Why We Should Tune Out the Politicians

October 28, 2011

As someone who travels a lot for work, I spend a lot of time in hotel rooms.  And, each hotel has a very different TV lineup, so it’s impossible for me to ever remember if ESPN is on channel 29, 53, 37, or 6.  (Yeah, there are bigger problems, but knowing what channel ESPN is on is important to me!)  And, a part of my night is flipping through the dial to check out what’s going on in the world outside of sports.  I’m a bit of a news junkie too.  In the latest trip around the dials (are there even radios or TV’s with dials anymore?), I was fascinated by all of the tax proposals I saw being talked about.  You’ve all heard that the only 2 things that are certain in this life are death and taxes.  I agree that those are absolute certainties, but I think there are a few other things that can be counted on.  One of them is politicians with plans.

As I was checking out a bunch of different news and financial channels, I saw Herman Cain’s 9-9-9 Plan, Mitt Romney’s 59 Point Plan, Rick Perry’s 20-20 Plan, President Obama’s speeches about the wealthiest among us paying their fair share, Warren Buffet’s “I need to pay a higher rate than my assistant” plan, and a bunch of not-so-famous people (Occupy Wall Street and Tea Party) talking about their concepts for how we should be taxed.  I have no idea which plan we will have (if any of these ever make it through Congress and get a Presidential signature) as the law of the land 5 years from now.  But, I can guarantee that taxes will be a part of every Presidential election cycle for the rest of our lives.  With so many ideas, so many proposals, so many plans, how are we supposed to make plans for the future??

Here’s how:  Forget about all of them!

Don’t waste a minute of your time worrying about which one is the best, which one will be in place, what you should do today to plan for them in the future.  Unless you are in the Bill Gates, Warren Buffett, Jimmy Buffett, etc income range, it won’t make one bit of difference what the tax code looks like in the future if you aren’t practicing good, solid, fundamental financial management today!  (There are some important things to talk about with tax decisions and retirement that I’ll address next week.)  But for today’s point, the future of tax policy is irrelevant.  Here’s why:

Today I talked to someone who reads everything he can about the various political candidates and their tax policies.  He spends a lot of time reading about financial matters, listens to financial talk shows, watches Suze Orman religiously…and…he is teetering on the verge of bankruptcy because he hates to cook and eats dinner at a restaurant nearly every night.  He knows what to do; he just can’t bring himself to do it.

A few years ago, he bought the maximum amount of house that he could afford, knowing that he had no margin for error.  Right after that, his car broke down and needed $3,000 in repairs, but he had depleted his emergency fund for the down payment on his house.  And, he also needed $5,000 in repairs to the house shortly after he moved in.  So $8,000 landed on his credit cards a few years ago and it has grown to over $25,000 today.  His spending exceeds his income every month, and he is financing a nice lifestyle on credit cards.  When we met, he said his single biggest concern was tax management!  My biggest concern for him was, and still is, the basics of personal financial behavior.  We were not on the same page at the beginning of the conversation.  Fortunately, we exchanged our thoughts about his financial situation and he is going to make some changes.

Because he bought more house than he could truly afford, he has an extra room in his house that he plans to rent to a student (he lives near a medical school), and that should cover his credit card minimum payments.  He is going to limit himself to one meal per week at a restaurant.  (We looked at his credit card statement online to see exactly how much he spent last year on dining out and it shocked him!)  He is going to use the savings from that to starting knocking down the principal balance on his credit cards, and based on our projections, he can be completely debt free (except for the mortgage) in just over 3 years.  (Sooner if he uses his annual bonus and his tax refund to pay down debt rather than taking his girlfriend on a cruise…)

What started out as a theoretical (and probably not very productive) conversation about the future of tax policy, turned into a very meaningful and productive conversation that I’m hoping can change someone’s financial life, dramatically.  Sometimes, I love what I get to do at work!