A Few Words on Debt…

I thought I’d read this some time ago and went searching for it yesterday to no avail. Oddly, Jennifer referenced it today (that’s a bit freaky — I think it, and the answer presents itself. Hang on… thinking about a new car… damn).

Anyway, Dave Ramsey scales the national finances from trillions of dollars down to something that the public can wrap its collective minds around. You get something that’s pretty scary.

Here’s the, uh, money:

If their household income was $55,000 per year, they’d actually be spending $96,500—$41,500 more than they made! That means they’re spending 175% of their annual income! So, in 2011 they’d add $41,500 of debt to their current credit card debt of $366,000!

This isn’t surprising to me at all. Oddly, way back when — you know, when public schools used to actually teach students to think to some degree — we were required to take and pass a personal finance class to graduate from High School. We discussed the same sort of thing. The message has been lost. But, hey, I’m the bad guy because I choose to live within my means.
So, let’s take this another few steps forward. Let’s predict this spending into the future a few years. We’ll be optimistic and assume that that $55,000 gains 1% per year — to account for population growth, er, I mean, “raises”. Also, let’s assume a 3% annual inflation rate — er, I mean increase in spending.
Don’t forget the interest on that $366,000 of debt — that’s harder to nail down as there’s no single interest rate. Although I did find something that seems to suggest that it’s hugely expensive if we take into account that the debt is $14.5T and we’ve paid $4B in interest this year — that works out to a whopping 36% per year! I’d have to be smoking crack to actually use that number, so let’s be optimistic and assume that the interest on our debt is a respectable 4.5%.
So, let’s project:
Annual Income
Annual Spending
Deficit
New Debt, With Interest
1
$55,000
$96,500
-$43,845
-$428,288
2
$55,550
$99,395
-$46,271
-$495,915
3
$56,106
$102,377
-$48,782
-$569,207
4
$56,667
$105,448
-$51,378
-$648,512
5
$57,233
$108,612
-$54,064
-$734,193
6
$57,806
$111,870
-$56,842
-$826,632
7
$58,384
$115,226
-$59,715
-$926,233
8
$58,967
$118,683
-$62,686
-$1,033,420
9
$59,557
$122,243
-$65,758
-$1,148,641
10
$60,153
$125,911
-$68,934
-$1,272,366
That right there illustrates doom and screams that you must stop fscking spending money.
Me? I live within my means. And, when I stand up and tell my nation’s government that I expect them to live within their means, it doesn’t make me or people who think like me terrorists.

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