Don't Be Poor: The Wealth Building Mistakes Our Government Teaches

How long would it take you to run out of money if you were living in the same way that our federal government spends money? Just imagine constantly spending more money than you bring in, using credit to cover the gap. Today that mountain of debt is more than $35 trillion. Our federal government spends about $1.7 trillion more than it brings in. I'm going to give you some actionable steps to help you build wealth and avoid staying in debt like our US [Music] government.

Hey everyone, welcome to another edition of We're Talking Money. I'm your host, Phil Clark, and I think we need to talk about how to build wealth by not doing what our government does.

It's no secret the US government has a habit of spending more money than it brings in. That creates annual deficits that pile up every year, and that grows into a massive amount of debt. Now, if you took this approach and applied it to personal finance, it is a guaranteed way to derail any chance of building wealth. It would also destroy your credit score.

Just imagine constantly spending more money than you bring in, using credit to cover the gap. It doesn't take a financial expert or a rocket scientist to figure out this leads to a lot of stress, certainly unsustainable debt, and you'll never reach financial freedom.

Let's look at the 2023 federal budget for a little perspective. Now, you can see that total spending by the US government is $6.1 trillion. $3.8 trillion of this amount is considered mandatory spending. Think of major health care programs, Social Security, federal civilian and military retirement benefits, and certain other veterans programs, and that's just to name a few. Now, this $1.7 trillion of discretionary outlays covers things like education, training, employment, social services, transportation, income security, international affairs, and the list goes on and on.

Now, if the government simply spent what is mandatory, we'd have a surplus, and our government could use that to start paying down the mountain of debt that we've created over the last several decades. Today that mountain of debt is more than $35 trillion. Instead, our federal government spends about $1.7 trillion more than it brings in. If you ever need a little something to remind you of what not to do, you can visit the Congressional Budget Office online to learn more about this out-of-control spending.

Don't think this is something new. Here's a chart that shows you a set of green bars for the annual budget and red bars for the federal spending. You won't find many years where that green bar is taller than the red. That is not a good thing.

So let me ask you a question: how long would it take you to run out of money if you were living in the same way that our federal government spends money? Let's draw that correlation, and I'm going to do that by putting this in terms of personal finance, and we're going to start with just three points.

First point is debt accumulation. That means you're always playing catch-up. If you're always in the red, how will you ever build wealth?

The second point is interest payments. All debt comes with a cost; it's called interest. That interest on your debt is like a voracious appetite. It constantly eats away at your income. The more debt you have, the more interest you pay, and that means less money for you to save or invest to build wealth. Instead of your money working for you, it's always going out the door to pay interest on debt that you've accumulated.

And the third point is financial insecurity. Without a cushion or an emergency fund, unexpected expenses can lead to more debt, and eventually that can turn into a financial crisis.

So how do you overcome the temptation to spend more than you earn and start saving in order to build wealth? I'm going to give you some actionable steps that you can start using right away to help you build wealth and avoid staying in debt like our US government.

The first, it's creating a budget. Now, this is much like the government. The budget helps you track all of your income and expenses. It's more like a road map, so that you know where all of the money is going, both coming in and going out. It allows you to see quickly where you might be able to cut expenses. As you might have already figured out, our government's not really good at that part, but you can be.

Now, when you build your budget, be sure that all expenses are labeled required expense or desired expense, and that's similar to the way the government looks at their budget. They have mandatory expense and they have discretionary expense. The key to this is you want to avoid adding new expense to your desired column, just like the government should avoid adding to their discretionary column.

Number two, you need to build an emergency fund. No matter what you start with, just get started, and you want to shoot for about 3 to 6 months of funding, just in case. Here's what can be really, really bad: if an emergency strikes and you don't have reserves, you're going to go into more debt to cover that unforeseen expense. When that happens, you've got more money going out the door for interest payments, and that means less money in the door to go into savings and investments.

Number three, it's paying off debt. The sooner you're out of debt, the more disposable money you have for investing. Start with the highest interest rate loan or debt that you have and start paying it off. As soon as you have it paid, get on to the next one. Before you know it, you'll be out of debt and you will begin to see your wealth accumulate.

Number four is living below your means. Something our federal government has never adopted is living a frugal lifestyle, but that doesn't mean you have to fall into the same trap. Now, I'm not saying to deprive yourself, but I am saying make conscious choices when it comes to spending. Remember that required versus desired expenses: start with required, move to desired, and if you run out of runway, in other words, you've gone through the budget, just means it's time to stop spending. Remember, you'll have a new month starting soon, and maybe you'll have some extra money then to get back to those desires.

And number five, it's invest wisely, and that can mean a lot of things, not just stocks and bonds. This is a requirement to grow your wealth. When you live below your means, money is always available to invest. The sooner you start investing, the sooner that money starts growing for you, even while you're still earning a paycheck. This goes a long way towards building wealth, and it's one more thing that our government just doesn't do.

Living this way isn't just about financial stability, it's all about freedom: the freedom to make choices, take risks, and live life without the constraints of debt.

Before we close, I'd love to hear from you. How are you building wealth? Are you on track, or are you following the example of the US government, where you're using lots of debt to cover the gaps? Please share your comments below. I'd love to hear from you, and I'll do my best to respond. And don't forget to subscribe to our channel. It really helps us grow the network on We're Talking Money.