My friend’s family is in financial trouble. They find themselves in a situation where they have a huge amount of debt, decent revenue, but more expenses than the revenue can cover. And unfortunately, in these tough economic times, their prospects for growing their revenue any time soon is not looking so good, yet their expenses are scheduled to continue to rise for the foreseeable future.
They have hope, but also seem to be in a great deal of denial.
Here is the breakdown:
Total Salary after taxes – $120,000 (not expected to increase any time soon)
Total Yearly Expenses – $145,000 (expected to increase for many years to come)
Total Debt – $550,000 (likely to grow to over $1,000,000 in 10 years)
Here is their budget:
$33,000 in legal fees defending their business, expected to stay this high for years to come
$29,000 to support their parents, expected to increase for years to come
$20,000 to cover their parents medical bills, expected to increase for years to come
$15,000 to supporting a sister who is out of work and not in a great position to get a job
$12,000 interest expense on their debt
$5,000 on their kids education
$4,000 on gas, auto expenses, transportation
$4,000 helping their uncle who lost his legs in Vietnam
$4,000 in charity donations globally and locally
$19,000 on general expenses
What should my friends do when they only see expenses increase in the years to come and know that they will never be able to pay down their debt?
Bankruptcy seems to be one of the only options on the table for them. And unfortunately, this is a common and truly sad situation for everyone in this situation.
Do you know someone in this situation? What, if anything, can we do to help them? What do you say to them to give them hope?
But…I haven’t been 100% honest with you.
This isn’t my friend’s family situation.
It is the United States Federal Government! And it is our actual 2007 Tax Base, 2007 Budget and our Current National Debt. I simply divided the actual numbers by 20,000.
The idea being that as long as we keep speaking in Billions and Trillions, no one would be able to relate to these figures and understand the severe state we are in. If we reduce it down to what a family would have to deal with at a personal level and it becomes something we can actually understand and digest.
So here are the 2007 figures:
US Tax Revenues – $2,400,000,000,000 (2.4 Trillion)
US Expenses - $2,900,000,000,000 (2.9 Trillion)
US Debt – $11,000,000,000,000 (11 Trillion)
Tax revenues will likely be flat for a while as we work through a deep recession
Spending will likely grow as the boomers retire and start asking for their benefits, not to mention a government that refuses to cut spending in good times or bad.
When all is said and done, some say the US Debt will exceed $50 TRILLION when you account for social security and medicare benefits for the boomers. In this analogy, it would equate to $2.5 Million debt for this fictitious family currently making about 120,000 in after tax salary.
And we are financing this debt at the low “teaser rates” right now of 2 or 3%. What if interest rates go back up to 5 or 10% in the future? What if 100% of your salary can't even cover the interest payment on your debt? Makes it hard to live, doesn’t it?
Did the concept of the United States declaring bankruptcy in the future seem impossible? I think it is an absolute possibility.
Welcome to the Boomer's Wake