How do you measure your financial success? The U.S. government grades its economy based on Gross Domestic Product (GDP). This is similar to looking at how much money is spent in this country. There are no adjustments for happiness, security, or savings. As American consumers spend, spend, spend, they send GDP up, up, up. So, where does all the money come from?
Just as the fundamental rule in accounting is debits equal credits, our spending must balance. Most is paid for with income if you are working (from savings if retired). We could also make some adjustments for taxes and debt. I came up with this equation: Spending = Income – taxes – savings change + debt change.
Now, imagine this equation for all Americans. Does our national income match our total spending? There is a measurement for this as well. It is called Gross Domestic Income (GDI), and it is rarely discussed. My college professor brushed over it like this: GDI is equal to GDP, so we will focus on GDP.
It comes as no surprise that the nation and its consumers have both been tapping into savings and increasing debt over the last 12 months. Spending and income have not been this different since 2007. Americans are currently spending around 3% more compared to last year. That is on top of inflation. National income is up only 0.4% over the same time. GDI has been slowing for 8 quarters in a row while GDP has risen.
We should pay more attention to our spending. Federal debt may not be an emergency, but interest payments are becoming a major burden. Personal credit card debt is at all-time highs, and rates average over 24% (LendingTree.com). The U.S. government has ways of extending the status quo for much longer than one would think possible. It can also print money, literally. We do not have this luxury.
Our personal financial health is not measured by how much we spend. That would be crazy. What do we look at? Perhaps it is how well we live within our means. Whether we track it in a budget or not, we should all have some idea of how much we are spending. Set financial goals. Identify priorities. Create a rainy-day fund. Be intentional about saving and spending.
We may not be able to control everything in our national circumstances, but we can control our personal finances. When we do, we have a better chance at achieving those things money cannot buy, like happiness and security.
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