guest commentary by David Potts
Editor’s note: David Potts is a certified public accountant with more than 25 years experience. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case. Feel free to e-mail topic suggestions or questions to firstname.lastname@example.org
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What a non-event this sequestration was!
We listen to the news where journalists and politicians, in a near frenzy, predict dire consequences for our country and everybody within its borders if our government doesn’t act immediately to avoid events creatively named “The Fiscal Cliff” or “The Sequester” by wordsmiths to elicit feelings of fear and anxiety.
When those fateful days arrive and we don’t hear a big boom, we tend to put the fear of those dreaded consequences aside along with any valid concerns for the underlying causes.
The experts tell us that if the Sequester is not reversed, the world won’t end. Certain governmental departments will have their funding cut upward of 10%. Economic growth with slow and less jobs will be created. So what!?
The so what is that over time, the current trend in government spending funded by large increases in our national debt will slowly erode the vitality of the U.S. economy. This lack of vitality will be felt on an individual level by paying higher income taxes and receiving less government benefits (such as Social Security and Medicare).
So today, if you still feel safe and believe the government is there to save you from personal catastrophes, you might want to have a plan B. Our government may not be able to save you. It might have to pay its debt back to China.
In this context, have you ever asked yourself the question, “What actions should I take today to protect my family or business from the future consequences caused by a dysfunctional and ineffective government lacking fiscal discipline?”
The heavy lifting in acquiring wealth has always been spending less than you make. In the recent past, the annual return on an individual’s savings and investments made the acquisition of wealth seem easy when compared with today’s lower returns. Today we may be living in a new normal, an economy with lower returns on savings and investment. An economy where high returns combined with time won’t guarantee your financial security.
The historical highs of common stock market indexes were reached years ago. The historical high for the Dow Jones Industrial Average is 14,164.53 reached Oct. 9, 2007; it closed Friday, March 1, 2013 at 14,089.66. The NASDAQ reached its historical high of 5132.52 on March 10, 2000; it closed Friday, March 1, 2013 at 3169.74, less than two-thirds of its historical high.
Interest rates on savings accounts and CD’s aren’t worth mentioning and the value of your house, though recovering, won’t make you feel giddy. For more than a decade, most people have had to work for their money rather than having their money work for them. This may be a continuing trend.
So if you want to increase your wealth in today’s environment, sequestration applied to your personal finances is a great starting point. How much can you cut your personal spending? If you own a business, how much can you decrease your spending without affecting you customers?
If you want to get ahead financially in today’s world, you’re going to have to do it on purpose. For many people this means adopting a new mindset. Is there anybody in your circle of friends that you need to impress so badly that you are willing to give up a portion of your future wealth?
How much money have you saved lately? Maybe we can learn something from our dysfunctional government. Maybe we should implement our own Sequester.