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Monday, February 14, 2011

Budgeting 101

Often in politics, we hear references made about the dinner table of average homes.  My dinner table is currently awash in bills, receipts and tax forms as I attempt to finish out 2010.  This past year we closed down my wife's floral shop, so the paperwork is a bit heavy.  As I close out one year, my mind looks ahead to the challenges to come financially for us in the next.  We need to buy a new stove, our eldest daughter will be graduating from high school in a few months and will be moving on to college in the fall, dental bills are due to arrive soon and of course the unexpected emergency has yet to announce itself.

President Obama presented his budget today.  By his numbers, he will lower the deficit by 1.1 trillion over 10 years from the current baseline.  Two thirds of that is spending cuts with the other third from tax increases.  I wish I could be excited.  On the other side, House Republicans have found 100 billion to cut from next year's budget.  That's a good start, but still far short of what is needed.

I was taught budgeting at an early age.  It was simple.  Make 3 columns; in the first is what you have to spend.  In the second is what you need & in the third is what you want.  Prioritize each item in the second and third column.  Start paying off the second column.  If you have any money left, then you can move to the third column.  If you don't have enough money for the second column, you need to either find a way to increase the first column, whether by getting a second job or working some overtime or find a way to change your needs.

To avoid arguments over economic theory, we will allow that for our nation, to increase the first column will involve tax increases.  What to tax and how much to tax may affect how much additional revenue, if any might be brought in, but that is an argument for another day.  Increasing the first column though, isn't necessarily a must if you are spending well into the third column.   Our real national problem is that we have no idea which spending belongs in column 2 and which belongs in column 3.  I'm fine with sacrificing more of my money that I was going to spend on my wants, if I could feel like the government would spend it on what was really needed.  But we have no way of knowing that today.

The Federal government's ability to levy and collect taxes is tied to its ability to do what is necessary for it to carry out the tasks assigned to it by the Constitution and by Congress.  But do we even consider this anymore.  Instead today, our own wants and desires are being put on hold so that the government can fund the wants and desires of someone else.  My children might feel oppressed if we shut off the cable TV so we can pay our bills, but they're really not.  Yet is it fair to them, if our money (taxes) goes to others who then use it to buy cable TV.

The Federal Budget can seem very complex when we lose sight of the basics.  As both sides, Democrat and Republican work together to assemble a budget, I wish they could do it at the dinner table just like myself and countless others; with stacks of envelopes, receipts and unpaid bills cluttering the table.  Even better though, think of us and who the money belongs to before spending it foolishly for us.  Sure we might spend it foolishly, too.  But sometimes we just need to buy a new stove so we can cook for our own dinner table.

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