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Financial Folly

Imagine that you earn $33,000 a year. It is a moderate income. But you like to spend money, and so you habitually spend about $2,000 more each year than you bring in in income. Five years ago, you were $50,000 in debt. As a result of your recent overspending, you are now $60,000 in debt.

But then, this year, you get sick, and you cannot work as much. Your income drops below $30,000. You have some additional expenses in order to deal with the effects of the sickness, but you decide to respond to the situation by spending more than $70,000 this year. That is $40,000 more than your income this year. In fact, it is considerably more than twice your income for the year. You are not sure of the exact amount because you have been too busy to make a household budget for the year.

As a result, your debt has risen to well over $100,000. Interest rates have been very low in recent years, but you have still been spending $2,000 or more every year just to pay the interest on your debt. Now, even though interest rates have dropped even lower, you have doubled your debt, and that means you might soon be paying much more just to cover the interest. If interest rates rise to what they were a couple of years ago, your interest payments could consume 15% to 20% of your income. If interest rates rise even more, the interest charges would consume an even larger portion of your income. You are in a very vulnerable position.

Already, your bank is becoming hesitant to lend you more money, and if it does, it might charge you a higher interest rate. You could turn to other lenders, but they would charge you even more. If that happens, you would likely be unable to pay all of your bills. You could lose your car or be evicted from your residence. You could be facing serious suffering. And there would be no easy way out.

Even worse, included in your current spending are some long-range commitments. You have made agreements to continue to spend at levels higher than your income even beyond this year. And you are even making plans to do some additional spending. As a result, it will be very difficult for you to lower your spending to a level even close to the level of your income, let alone making any effort to pay off your accumulated debt. You are in deep financial trouble.

You might ask: What kind of incompetent idiot would practice such an irresponsible approach to financial management?

The Canadian government under Justin Trudeau, of course. Except that instead of an annual income of $33,000, the government had an annual income of $330 billion. And instead of spending $40,000 more than its income this year, the government is spending an estimated $400 billion more than its income, more than twice as much as it is bringing in. And instead of a debt of over $100,000, the government has accumulated a debt of over $1 trillion. But the ratios and the incredible level of mismanagement are the same.

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