What about your ‘fiscal cliff?’
January 14, 2013
by Brian Wolf

Congress finally came together and struck a deal on the fiscal cliff. And the deal was to basically change nothing. All they did was to basically increase taxes on people earning more than $450,000.

What impact did this have? It increases expected tax revenues by $60 billion a year. That sounds like a lot of money. But is it?

To answer that question, we need to compare this increase to some other figures. According to www.usdebtclock.org, we learn the following:

Current national debt: $16.4 trillion

Current unfunded entitlement liabilities: $122.1Trillion

According to the 2012 budget, our government in Washington DC spent $3.8 trillion. They collected $2.5 trillion in tax revenues. That means that they spend $1.3 trillion more than they brought in.

Now, you are seeing a bunch of big numbers being thrown around here. It can get a bit cumbersome. So I thought that I would make it easy for you.

Imagine that in your household, you earned $50,000 per year. If you ran your household budget the way the folks in Washington DC run theirs, you would be faced with the following scenario:

• Your annual spending is $76,000.

• That means you are adding $26,000 per year to your credit cards.

• As of the end of 2012, your total outstanding credit card debt is $328,000.

• You have a mortgage on your home equal to $2,442,000.

Based on the scenario above, you need to earn a whole lot more than $50,000 to pay off all these debts!

But, good news! The fiscal cliff problem is over and you struck a deal at work to fix all this. You only increased your income from $50,000 to $51,200! Wow! Crisis over, right? Obviously, the crisis is not over. In fact, you’ve done nothing whatsoever to address your spending problems.

In February, our government will reach its spending limit and will have to borrow more money again. Both sides of the House and Senate will have to agree to do so. The Senate won’t be a problem, but the House is ready to shut down the government before it gives in to more spending.

You can expect things to get dicey when this comes up. Don’t make the mistake of thinking things are “solved” with this deal. They haven’t even started to fix anything.

So what about your financial life? Have you fixed your own fiscal cliff? Most people don’t even know that their retirement accounts could have their own cliff issues to deal with. Let’s be honest, if the news didn’t report that our government was going broke how would we know it? The way most people learn that their retirement accounts have suffered losses is when they read their statements . . . after the fact!

What if you could see the losses coming; would you do something different? Of course you would. And perhaps the best chance you have of avoiding future losses (your own fiscal cliff) is to work with someone who is an expert in just that area. In other words, finding a financial planner who specializes in helping people identify risks within their portfolios would be a good place to start.

Be sure to stay tuned in the coming weeks as I focus on the tax issues that can actually make a big difference in your life!

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