by Jim Trettel, January 24, 1996
There once was a family who lived beyond its means. The parents earned a good annual income of $70,000. Most would think that this should be a sufficient amount on which to live. But this family felt compelled to spend $80,000 each year! Much of it on frivilous things. Each year they borrowed from their credit card to make up for this deficit spending. This lifestyle had been going on for so long that the family debt totalled $250,000. The annual interest on their credit card debt was $13,000.
Because of their obvious plight, the family sought out a financial planner. The planner said that the family cannot go on spending beyond its means. They were near bankruptcy and needed to establish a plan to pay off their debt. He suggested a reasonable plan of spending only $60,000 each year and putting the $10,000 surplus toward the principal on their debt. As long as they kept paying the interest on their credit card, they would have their debt paid off in only 25 years.
But the parents said that they needed to spend the money on their 13 children. Was there nowhere that they could cut back? No, they said.
Do you understand that your children will inherit this debt from you? If you were to pass away today, your children would each be responsible for almost $20,000 of your debt. How do you expect them to get anywhere in the world with that kind of start?
They thought about this for a moment and said, "You're right! We need to make drastic cuts in our spending."
"Good!", exclained the planner, feeling that he had finally gotten throught to them.
"Yeah, if we make drastic cuts in our spending it should only take us about seven years before we're down to spending only $70,000 annually..."
The sad part is that this is not a fictitious story. Each of the numbers used in the story above is the actual number for the United States Federal Government divided by 20,000,000 (except for the 25 years to pay off the debt at that rate and the $20,000 share for each American). Hopefully, this puts some perspective on the importance of paying off the debt, as well as on the absurdity of the situation we have gotten ourselves into.