Tips for Reducing Your Own Personal Budget Deficit

By Michelle Vullo Pastor, MBA, Accredited Financial Counselor   

The growing national debt has been in the headlines a great deal lately, especially because it will grow even more with passage of the government stimulus package. Our debt as a nation now stands at a jaw-dropping $10 trillion.

The federal government debt is similar in some ways to the consumer debt that many American families are grappling with. Comparing the national debt to household debt reveals some interesting parallels in managing money. Like the government, many American families have been living far beyond their means.

Borrowing from our future

Despite the misperception among many that trust-fund money sits and accumulates untouched, the U.S. government has, over the years, frequently "borrowed" money from Social Security and Medicare for other uses. In the same way, many Americans have charged up incredible amounts on their credit cards or taken out second mortgages on their homes. They've also borrowed from their retirement funds, under-funded them or delayed making retirement contributions at all. As a country, we'll have Social Security and Medicare straining to meet their financial obligations as baby boomers begin retiring in huge numbers in the next few decades with under-funded retirement plans and enormous debt. The future of our economy and our way of life may be dramatically affected by the choices we make today in managing the nation's debt, as well as our own personal finances.¹

The problem we face is that the federal government and American families routinely run a deficit, not just for emergencies but for everyday expenses — many of us spend much more than our income. We continue to borrow money to cover our bills. And just as when there's a huge balance on a personal credit card, interest payments continue to grow for the government. So if families and the government can't cover their bills, they run a deficit. Every time the government does this, the national debt increases; the same principle applies to the balance on the family's credit cards and other loans.

Easing the burden

What are some of the options for digging ourselves out of this deep hole? One way is for the government to ease the burden on taxpayers by providing a smaller government. They could turn over public functions, such as social services, to the private sector and give more domestic policy responsibilities to the states.

In the same way, individuals could ease their burden by reducing expenses. Options include bringing lunch from home instead of going out for lunch, eating more meals at home in the evening and going for the free coffee at work rather than the Starbuck's double latte. Other ways to save include going cellular — get rid of the landline phone — and reducing your cable menu to "basic."

Another way to get back on track is to return to the "pay as you go" budget. On the federal level, that means not creating any new federal programs unless there is funding available, raising the retirement age and adjusting benefits to help keep Social Security solvent, and allowing tax cuts that were passed in recent years to expire as planned.² On a personal level, paying as you go means not using credit cards unless the balances can be paid off every month; delaying the purchase of new items, such as a car, furniture, computer or TV, until you have the cash; and planning to work several more years into retirement than you had originally anticipated.

The good news is that, after many years of low or negative personal savings rates, Americans are starting to save again.

Footnotes
¹ "Heading for Trouble," Facing Up to the Nation's Finances, FacingUp.org
² "Issue Guide: Federal Budget — Consider the Choices," Public Agenda for Citizens, PublicAgenda.org