The Government's Budget: The Debt Ceiling

What is a debt ceiling? The US debt ceiling is a cap that is set by Congress on the amount of debt the federal government can legally borrow. The cap applies to debt owed to the public or anyone who buys U.S. bonds in addition to debt owed to federal government trust funds such as those used for Social Security and Medicare.
Every day the federal government spends more money than it takes in and makes up the difference by borrowing money. As a result, every day, the government’s debt increases. This is why the government is considering raising the debt ceiling or the government will have to stop spending more than it takes in which requires balancing the budget. Balancing the budget will require reducing spending by approximately 40 – 44%, raising taxes or a combination of reducing spending and raising taxes.
If the debt ceiling is not increased the government has to pay more money to borrow money which adds up very quickly and could cost taxpayers hundreds of millions of dollars. This can cause taxpayers to lose confidence in the government. If lenders lose confidence in the government that it can’t repay its debts, interest rates will start to increase.

The government generates money by selling debt through Treasury bonds which is the government's IOU. A taxpayer, a foreigner or a hedge fund manager purchases a Treasury bond (bill) and the government promises to pay the bond at a later date, paying the buyer back with a small amount of interest. As of January 2011, foreigners owned $4.45 trillion of the U.S. debt.

As long as Treasury bond buyers are confident that the government will repay them, they accept the lower interest rate of return. However, if bond buyers feel that the government will not be able to repay them, the market will demand a higher interest rate on the bonds which decreases the number of buyers who want to buy them. Taxpayer money is used to pay the bond interest rate so higher interest rates will result in higher taxes. A lack of confidence has already been seen in the stock market decreases over the past week as we approach the current debt ceiling.

If the interest rates on Treasury bonds increases this will have a domino effect and cause the interest rates of other products such as cars, student and mortgage loans and credit cards, business loans or lines of credit to increase. There could also be an increase in personal products such as electronics, clothes, food, household goods and company products and services. This will cause the value of the dollar to decrease causing an increase in costs to purchase foreign imports as well as gasoline for cars.

The less money that is approved for loans or credit will cause taxpayers and business owners to spend less and save more which will hurt the economy.

If Congress doesn't raise the debt ceiling, the government will reach the debt ceiling and max out its borrowing power which will prevent the government from paying its debt. This would affect Social Security, Medicare, military salaries, tax refunds, and unemployment insurance, government grants, and other funding.

Natural Disaster Financial Tips

There are many types of natural disasters that occur during a year such as hurricanes, tornadoes, monsoons, tsunamis, twisters, earthquakes and more. Recently several of the Midwest states have experienced damaging tornadoes. Some homes were completely blown away or toppled to the ground. After the dust has settled the first thing one thinks about what do I do know. The next thing to consider is their identity. When I heard the stories I started to wonder did they have a safe and copies of all of their bills and financial papers. How will they regain their identity and start their life again? What is the first thing they should do? These are just some of the questions that must be considered when rebuilding after experiencing a natural disaster. Here are 14 financial tips to help survive a natural disaster.

1. Notify. Contact all of your family and friends and employer and let them know what happened. Ask them if they know of any resources or people that can assist you with food, clothing and shelter.

2. Insurance. Contact your insurance company and put in a claim. Contact a lawyer to get legal advice and protection in the event your insurance company becomes difficult with reimbursing you for your loss.

3. Mail. Ask a friend or relative if you can use their address to receive mail temporarily. Go to your local post office and forward your mail to that address.

4. Inventory. Make a list of all the companies you do business with. Include the name of the company, mailing address, payment address, phone number, type of account and website. Go to a friend’s house or your local library and get the contact number for each company. Call each company and tell them you have been a victim of a natural disaster. Give them your temporary mailing address to get duplicate copies of all of your bills.

5. Identification. Contact your local passport, motor vehicle and social security administration office to get duplicate copies of your driver’s license, SSN and passport. Also contact your local Office of Vital Records, Public Health Department or county recorder’s office to get a duplicate copy of your birth certificate.

6. Financial. Contact all of your financial institutions and ask for duplicate copies of your financial statements. Go to your local bank branch and have a flag put on any unused checks if you know the check numbers. If not, order a new set of checks and have them mailed to the branch. Once you determine the numbers of the unused checks have the bank put a flag on them to prevent fraud. Ask for a new check card or debit card and pin.

7. Credit. Contact your credit card companies and ask for a new credit card for each of your accounts. They make ask you to complete an affidavit stating what happened. Contact the 3 major credit bureaus, Equifax, Experian and TransUnion and place a credit freeze on your credit reports.

8. Media. If possible, purchase a small portable tv or radio to hear important information from the media about resources available for victims.

9. Property. If you have any property left that is not totally damaged leave the property where it is so the insurance company can examine the property and perform a full investigation. Make a list of all property that was in your home with the following information categorized by room: item, date purchased, estimated value, cost to replace the item, indicate if the item was insured, insurance company who insures the item, quantity and if the item was still under warranty.

10. Service Providers. Make a list of any other service providers that you do business with: mechanic, doctor, lawyer, accountant, financial planner, psychologist, marriage counselor, plumber, lawn care professional, professor, tax preparer, barber, hairdresser, etc. Include the name of the company, mailing address, payment address, phone number, and website.

11. Needs. Create of things you need to survive: food, toiletries, clothing, etc. Categorize by the name of each person in your family, size and the cost of each item.

12. Budget. Create a budget to determine how much money you earn after taxes, monthly bills and expenses and how much you will need to replace basic necessities.

13. Spend Wisely. Replace missing items by shopping at discount or outlet stores, buying in bulk and buying items on sale.

14. Live for Tomorrow. Document what you learned from this experience and steps to take if you ever have this type of experience in the future. Make sure you have adequate insurance coverage. Purchase a fireproof and waterproof safe. Keep copies of your SSN, birth certificate, driver’s license, bills, financial statements, will, taxes, insurance papers, mortgage paperwork, and credit card statements in the safe. Also keep a list of all of your inventory lists in the safe.

Financial Survivor or Victim

Many Americans have experienced financial, family or physical tragedies over the past few years. Their financial outlook has gotten worse because of the recession. This has caused many Americans to give up, lose hope, lose faith and become confused, lost, afraid, stressed, anxious, angry and resentful.

These feelings can cause one to make poor decisions and choices in their lives. The first key to dealing with these emotions is to acknowledge them. Once you acknowledge your feelings don’t allow your feelings to control you. Next, think about what you can do to overcome your current situation and find a solution. You can’t change what happened but you can change how you react to it and how you deal with it. To do this you determine if your behavior is that of a survivor or a victim.

A victim:
1. Makes excuses
2. Looks for handouts
3. Waits for someone to help them
4. Doesn’t take responsibility for their actions
5. Doesn’t seek professional help
6. Refuses to change their current situation
7. Doesn’t accept reality
8. Is unable to implement a solution
9. Stays in a spiraling state of emotion (stress, frustration, anxiety, etc.)
10. Doesn’t have a plan of action
11. Unable to recover from a crisis

A survivor
1. Doesn’t make excuses
2. Develops a plan to solve problems on their own
3. Seeks professional help
4. Lives in reality - accepts the current situation but remains focused on future goals
5. Takes responsibility for their actions
6. Doesn’t wait for someone to help them
7. Uses emotional intelligence to manage feelings (eqi.org/eitoc.htm)
8. Uses resources such as self-help books, educational television shows, law of attraction, etc.
9. Survived previous crises and learned from the experience

Here are 8 steps to overcome a financial crisis.
1. Focus on how to solve the problem rather than focusing on the problem
2. Spend money without feeling guilty – you feel guilty because you are not living below your means
3. Use cash vs. credit to save you money
4. Have faith that your financial situation will improve – law of attraction
5. Pay off credit cards at the end of each month to avoid paying interest and finance charges
6. Have a savings account, checking account and retirement account which helps you plan for the future
7. Have at least 6-12 months worth of savings in an emergency fund to help with unexpected expenses or a financial crisis

To become a survivor of any financial crisis you have to change your mindset. “If you do not attract what you want to be, you will be what you are, forever” by Ankur Sancheti.