Fix It Before It Gets Worse

I had the opportunity to peer into the financials of an interesting household the other day. They aren’t a client, and I need to be careful about what I disclose so as not to give readers any indication of who it might be.

But the situation is instructional, and I think you might be able to learn something from the financial figures I saw.

The household was quite fortunate from an income point of view. They were probably the envy of many of their neighbors, and I’m guessing they were making more money than they ever thought possible. Last year, the household brought in $429,000.

I was impressed with their ability to generate income. But that’s where my admiration stopped. Because I immediately noticed their expenses for the past year. It came to $675,000.

I gave them the benefit of the doubt, hoping this was just a one-year, one-off situation. Perhaps the stars simply misaligned last year, forcing the household to do something it typically does not do. Maybe in prior years the situation was drastically different, I mused, and income vastly exceeded spending.

The household had provided enough information so that I could look back several years into their financial life. And a quick glance at the data immediately put me on edge.

This, in fact, was not a one-time occurrence of fiscal imprudence. It was habitual. The household fell into the same debt trap each of the past three years. They spent more than they made in each of the prior three years: in 2024 by $183,000, in 2023 by $170,000, and in 2022 by $138,000.

How was this possible? Debt. Lots and lots of debt. At the end of 2024, their debt was about seven times their income and amounted to $3.6 million.

But it only got worse from there. It turns out that most of their debt was not on fixed interest payments. Their interest fluctuated with prevailing interest rates. It didn’t appear to me that the household had locked in much of its debt at historically low rates, as I would have hoped, when the economy hit the skids in the early 2020s. As a result, nearly one-fourth of their income was being consumed by interest payments now, compared to a more manageable 14% three years ago.

It was obvious to me that the household’s liabilities were beginning to weigh them down and could soon severely restrict their ability to live as they had in the past.

Something had to be done. The household desperately needed to change its ways. They needed to fix the problem before it got worse.

But this was no ordinary household. This was – is! – the United States of America.

The numbers I cite above are all real, just reduced by a factor of 10 million to make them a bit more relatable.

In my estimation, our fiscal situation in this country needs an overhaul.

Before I continue, let me add a couple of caveats. The U.S. is not a household, and a country’s financial situation cannot be treated like a household; it operates much differently. So my analogy is admittedly flawed. Remember, the U.S. can tax citizens at any time to juice its income, which is like having the ability to tell your boss what your next pay raise will be. In addition, the government can always print money. We don’t have equivalent tools at our disposal as individuals.

And yet, the U.S. government can’t act as though financial consequences don’t apply to it at all. There are real downsides to extreme debt and fiscal profligacy. I don’t have the faintest idea when our nation’s debt becomes a problem. I know for certain that we don’t want to find out.

Solving the matter isn’t a partisan issue – or at least it shouldn’t be. But we must also acknowledge that rectifying the situation will cause severe hardships for some people. Lives will be affected. However, far more people will be far worse off if we fail to act.

The inescapable truth is that we’ve been living above our means as a country for way too long. We need to fix the problem before it gets worse.