Everyone should budget their money and time. Budgeting is simply about knowing how much you have, how much you will have, and how much you will lose. Everyone has expenses...
After watching the President’s State of the Union address, I had to think back on how we got to this point and what are we trying to accomplish. Tax policy is supposed to generate enough money to support the Federal government operations and to encourage/discourage behaviors. Without prioritizing our metrics or focus, we end up with mixed and conflicting signals to our citizens and the market. This causes disruptions, diversions, and discrepancies in the following ways: the financial crisis in 2008; US companies with more money overseas than at home; and a wealth gap between the citizens. These are all documented and discussed over the past 6 years. The real question is why does this continue and how individuals can learn from it.
It really looks like the continuation of the same policies is due to the fact everyone is making money and there is no strong groundswell to induce change. How can someone learn from this policy is to understand it. I will use the last example of the wealth gap as an example.
- Balance Sheet vs. Income Statement Recovery: The policy of favoring individual with savings accounts and investment portfolios would clearly favor wealthy individuals, but the middle class could benefit from this policy as well. All of the focus for growing the economy is through investment tax credits, big business direction, and regulation mitigating the salary worker in favor of the non-salary worker / owner, think passive income. This federal policy has continued from different presidents, congress, and senate. It doesn’t matter if the Democrats or Republicans are in charge. This policy was tested in the early Obama administration when the Democrats controlled all three seats of the US government. During this time, there was not one change to the legislation to affect this policy – and this is coming from the group that “supports the working class and unions”. They failed to deliver any real change to assist its voting members. Interesting.
- Savings Rate: As mentioned the savings rate for the wealth gap is clear, high net worth save more as a percentage and total money; thus, this favors the wealthy than middle class which is having a harder time to save.
- 401K Investment: another mechanism for the middle class to expand their wealth is slowing which allows for the wealth gap to widen.
- Stagnate Earnings / Income: Many studies indicate the real wage for workers have not changed from the 1980’s, some studies even point to the 1970’s. This is real concerning to the middle class since they do not have a large financial foundation to start accumulating wealth. The more pressures there are to “keep pace” with the economy will also place pressures on saving; thus, increasing the wealth gap.
- Loss Property Value: Even though this can be argued as a cut across all wealth groups, the overall fact is that higher percentage of the middle classes’ wealth is tied into the home purchase while the wealthy have a more diversified portfolio, limiting the loss damage. Also, the wealthy will have multiple properties which further diversifies the risk of loss while the middle class might only have a single piece of property, i.e. not diversified.
- Less Tax Breaks: There is a saying, “it takes money to make money”. In the case of tax breaks, you need to have the money to have the investments in order to claim the tax breaks. This is the classic “chicken and egg story”.
After leaning this history lesson, we now need actionable steps to prosper in this environment. There are several things we can accomplish to start the process.
- Start Saving: The best way to accomplish this is to have your paycheck directly deposited and automatically transferred to accounts that are budgeted for investments. It’s time to make choices for what is needed in the present and the future
- Start Investing: Try to maximize your 401K plan and Roth IRA/401k if possible. Compounding interest will assist with the yearly returns to generate wealth.
- Voice Your Thoughts to Your Representatives: Let them know how you feel and give them examples of how they can induce change in the system, even if it’s a small step.
- Add Marketable Skills for Your Career Path: This is not just going back to school. Look in your industry what is valued and try to obtain it. This can be certifications or just general training. Utilize social media like LinkedIn to increase your network to get answers to your questions from experts.
I understand this can be difficult. The best approach is to start slow. Pick one action item at a time to show progress and the ability to achieve the specified change. This will produce confidence in you to continue. I wish you the best success for your change. Excelsior!!
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
The following blog is the opinion of Gary Kapanowski and Garykapanowski.com. It is the sole intent to broadcast this opinion from Gary Kapanowski and Garykapanowski.com exclusively and not to reflect on any other institutions or organizations associated with Gary Kapanowski or Garykapanowski.com.