: The time to become involved in your family’s present and future financial well-being is today, not when some unforeseen events happen in the future.

    Women are encouraged to get involved in their financial well-being as a form of self care, much in the same way you would take care of your health by:

    1. Owning your worth – Know where you stand and what you want for the future. Take the time to add up your assets and liabilities, like loans, credit and other debts, and ask for full transparency from your partner.
    2. Finding your voice – Start the conversation with your partner. Talking about money is considered taboo to some couples, particularly before they are married. But if you found yourself alone tomorrow, do you know what you’d do to make sure you’re financially secure? There is a tremendous benefit to having open communication about money with a trusted confidante.
    3. Setting an example – Model financial partnership for your family and loved ones. According to our survey, women are repeating the gender roles they saw growing up. As you begin taking a more active role in your finances, you can set an example of financial partnership for the younger generation.

    Though women are aware of their increasing longevity and the financial needs associated with it, most tend to focus their efforts on short-term financial responsibilities such as managing the household’s day-to-day expenses and paying the bills.

    In contrast, taking charge of long-term financial decisions, such as investing, financial planning and insurance, can have far more impact on their future than balancing a checkbook.

    By sharing decisions jointly, both women and men can face the future with optimism—and set an example of financial partnership for generations to come.

    Almost 60% of women do not engage in the most important aspects of their financial well-being: investing, insurance, retirement and other long-term planning. USB Wealth Management Report

    References:

    1. https://www.ubs.com/content/dam/WealthManagementAmericas/documents/2018-37666-UBS-Own-Your-Worth-report-R32.pdf
    2. https://www.ubs.com/us/en/investor-watch/own-your-worth/_jcr_content/mainpar/toplevelgrid_1797264592/col2/teaser/linklist/link_2127544961.2019551086.file/PS9jb250ZW50L2RhbS9XZWFsdGhNYW5hZ2VtZW50QW1lcmljYXMvZG9jdW1lbnRzL293bi15b3VyLXdvcnRoLXJlcG9ydC5wZGY=/own-your-worth-report.pdf