Financial pundits are always touting concepts like "living within your means" and "saving to spend". If you take a look at the federal government's budget, it sure looks like they were absent on the days those lessons were taught. In a world of a $12 trillion national debt and $800,000 outhouses, paying $640 for a toilet seat and $436 for a hammer seems like a real bargain! Outrageous spending stories - although many occurred before the Competition in Contracting Act in 1984 - are a part of public lore about government spending. (For background reading, see Breaking Down The U.S. Budget Deficit.)
Any waste taxpayer money tends to lead to public outrage, but what if you were on the receiving end of all this excessive spending? Let's take a look to see what would happen if you ran your finances like the federal government.
Buy Now, Pay Later
You could get that Porsche Carrera GT with the sheepskin seats that you've been dying to have. Or how about buying that $4 million dollar Patek Phillipe Platinum World Time Watch that you always wanted? It sure would look great on your wrist and besides, you just have to know the time in 24 other countries! It's like having an American Express credit card and never having to pay the bill. And, because you don't have to pay the bill, it only goes without saying that you won't have to worry too much about what anything costs. A $640 toilet seat? Bring it on! You'll also be a hit with local salespeople and contractors.
Your friends and family have concerns about about your free spending ways so you decide to hear out their criticism and make some changes. You inform your family that you are going to freeze all spending on clothes and shoes, which accounts for 17% of your expenses. Sounds generous enough, right? Unfortunately, your overall budget continues to grow as your spending increases in other areas.
Canvassing the Neighborhood
As your family and friends begin to grow angry and claim that your spending freeze was little more than a symbolic gesture, you start really feeling bad about your wild spending ways and decide to pay back a small portion of the money that you owe. There's only one problem: you're flat broke! Fortunately, you are able to canvass the neighborhood and collect 10-50% of everyone else's income. Whew. Now that you've got cash again, you get back to what you do best: spending money (bills? what bills?).
It isn't long before you run out of cash once again. Now what? The neighbors would be pretty annoyed if you went and asked for even more dough just now, so you do what any cash-strapped American does: you borrow. You will issue promissory notes (IOU's) to every person who lends you money. You agree to pay interest on the notes in order to get cash now. You don't have enough money to pay back these notes just now, but fortunately, you're not the kind of person who is the least bothered by such things.
Your personal finances would be declared a national disaster area if you managed them like the U.S. federal government. When the government runs out of cash, it can just raise taxes and roll out the printing presses. Can you imagine going down into your basement and cranking out stacks of freshly minted $100 dollar bills whenever you needed more cash? (Maybe you can, but you shouldn't - counterfeiting is a federal crime!)
The primary difference between your budget and the government's budget is that the government has the ability to raise more money through taxes and, when that fails, to create more money altogether. Running your budget like our government would not only drive you into Chapter 7 bankruptcy but would land you a five- to 10-year sentence in prison!