It’s very simple Math …

I don’t know why our politicians nowadays can’t understand the simple math of our budget deficits.  I have also asked myself over my career as a financial advisor why the general public does not understand the simple math of their individual deficits.  This article will go back and forth between the US Government and the US Individual … because they both need to change in order to get better.

It really is pretty simple:

  • Expenses minus Revenue = Surplus or Deficit, or
  • Revenue minus Expenses = Surplus or Deficit.

Lately America has been on a downhill trend of spending more than we make.  Looks like Fiscal year 2019 (which ends September 30, 2019) is not going to be much different.  During this fiscal year it is anticipated that America will spend $4.41 Trillion.  However, we are only taking in $3.52 Trillion.  This leaves a deficit (negative spending amount that we will once again have to borrow from other countries – like China) in the amount of about $897 Billion.

Currently our national debt stands at $22.263 Trillion.  By the time our fiscal year is up it could be at $23,160 Trillion.  Assuming there are 350 Million people in America still, that means each person – if told to make up there portion of the debt – would have to come up with $63,608.57.  You can see the debt clock right here.  If you look at this debt clock do not expect the numbers to match while I have published as my article does not update in real time.

According to this website  from the Bureau of Labor Statistics in 2017 the average American Household (and there is about 127,590,000 of these) had an average income of $73,573 and spent about $60,060 of this income various needs.  Do not confuse average income or expenses with median income or expenses.  By these numbers it would lead one to believe that the average American Household with surplus income of $13,513 would be able to save some money.  That would be about 18.37% of income and we know that the average American does good to save an average of 5% of income or less, according to most financial guru’s and websites.  It is important to remember that Pensions and Social Security in this information accounted for $6,353.  We know that social security is taxed at a rate of 7.65%.  Therefore, 7.65% of $73,573 would be an average of  $5,628.33 leaving an actual savings amount for retirement/pensions of $724.67 per year (less than 1% of gross before tax income – on average).

So, where is the additional money going?  If you looked at the website above there was a couple of major expenses the Department of Labor left out.  These were Federal and State Income taxes and Debt Repayments.  Why they left them out I have no idea unless they simply want to mislead the public who does this kind of research.

How much debt does the Average American have?

According to a November 20, 2017 USA Today Article, here is what the average American is looking at for credit cards, auto loans, student loans, and mortgages.

American Debt

Wow, when you add that up it comes to a total of $279,469 … more than a quarter of a million dollars.  It seems most Americans, like the US Government itself, is caught up in “Borrowing to buy things they don’t need to impress people they don’t even like.”

Because of all the debt American’s and the American Government have built up … what’s happening to those in retirement?

I found an interesting article from that you can review … though here are a few of the facts:

  • The first thing to know is that the average American has nothing saved for retirement, or so little it won’t help. By far the most common retirement account has nothing in it.
  • Sources differ, but the story remains the same. According to a 2018 study by Northwestern Mutual, 21% of Americans have no retirement savings and an additional 10% have less than $5,000 in savings. A third of Baby Boomers currently in, or approaching, retirement age have between nothing and $25,000 set aside.  I find this an awful sad state of affairs for one of the most advanced countries in the world.

I strongly recommend that you read the article What Is The Average Retirement Savings in 2019?

Next you may be wondering, regardless of your income level, just how you take care of daily needs, taxes, debts and still save money.  My answer is the same as it was in 1976 when I first became a financial advisor/financial planner.

Learn to Pay Yourself First …

There is simply no reason why you should be paying every other Tom, Dick, Harry and Sally out there without first setting aside some money for the older person you will become.  Some advisors will tell you to wait until you are debt-free to start a rigid investment plan … I say if you wait you will be too old to accumulate too much money.

For example did you know that if you would have started saving 10% of your income (that’s 10 cents of every dollar earned and that 10 cents was invested to earn a compounded return of 10% per year on average) when you were 25 years old you would end up at age 65 with more money than you ever made in your lifetime.

Of course as inflation and other things pushed up income … you should push up the rate or at least dollar amount of savings.

Example 1

Let’s say (without inflation) you earned $40,000 per year when you were 65 and continued to earn that amount for 40 years until you were 65.  Over you lifetime you would have earned $1,600,000 ($40,000 x 40 years).  Now if you saved 10% ($4,000 per year) you would save a total of $160,000.  However if that $4,000 per year earned a growth rate of 10% per year on average (some years it would be higher and some years it could even be negative) you should end up with about $1,770,370 at age 65.  That is $170,370 more than you would have earned.

Example 2

Now if you were to get a 2% raise every year you would start at $40,000 and end your working lifetime with $86,589.79 as an annual income.  Your total career earnings would come in at about $2.4 million.  If you were putting away 10% and increased that dollar amount each year by the raise you would start saving $4,000 per year and in the last year you would save $8,658.98.  Your total savings would amount to $241,608 but with 10% growth compounding annually you’d end up with about $2.368 million (pretty close to what you earned your entire career).  Incidentally, this $2,368,000 in retirement at a reasonable rate of just 5% per year would provide an income stream of $118,390 per year and you would not touch the principle you had built up over 40 years.

What happens if you wait?

Go back to example 1 and let’s assume that you wait until you are 35, 45 or 55 to do this (using the $40,000 per year example with 10% savings and 10% investment return each year):

Cost of Waiting

Here you need to ask yourself … if I can’t afford to save $4,000 (or whatever the number is today) how can I afford to wait ten years and throw away $111,239 per year to lost earnings … or wait 30 years and throw away $56,887 per year in lost earnings?

You may need to start small and learn to save and invest.  You may want to consider the 50/30/20 budget.  Start with your after-tax income.  That is you take-home pay from your employer.  Earmark 50% of that for family needs (food, clothing, shelter and transportation).  Earmark 30% either for family wants or savings and debt repayments.  Earmark the final 20% for savings or debt repayments or family wants – depending, on your current debt load.  Of the 20% or 30% that is earmarked for Debt repayments and savings … earmark a minimum of 5% of this for savings and investments (outside of what is being saved on your paycheck for retirement, if any).  If you are considering participation in an employer 401(k) … do so whether or not if they are matching your contribution.  “Out of sight, out of mind!”  Stop Considering it and just do it.  You’ll be better for it in the long run.

I used to ask my clients, “What if all of a sudden the state you live in increased income tax so that it would take another 5% or 10% of your income before you got out the employers door.  Would you leave the state?”  Not one client over 42 years told me they would seriously leave the state for that reason.  So, consider a 401(k) contribution a tax and start putting into it.

As soon as possible, increase that 5% earmarked for savings as discussed above to 10% for savings and investments.  Continue to build on this number as you pay down debt.  Also, as you pay down debt … keep it down.  Don’t add to it again.  If you have to borrow to buy it … chances are good you don’t need it and only want it.  A good rule of thumb is this:

Never borrow money to buy anything that is going to depreciate the minute you walk out the door or drive off the lot.  Borrow for investments and use leverage (the bankers money) when the investment has a great chance to appreciate in value (such as real estate or other equity investments).

So, how does the government spend OUR money?

You can go to this website and see it broken down by Budget Function, Agency or Object Class.  According to this website ( link above) in fiscal year 2017 – $6.4 Trillion was spent.  In fiscal year 2018 – $6.6 Trillion was spent.  So far through the first quarter of 2019 a total of $1.7 Trillion has been spent and we are on track for a total of $6.8 Trillion even though the beginning of this piece I indicated we could spend as much as $4.4 Trillion this year.  According to this website we could go well above that.

Here’s how $1.7 Trillion has been spent so far this year (per

  • National Defense = $371.5 Billion or 21.6% of total
  • Medicare = $273.2 Billion or 15.9% of total
  • Social Security = $271.0 Billion or 15.8% of total
  • Health = $168.2 Billion or 9.8% of total
  • Interest on National Debt = $167.4 Billion or 9.8% of total
  • Income Security = $130.1 Billion or 7.6% of total
  • General Government = $63.9 Billion or 3.7% of total
  • Veterans Benefits and Services = $55.1 Billion or 3.2% of total
  • Education, Training, Employment and Social Services = $38.2 Billion or 2.2% of total
  • Unreported data = $54.0 Billion or 3.1% of total
  • International Affairs = $35.2 Billion or 2.1% of total
  • Transportation = $18.1 Billion or 1.1% of total
  • Administration of Justice = $16.8 Billion or 1% of total
  • Natural Resources and Environment = $14.5 Billion or 0.80% of total
  • Agriculture = $14.5 Billion or 0.80% of total
  • Community and Regional Development = $10 Billion or 0.60% of total
  • Commerce and Housing Credit = $6.6 Billion or 0.40% of total
  • General Science, Space and Technology = $6.4 Billion and 0.40% of total
  • Energy = $2.3 Billion or 0.10% of total.

Here’s a couple of points I find on interest with this website:

First the front page says this …

Spending 2018 1

It clearly states $4.11 Trillion.  Yet when you look it up on their “Spending Explorer Tool” for 2018 – this is what you see …

Spending 2018 2

So, what is it … $4.11 Trillion or $6.6 Trillion.  I have no idea!

Another item that kind of struck me as funny or weird … we hear a lot about how we spend money on “Welfare” and “Foreign Aid” yet none of that was mentioned on this website that is supposedly tracking our spending.

According to this website … (and this article is from 2009) … Since the beginning of the War on Poverty, government has spent vast sums on welfare or aid to the poor; however, the aggregate cost of this assistance is largely unknown because the spending is fragmented into myriad programs.

As this report shows, means-tested welfare or aid to poor and low-income persons is now the third most expen­sive government function. Its cost ranks below support for the elderly through Social Security and Medicare and below government expenditures on education, but above spending on national defense. Prior to the current reces­sion, one dollar in seven in total federal, state, and local government spending went to means-tested welfare.  In fiscal year (FY) 2008, total government spending on means-tested welfare or aid to the poor amounted to $714 billion.

According to Federal Safety With the inclusion of Medicaid the overall spending on welfare totaled $754 billion in fiscal year 2018 and $729 billion in 2017.   This represents 18% of the spending in the entire federal government. 

And when it comes to foreign aid, this is what I was able to find (and I was surprised after all the fake news we hear):

According to

Only $27.7 Billion has been requested in foreign assistance for fiscal year 2019.

Foreign Aid

The actual amount going to foreign aid, according to NPR.Org is rather a small amount of the overall budget.  In December, the Kaiser Family Foundation polled 1,505 people. Only 1 in 20 knew the right answer: less than 1 percent of the $4 trillion federal budget goes to foreign aid. The average respondent estimated that 26 percent went toward assisting other countries.


There is a lot of things the Federal Government can do to reduce the Federal Budget and get expenses more in line with income.  While I don’t believe the Government should be a profit generating entity … it should not be a money losing one either.  Eventually those debt pigeons will come home to roost and someone is going to have to pay the debt.

At the same time … there are some things the American People (regardless of income and personal situation) can do to see to it that they don’t have to depend on the Federal Government so much of the time.  The first thing is to get our own house in order and start spending less than we make and save some for a rainy day or a retirement day.  We are going to have one or the other (or both) in the future at some point in time.  You should not depend on the Federal Government to provide for you … you need to set aside money for the older person you are becoming.

If you need another income source to make it happen … it can be done.  America is full of of money making opportunities.  I am retired, but I still generate income over and above retirement income using stocks and options – just like having another job.  My yard man is the retired Insurance Commissioner of Mississippi – and while I am not sure if he needs additional income at this point in time … he does make a hefty sum with all the yard he mows every two weeks during the spring, summer and fall seasons to provide some of the nicer things in life he likes to do.

Don’t go through life thinking you are not as “lucky” as some other person.  Remember LUCK is where PREPARATION meets OPPORTUNITY.  You can have all the opportunity in the world, but if you are not prepared … Luck is going to miss you.  You can be as prepared as a person with a doctorate degree … but if you don’t look for the opportunities … Luck is going to miss you too.

Now get out there and Make More, Spend Less and Save a bundle for the older person you are becoming.  In some countries the children take care of the parents when they become too old to take care of themselves.  That happens rarely in America.

Good Luck and Good Savings!

Jerry Nix, Freewavemaker, LLC





2 thoughts on “It’s very simple Math …

  1. Jim mckennon

    Great article but what about taxes? $1 doubling every year for 20 years is $ 1,050,000. Do same and take out 28% tax per year and you have about $50,000. Now where can you invest tax free? Only 3 choices you choose. Muni bonds, pray the municipality doesnt go broke. Roth IRA, with restrictions on how much you can put in. #3 index universal life where your contribution is determined by your check book, not the government. Oh there are caps on how much you can earn, several at 15%, and the worst you can do is 0. Over the past 18 years the index has beat the S&P and the past 10 have been some of the best in history. I choose index.

    1. Ha ha ha … You got your math all wrong. At 10 percent using a 28 percent tax rate you still end up with better than 7 percent return. This would still provide better than $1 million after taxes. Your funny math may sell you some annuities, but your not selling big bubba. Good thing I’m not following you to your clients homes and offices. Thanks for reading the article though … I do appreciate it. The idea was to get people to do something for themselves by saving money … I really don’t care where they save it at.

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