Sunday, December 02, 2012

Make Your Finances Fiscal Cliff Proof


The “fiscal cliff” is a term referring to the effect several laws enacted under President George W. Bush which if not changed would have on the economy that could result in tax increases for families making over $250,000 and individuals making over $200,000, huge budget cuts, stoppage of extended unemployment benefits on January 1, 2013, and a reduction in the deficit starting in 2013. 

In late February 2012, Ben Bernanke, chairman of the U.S. Federal Reserve, promoted the term "fiscal cliff" for the fiscal crisis. In front of the House Financial Services Committee he described that "a massive fiscal cliff of large spending cuts and tax increases" would take place on January 1, 2013.

Some analysts argued that the term “fiscal slope” would be more appropriate because although the economic effect would be extensive, it would not occur on December 31, 2012 and would be felt gradually over time.

The fiscal cliff is the result of the "trigger" idea that became popular a few years ago.  Triggers are policy changes that are passed into law in advance of when they are scheduled to go into effect and only if other usually unpopular policy goals are not met.

Most Americans believe the term “fiscal cliff” means the government will run out of money on December 31 because the deficit is so large and they fear that another recession will occur.  Media and other so-called experts have been screaming about the “fiscal cliff” for several months.  Politicians and others hope to scare Americans so they can push their own agenda and get away with it. The media has not been explained the term “fiscal cliff” so Americans can really understand the impact, instead the media continue to keep Americans in the dark.

The only ones that would benefit from the “fiscal cliff” budget cuts are big corporations such as Goldman Sachs, Wal-Mart, ExxonMobil, Shell, Fannie Mae, Berkshire Hathaway, UnitedHealth Group (parent of United Healthcare insurance), Bank of America, Ford, and the rest of the Fortune 500 corporations who are also involved in the effort to scare and misinform Americans.

According to an analysis by the Institute for Policy Studies, the Campaign to Fix the Debt has organized dozens of corporate CEOs to advocate for over 130 billion in tax breaks for the Fortune 500 companies as part of a deal to avoid the fiscal cliff.  The Alliance for Savings and Investment, is one of several corporate lobbying groups that are pushing to include tax perks for the wealthy and large corporations in a deal to avoid the fiscal cliff.  

Some governmental programs such as Social Security, Medicaid, federal pay (including military pay and pensions), and veterans' benefits, are exempted from the spending cuts. Spending for federal agencies would be reduced if Congress does not act.

Congress is being pressured to extend some or all of the tax cuts, and to rethink the wide reductions with more pointed cutbacks by December 31, 2012.  Democrats want to prevent cuts to social welfare and entitlement programs.  Republicans want to prevent tax increases and defense cuts. 

Congress should play nice and focus on developing programs and policies that create jobs and reduce the deficit over time instead of looking for quick fixes that don’t last and don’t work.  Here are 11 ways to make your finances fiscal proof. 
  1. Create a budget. Create a budget to determine how much you earn, how much you owe and how much you are spending.   Include savings in your budget.  Ensure that everyone in your family follows the budget. Track your spending daily, weekly or monthly.
  2. Reduce expenses. Reduce your expenses by determining areas where you can reduce spending by buying more needs vs. wants such as bringing your lunch to work, shopping at discount stores or buying generic brands or downsizing to a smaller car or home. 
  3. Don't hide from overdue bills.  Call your creditors right away to setup payment plans to get current on old bills to prevent harassing calls or letters from creditors, damage to your credit report or legal action. 
  4. Pay down debt.  Pay down debt and keep credit card balances at 20% or less of the credit limit which helps increase your credit score.  Don’t open any new accounts or incur any additional debt if possible. 
  5. Pay bills.  Pay bills on time or before the due date to increase your credit score.  Pay bills online or through automatic deduction to save money and avoid late fees. 
  6. Establish an emergency fund. Create an emergency fund to cover bills and monthly expenses for 12-15 months to prevent going into debt. 
  7. Plan for retirement. Contribute 10-20% towards a retirement fund each month.  Contribute to a retirement account through your employer or make automatic contributions to an IRA if you are self-employed or if your employer doesn’t offer a retirement plan. 
  8. Get Protection. If you don't have health, life or disability insurance consider getting at least basic health and life insurance.  Bundle services with the same company to save money. 
  9. Find stable employment. Find a stable job or get a part-time job to get additional income.  Do research on a company to see their annual finance report, see what the company's plans are for the future and ask others if they have heard about the company to ensure you are working with a stable company.  If you hear rumors of layoffs dust off that resume and start looking for a new job. 
  10. Extra Income.  Find ways to earn extra income either through a part-time job or start a business. 
  11. Plan for the unexpected. Plan for the unexpected. Reduce spending by 30-50% and have a plan A and B.  Think of possible scenarios and action plans for each such as illness, death, divorce, unemployment, etc.

Do whatever you can to make sure whatever is going on in the world does not control your environment or finances.


Sandy said...

We had to dip into our emergency relief fund and now it is gone. This makes me feel anxious and there will be a lot of cutting back to get this money in the bank where it belongs.

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