Where is Your “Government Waste?”

January 09, 2015

Every year, in the December/January time frame, there are a lot of articles looking back at the prior year or looking forward to the New Year.As a bit of a political junkie, I love reading stories about predictions for the coming year but one of my favorite things to see each year is a look at how the government (mis)spent enormous sums of taxpayer’s dollars. This isn’t a Democratic or a Republican issue; it’s a big organization problem. 

This article walks through 5 egregious examples of misspent taxpayer dollars.  Every year, stuff like this is out there, yet somehow there is no huge outcry from taxpayers at large to fix the problems. It is seen as “business as usual” where our government is concerned. The thing that strikes me about the “business as usual” approach is that I see this all the time when talking to people who are struggling to make ends meet.

A recent example of that has to rank as one of my all-time most frustrating meetings with an employee. When he came into the office, his primary frustration was with his tax bill. He pays what he considers “an obscene amount of money” in taxes each year.

He had a copy of his tax return from last year so we took a look at it. In “real dollars,” he does pay a significant amount of money to the IRS each year for his annual tax burden.  When we looked at it on a percentage basis, it was less than 20% of his gross income and his income was substantial.

He was concerned because he has no liquid money in savings and within the next 6 months, he will need to pay his tax bill and find $100,000 to pay for his daughter’s wedding.  That’s the budget that he is working with for the wedding. We talked about that number, which he thought was on the low side, as well as the fact that he didn’t have any liquid emergency savings.

He and his wife spend every dollar that comes in…and then some! They have some credit card debt that is mounting ever so slowly.  This too was deemed “business as usual” for him and his wife.

After all, their income was in the top 3-5% of U.S. incomes, so they felt that they were deserving of a lifestyle that corresponded to their income level. The discussion about the wedding was what made him realize that perhaps business as usual left them vulnerable to an injury, illness or job loss.  He was interested in figuring out how to fund the wedding and where costs could be trimmed.

I tend to look for the biggest “bang for the buck” items so I asked about their home. The home they purchased is their “dream home” and the mortgage payment reflected it. The property taxes alone, on a monthly basis, were more than 90% of the mortgages (including taxes and insurance) that I see on a regular basis. Their house has four more bedrooms than family members and every gadget that you could imagine. The payments are roughly 40% of their take-home pay, which is a bit higher than the 25% that is a relatively safe level of spending on housing.

But downsizing was absolutely not something he was willing to discuss, even if it meant he had no cash flow to fund an emergency savings account.  His family had grown accustomed to the house and downsizing would feel like failure to him and his wife. So we looked in other places…

He belonged to two relatively exclusive country clubs. That was considered “business as usual” and eliminating either membership was out of the question. Their kids had private tutors and private lessons for their sports. They had two nannies who shared time, a dog walker and a maid.

Each of these expenses was considered essential and not on the table for a potential reduction. We looked at the amount of money spent on restaurant meals and with two working spouses and a household to run, the dining out budget was considered a necessity.  Every expense, including the vacation budget for two “big” trips per year, was deemed essential and “business as usual.”

The good news from the meeting is that with his stock options over the years, he will be able to sell enough company stock to fund his daughter’s wedding and pay his tax bill. The bad news is that he refused to consider any area as a target for reduction. I joked that he might just be a congressman in the future and he agreed that he just might be acting out of emotion rather than logic and reason.

At the end of the meeting, I asked him to set up another appointment including his wife, to review their budget and look for areas to begin saving.  They had two other daughters that they will eventually want to help with a wedding, they have retirement ahead in the distance and his role with the firm was not exactly guaranteed for life so he was concerned that within 3-5 years he would no longer be employed there. At his level of income, it could be a substantial time period between jobs. There is a window of opportunity now for them to see that “business as usual” has left them vulnerable financially. The only question becomes which is more important to them – business as usual or making progress toward financial security.

Look at your spending.  What is going on in your financial life that you view as business as usual that might be holding you back from making progress? If you take a step back and look at your spending objectively, you might be surprised at what you find if you are open to the possibility.