38 CONFINE YOUR EXPENSES WITHIN YOUR INCOME

Smith warns, ‘By not confining his expenses within his income, he encroaches upon his capital. Like him who perverts the revenue of some pious foundation to profane purposes, he pays the wages of idleness with those funds which the frugality of his forefathers had consecrated to the maintenance of industry.’

DEFINING IDEA…

I am for a government rigorously frugal and simple; applying all the possible savings of the public revenue to the discharge of the national debt; and not for increasing, by every device, the public debt, on the principle of its being a public blessing.

~ THOMAS JEFFERSON, THIRD US PRESIDENT

According to Kent Conrad, chairman of the Senate Budget Committee, it took 42 Presidents 224 years to run up $1 trillion of debt held abroad and yet George W. Bush has more than doubled this in seven years! America’s founding fathers must be spinning in their graves. They were terrified by the national debt of $75 million following the War of Independence (1775–1783). It took forty-six years to pay off that debt, and in comparison to today’s federal debt, this is pocket money!

Not all Presidents have practised financial mismanagement on the scale of Bush; some even tried to warn against exploitation of natural resources and overspending, but paid the ultimate political price. President Jimmy Carter made no fewer than four televised speeches in which he questioned America’s rampant materialism, suggesting, ‘Human identity is no longer defined by what one does, but by what one owns.’ Carter was keen for his people to understand that the US was not the limitless land of plenty. His candour cost him the election. Americans didn’t want to know about frugality and dwindling resources, they preferred the fairytale version perpetuated ironically enough by an ex-Hollywood actor. On 20 January 1981, Ronald Reagan swept to power and with him came an explosion of federal debt during the 1980s.

The story’s not much better in the UK. At the end of October 2008, the Public Sector Net Debt (PSND) was a colossal £640.9 billion. Interest for October alone was an eye-watering £3.39 billion. Granted, government intervention was necessary to help stave off a depression, but the big question is, why didn’t the UK have a government surplus (savings) following over a decade of growth and prosperity? Like the US, the UK faces a financial time bomb that could prove catastrophic for future generations.

Smith states that, ‘Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct.’ Historians believe that the Roman Empire fell because of declining moral values, overextended and overconfident military overseas and fiscal irresponsibility by central government. On that basis, both the UK and US should be nervous as financial irresponsibility completes that trifecta. Both governments have acted like spendthrift parents, racking up huge debts that they expect their children to settle. With no frugality in office on either side of the Atlantic, for generations to come, taxpayers will pay a heavy price.

HERE’S AN IDEA FOR YOU…

For one week, make a list of everything you spend, down to the last £1. Although tedious, this is usually highly illuminating - most people simply don’t have a clue where their money goes. Make changes to pay off debt more quickly.