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President's Ponderings: Spending More Than You Make

By Edward Luttrell - President's Ponderings Blog (1/13/11)

  JANUARY 15, 2011 --

I’m beginning to wonder about either the sanity or intelligence of some of our politicians, at least in regards to financial matters. Our Federal Government is drowning in debt, at least 10 states are aware that bankruptcy is a possible option and what the heck is going through the minds of many of our elected officials?

Illinois raised taxes this week, a number of states have raised their taxes over the past two years and seem to be avoiding reductions in spending. On the other hand, a number of states have either already slashed spending or are proposing serious reductions in spending now.

I’ll admit that I’ve read a couple of books dealing with economics, that I’ve been managing my families finances with my wife for 30 years, and that in working in business and with a variety of non-profit groups I have a bit of experience dealing with money and budgets. Even though I’ve never dealt with billions of dollars, much less trillions, I think that I’ve learned some simple fundamentals.

Rule number one, don’t spend more than you make. I understand that you sometimes borrow money in order to purchase big ticket items, but you don’t borrow more than what you can comfortably make the principal and interest payments on. If your income goes down, you reduce spending, even if you have to give up something you like. If your income goes up, you set aside a bit for a raining day in the future before increasing spending.

Governor Martin O’Malley, MD said “This year I think all of us will come to appreciate just how important the recovery and reinvestment dollars were.” He was referring to more than 350 million from the federal stimulus that was used by Maryland to pay off its pension promises for the past two years. 

To top off Maryland’s situation, their legislature is discussing raising taxes to deal with their deficit.

I think someone doesn’t understand not spending more than you make or not borrowing more than you can afford, at least in Maryland and a number of other states. When do elected officials begin to act like most Americans do when their income drops? What spending is critical, what is important, what is nice, and what is simple extravagance? Our families have to live with the realities of rule number one and make hard decisions, why do some elected officials not understanding this simple concept?


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