The 1st rule of prudent economics

[Rich Stopher]

Good Day Everyone-

I live in Athens, Greece and in all my 47 years, I’ve never witnessed such extreme economic hardship. It saddens me to admit that this country is effectively bankrupt! Periodic injections of capital from the European Union, keep Greece on “life support” but it’s doubtful this will continue for much longer. Sooner rather than later our European partners will pull the plug and then the government will be forced to engage in a “distressed sale” of national assets. The country will be sold for a song… Without exaggeration modern (economic) slavery is steadily on its way (at least in this country).

But how did we get into this mess in the first place?

Without wishing to oversimplify matters, we did so because we failed to observe (both at a national and a personal level) the 1st rule of prudent economics:

Never, ever, spend more than 80% of your take-home pay and save the remaining 20%.

That’s it!

If you earn $100 per month, spend $80 and save $20.
If you earn $1,000 per month, spend $800 and save $200.
If you earn $10,000 per month, spend $8,000 and save $2000.

Learn how to contain your spending to 80% of your earnings and you’re on your way to getting rich!

Simple!

If only we were able to adhere to this simple rule, we’d never, ever get into trouble. This is a rational concept requiring nothing more than common sense to apply. So why on earth would anyone spend more than they earn? How stupid can they be?

Have you ever observed people’s spending habits? They spend $120 for every $100 they earn. How? They borrow on credit! Whether it’s new clothes, shoes, gadgets, electronics or cars, they all breach the 1st rule of prudent economics and therefore live constantly in debt. Not only are they in debt, but they also fail to realize they don’t own the goods. The car is owned by the bank; the TV financed with in-store credit, the clothes bought with the maxed-out credit card. This behavior is irrational, irresponsible and careless. So why would you want to adopt it? Why would you want to duplicate this reckless conduct?

Let me help out…: YOU DON’T, so stop it now!

The antidote?

Save First Then Buy. It’s really that simple. Rational (and financially literate) people, consistently put aside 20% of their income until such time as they have saved a sufficient amount to make the purchase they desire. The anticipation of waiting for a period of time until you purchase your desired item, will make the purchase even more pleasurable and you will own the item outright!

By saving first and buying later, you beat the debt cycle upon which the entire global economy is built. Rest assured that if you adhere to this simple principle, you’ll be streets ahead of 95% of the global population (and will become rich in the process).

Regretfully, it’s too late for Greece!

Rich Stopher.
Pragmatic Financial Information.

[khaski]

I know, here in the US our gov. seems to be ignoring simple fiscal common sense- if mountains of debt ended up destroying the lives of the citizens here, how does the gov. think it can just add and add and add to country's debt with no consequences? I hear from reltives in Hungary how BAD it is there and how down hill things have gone and conitue to go- frightening.

[Spirit Deer]

The OP seems like spam to me, but I'll respond anyway.

It's way too simplistic to say 'live within your means' when it comes to government. That's good in theory but what happens when natural disasters hit? Do we just let people's homes burn without fighting the fires? Do we ignore floods that have destroyed roads and sewer systems and other infrastructure people depend on? What about when a 9/11 happens? Just ignore it? Say oops, sorry, there's no money? When roads and bridges wear out, what do we do? Just let more bridges fall into the Mississippi River and kill more people? When children would go hungry, do we just throw our hands in the air and say it's not in the budget to help provide for them? Just let them beg in the streets? Let them prostitute themselves in order to eat? When seniors need health care, shall we just let them die because treating them is too expensive? The list goes on and on and on.

I hate the national debt as much as anyone, but I'm not going to pretend to know what the answer is. Honestly, I don't think there is one.

Sorry, but there's no way to run a country like a family. Not when a government has so many enormous responsibilities that don't occur in a family's worst nightmare, and so many of the responsibilities cannot be predicted, budgeted for, or insured against.

[khaski]

I didn't get too specific with it, but I'm certaintly not implying our gov. should ignore disaster relief! I wondered if spam as well, time will tell. The answer is to CUT SPENDING. A few great places to start might be working on reducing the amount of waste in our public assistance programs and cutting down ridiculous spending by our politicians on their own things...how many vacations do the Obamas need, at the taxpayers expense? Not looking to start a debate here, and those two things alone won't solve the issue, but if it doesn't work for a household to rely on debt to carry it, it's not going to work forever for a country, either. The idea is simple- you spend what you have, and no more, and save what you can as well. There's no solution that fixes it instantly or quickly, but changing some things now could go a long way to helping fix the nation's deficit.

[Spirit Deer]

I agree, there needs to be some way to cut some of the waste. But I don't think that's easy with any big organization of any kind. And then you grow even more government by adding oversight committees or whatever.

I don't think the current president takes any more vacations than any of the others have, but I haven't paid much attention. I don't begrudge any of them that. Regardless of whether I agree with their politics, it's got to be a tough job and I think their breaks are well deserved.

As I said, I don't know what the answers are. All I know is, everyone seems to want to see spending cuts, till it's time to cut the spending that benefits THEM.

Everyone wants the government to create jobs, but the only way the government can do that is either to pay for large projects like road construction or something else that causes private companies to hire, or else make a larger government so more government employees are hired, both of which are going to cost taxpayers a bundle and raise the debt.

Everyone wants the budget balanced, but no one wants to see services reduced or an increase in taxes. The government may be clueless, but so are a lot of taxpayers.

Everyone wants to keep jobs in the US, but then they'd gripe because the cost of consumer goods would go way up.

I'm not criticizing anything you've said, I'm just frustrated. Everyone seems to think the government can fix everything, apparently by magic. A lot of people don't seem to realize in a lot of areas, like jobs creation, there's not much the government can do.

[bumplett]

Rich isn't spam, he's simply well spoken.

I am very curious about life in Greece. Have the financial problems of the government caused a noticeable difference in the lives of the people?

How has it affected your day to day life?

Other countries as well? While the US is facing issues of rising food costs, fuel costs, healthcare struggles, etc.... I think that it has happened so subtly that it hasn't had a huge impact on day to day life for most people. (JMO)

On a personal level, due to being a small business owner, it has affected us greatly - but I wouldn't be able to put my finger on it and say "this is it, this is what caused it"

[a.nonymous]

Everyone wants the budget balanced, but no one wants to see services reduced or an increase in taxes. The government may be clueless, but so are a lot of taxpayers.

This is very well said. Although I do not believe the government is clueless per se, but abusing the clueless taxpayers lack of sense for reality to gain votes by spending future generations' tax.

Every budget can be balanced if there's a real need for it. If natural disasters fall outside that budget, you can reduce future budgets to recoup expenditures. Even as a government.

Current government programs seen in their entirety cannot be a boon to its population otherwise the debt load would not be growing all the time. So force government programs to show their effectiveness through numbers; and if a program cannot show a tangible profit, scrap it.
Other than that, a very simple mechanism would be to force the government to budget on the annual average of the past 5 years instead of relying on optimistic future predictions.
Scrap useless subventions propping up failing industries and rather pour some of that money into helping the affected people to learn skills that actually will be relevant in other industries; review military spending instead of writing blank checks... There is so much room for saving, it's a sad, sad joke.

[josantoro]

I believe Mr. Micawber (from David Copperfield by Charles Dickens) said it best.

“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and, in short, you are for ever floored. As I am!”

[craftypam]

I think that a large part of the problem with government spending is that they are not spending their own money; even though that doesn't matter in many cases. No one seems to check into the overspending of our dollar; they just keep handing out money that isn't there. I realize that in some cases it is unavoidable; but someone NEEDS to get our spending under control or we are going to be in the same place as Greece.
How sad the politicians in US spend so much money bashing each other on public broadcasting; why don't we put that money to some good use and pay down our deficit. Something simple like that goes on deaf ears where politicians are concerned.

[Spirit Deer]

I don't think what's happening in Greece could happen here. I was having a discussion with some friends at a recent RV rally and the campfire talk turned to world events. None of us could come up with anything that Greece has to offer the world, except tourism. (I am more than ready to stand corrected on this because there must be something we ignorant campers were missing.) But if a country doesn't have much to sell to the rest of the world, how can they make money and grow their economy? Let me be clear: I'm not criticizing, just trying to understand what is a very complex issue which I'm admittedly not very familiar with.

I also don't think there is a comparison there because, and I'm sure I'll get flak for this, the US is too big to fail. In spite of our suffering economy right now, every other country on Earth wants to sell us stuff, which we're more than willing to buy. If our economy fails, we would bring everyone other country down with us.

We are also fortunate enough to have enormous resources we can export, and a large variety of things to export, too. That's not saying what we have is always going to be available for export, such as this year when crops aren't looking real good, but we do have a lot to offer trading partners who need us to succeed themselves.

I'll say again I'm not well-versed in all of this so try not to slam me too hard for anything I'm wrong about.

I believe the political bashing is being paid for with private funds, not taxpayer funds, if you're talking about the political ads. Private funds are not usually made available to the government for taxpayer-funded programs.