The Largest Deficit on Record and...You

THE BIG THING I WANT YOU TO KNOW:

Cutting taxes + increasing spending = a big problem. This is basic math, folks. We are on an unhealthy trend here and I want to explore with you exactly how this may impact you and how a flexible financial plan can prepare you.

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when you significantly cut the amount of money coming in and significantly increase the amount going out, you’ve got a deficit!

You get a deficit! And you get a deficit! Everyone gets a deficit!

Even in the midst of the largest economic expansion on record, our government has somehow figured out how to have the largest deficit on record.

NOT ONLY THAT, but we’re projected to increase those deficits every year over the next number of years.

Let’s dive into the world of deficits and unpack:

  • what’s in store for us if we keep on this spending trend

  • how this affects your retirement dollars

  • how to create a balanced and flexible plan

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it doesn’t matter what flavor of politics you like,

if we cut taxes and increase spending, the math doesn’t work well!

 
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President Trump announced another tax cut last week, calling it a “very substantial middle-class tax cut” for next year.

We better be planning for a very substantial spending cut too! Or else our massive deficit will keep growing and growing and growing.

How do we pay for those deficits, you may ask? Well, we borrow money.

I’ll quote the Wall Street Journal to give you an idea of what that looks like:

“Rising deficits has led the treasury to ramp up borrowing recently. The government said it expected to borrow more than,” <cough> “a trillion dollars for the second year in a row in 2019.”

Let me put this into perspective for you:

If a family loses a lot of money and starts borrowing money to cover the losses, the more they borrow the more the monthly payments on that borrowed money grow. Eventually they’re going to hit a major issue, right?

 

at some point, this isn’t going to work anymore. We all know it, we all avoid it.

someday the wheels will stop turning, so what can you do to prepare for a financial crisis?

You’ve got to plan for flexibility.

If all of your money is in pre-tax retirement dollars (401k, IRA, etc.), the theory is that you get a tax break because your tax rate will be lower when you take the money out at sixty or seventy.

Looking at the way our government is choosing to operate fiscally, I may not want all of my money sitting subject to whatever the government chooses to do tax wise in thirty years.

I could be wrong, we might have politicians come along and fix everything and we’ll all look back and laugh about how we were worried about those trillion dollar deficits. Maybe that’s what will happen and that will be great, but my intuition says otherwise.

it would be really wise to make sure the way you plan for retirement is flexible and that you’re not giving the government complete authority over your income stream.

If all of your money is in pre-tax retirement dollars, the government has complete authority over the tax-rate you’re going to have when you pull that money out. And if you’re relying on the tax-rate being way lower in thirty years, maybe you need to think again.


it’s about more than paying the taxes now or later -

it’s about having a balanced financial plan

Have some pre-tax money, because you’ll be thrilled if the government is doing great and your rate is low in thirty years. But also have money in a tax-free fund, so that the government doesn’t have any say over that money.

Create a balanced strategy in the way that you invest. Maybe you’ve never thought about that before. Maybe all your money just automatically goes into a 401k or IRA.

Are you creating a flexible scenario?

The way you should plan is by building flexibility into the way you look forward. Many of you have plans where you’ll be fine if everything stays the same, but what if it changes? Flexibility trumps a little bit of a tax cut. Flexibility trumps a little bit of a better return on investments.

Financial planning is about so much more than making 9% instead of 8%, and sometimes flexibility is more important than getting the biggest tax break this year.

Flexibility means your plan doesn’t fall apart when life happens, because life will happen, but peace comes when you’ve built a plan that’s prepared for it. Remember that as you watch the headlines… You can make a flexible plan and live in peace.


Financial planning is about so much more than making 9% instead of 8%, and sometimes flexibility is more important than getting the biggest tax break this year.


 


 
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Who in your life motivates you to get your finances in order?

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