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Tax Refunds are Free Loans to US Government

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A tax refund is an interest-free loan you gave to the U.S. government.

A tax refund, the payment most taxpayers receive after filing, is an interest-free loan you gave to the U.S. government. But only 7.4% of taxpayers agreed with the statement “I don’t like getting tax refunds because it means I overpaid throughout the year” in a nationally representative survey of 1,039 taxpayers by LendingTree Inc.

In fact, 46% of Americans say they’re looking forward to get a refund check from the IRS this year. 

Many Americans plan to use tax refunds to help build or add to a cash cushion this year, according to the LendingTree survey. Forty-six percent said refunds would go into savings, up from about 40% in the last two annual surveys. The second-most cited use for a refund was to pay down debt, at 37%.

Many consumers overpay as a sort of enforced savings program, and to ensure they don’t have to write a big check to the IRS at tax time. On average, refunds are around $3,000.

However, rather than overpay in taxes, using that money during the year to pay off high-interest rate credit cards is one way to try and ease any financial pressures, financial advisers say.

It important for taxpayers to check that you are having enough tax withheld. Those who want to try and fine tune payments so they don’t get a refund can use the IRS tax withholding estimator; you’ll need last year’s filing on hand to fill it out.

Always remember, the tax “refunds” you receive are actually interest free loans given to the federal government and paid back when the IRS decides to give the money back.

References:

  1. https://www.wealthmanagement.com/retirement-planning/nearly-half-americans-say-they-pay-too-much-taxes
  2. https://www.freelancersunion.org/tax-center/

Stopping a Pandemic

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“Cardiovascular disease kills more people each year than COVID-19 at its worst. We know how to prevent it. We just need the political will.” Tom Frieden

Although COVID-19 is the most aggressively reported pandemic of our lifetime, it is neither the deadliest nor the most preventable.

That distinction goes to cardiovascular disease (CVD), a pandemic so common it is invisible, so routinely lethal it seems normal, and so ingrained in the fabric of modern society it seems natural.

Every year, cardiovascular disease kills twice as many people, at a younger average age, as COVID-19 has at its worst, and since 2020, there’s been a surge in fatalities from heart disease and stroke in the U.S. And, cardiovascular disease is the leading cause of lower life expectancy among African Americans.

Some basics facts…in the first two years of the pandemic, COVID-19 killed nearly 900,000 people in the U.S., says Tom Frieden, M.D., chief executive, Resolve to Save Lives.

In those same years, heart attacks and strokes killed more than 1.6 million. Globally, COVID-19 killed more than 10 million people in the first two years of the pandemic; in the same two years, cardiovascular disease killed more than 35 million globally.

The leading drivers of cardiovascular disease related heart attacks and strokes are:

  • Tobacco use,
  • Hypertension,
  • Artificial trans fats consumption, and
  • Air pollution,

and all are preventable.

Related medical costs and productivity losses approach $450 billion annually, and inflation-adjusted direct medical costs are projected to triple over the next two decades if present trends continue.

Cardiovascular disease can be prevented

Tobacco

Tackling these killers—tobacco use, hypertension, artificial trans fat, and air pollution—doesn’t require making radical changes in society. Americans still very much lived in the same country after we reduced the number of fatal car crashes by outlawing drunken driving, promoted child development by eliminating lead in paint and gasoline, and prevented food poisoning through regulations making food safer. But it does mean regulating companies that sell tobacco and unhealthy foods and cause air pollution so that they are forced to share some of the costs of the enormous harms they cause.

The first priority is to end the epidemic of tobacco use. Once people start, especially those who start young, the addictiveness of nicotine in tobacco makes it extraordinarily difficult to stop. Although smoking rates are now at the lowest level ever measured in the U.S., more than 35 million adults still smoke tobacco, each day 1,600 kids try their first cigarette, and tobacco kills nearly 500,000 Americans every year.

The way to reduce smoking is to rally our collective will to do something about the problem. Increasing taxes on tobacco can save millions of lives by using high prices to suppress demand. Rigorous studies have proved that tobacco has a negative price elasticity: For every 10% increase in price, consumption declines by about 4% and by about 8% for children and lower-income groups. About half of that decrease is from people quitting and the other half from people cutting down on the number of cigarettes they smoke.

Sodium and Hypertension

The most important single step to prevent high blood pressure is to reduce your sodium consumption

Kaiser Permanente’s research has shown that it is possible to achieve 90% blood pressure control. Closely related, the World Health Organization (WHO) recommends consuming no more than 2 g of sodium per day (5 g/d salt). Unfortunately, the average salt intake globally is between 9 and 12 g/d.10. High sodium intake is the leading cause of hypertension and is responsible for 2.3 million deaths per year.

Reducing sodium intake reduces blood pressure which in turn lowers cardiovascular disease risk.

Artificial trans fats

Artificial trans fat is a harmful compound that increases the risk of heart attack and death. It can be eliminated and replaced with healthier alternatives without altering taste or increasing cost.

Artificial trans fat is estimated to cause 540,000 deaths every year, globally. Elimination of artificial trans fat has substantial health benefits. Eliminating the use of artificial trans fat in foods in Denmark reduced deaths from cardiovascular disease. In New York State, people living in counties with artificial trans fat restrictions were 6% less likely to be admitted to the hospital after suffering a heart attack or stroke.

Air pollution

Cardiovascular disease stubbornly remains the leading cause of preventable death in America and globally. Political will to combat this silent pandemic and public education are the two best remedies.

References:

  1. https://www.nejm.org/doi/pdf/10.1056/NEJMp1110421
  2. https://www.wsj.com/articles/stopping-a-pandemic-deadlier-than-covid-11648220259
  3. https://www.ahrq.gov/workingforquality/about/agency-specific-quality-strategic-plans/nqs2.html

Small Rewards Work Best for Exercise

Micro rewards increase gym visits by 16%. Combine a few successful strategies, such as:

  • Set a reasonable workout schedule
  • Add reminders on your phone
  • Plan small rewards for keeping to your schedule and also for going back to the gym if you miss a plan workout.

One in Sixty Rule — It means that for every 1 degree an aircraft veers off its intended course, it misses its target destination by 1 mile for every 60 miles it flies. Further you go, further away from your goal or destination you get. It is true in life too.

The 3 A’s of Successful Saving | Fidelity Investments

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Remember the 3 A’s for retirement saving: amount, account, and asset mix.

Key takeaways

  • Amount: Aim to save at least 15% of pre-tax income each year toward retirement.
  • Account: Take advantage of 401(k)s, 403(b)s, HSAs, and IRAs for tax-deferred or tax-free growth potential.
  • Asset mix: Investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

No one needs to tell you that you need to save for your future—hopefully, you’re already doing it. After all, no matter your age and how far away retirement is, you want to be able to enjoy retirement

“It’s important to focus on 3 main things during your working years:

  • the amount you save,
  • the accounts you save in, and
  • your asset mix,”

says Ken Hevert, Fidelity senior vice president of retirement. “Of the 3, of course, the first is the most important, as no account or asset mix can make up for not saving enough.”

1. Amount: How much and how long

We suggest starting as early as possible and consider saving at least 15% of pre-tax income each year toward retirement to help ensure enough in savings to maintain your current lifestyle in retirement.

The good news: That 15% savings rate includes any matching or profit sharing contributions from your employer to your 401(k) or other workplace savings account, like a 403(b) or governmental 457(b) plan. An employer match can make saving 15% easier.

Of course, the longer you wait to start saving, the more important it is to take advantage of every opportunity to contribute the maximum to your 401(k)—which may be more than 15% of income.

In 2022, you can contribute up to $20,500 pre-tax to your 401(k). If you’re at least age 50, you can add a catch-up contribution of $6,500 pre-tax.

In 2022, the annual contribution limit for IRAs, including Roth and traditional IRAs, is $6,000. If you’re age 50 or older, you can contribute an additional $1,000 annually.

Health savings accounts (HSAs) are another type of tax-advantaged account. To open an HSA, you usually need to be enrolled in an HSA-eligible high deductible health plan (HDHP).

The 2022 IRS contribution limits for health savings accounts (HSAs) are $3,650 for individual coverage and $7,300 for family coverage.

If you’re 55 or older during the tax year, you may be able to make a catch-up contribution, up to $1,000 per year. Your spouse, if age 55 or older, could also make a catch-up contribution, but will need to open their own HSA.

Even if you can’t contribute 15% of your income right now, try to contribute enough to get the entire employer match in a workplace account, which is effectively “free” money, and then try to step up your savings as soon as you can.

2. Account: Where you save

Be sure to make the most of retirement savings accounts like 401(k)s, 403(b)s, and IRAs. If you have an high deductible health plan (HDHP), consider taking advantage of health savings accounts (HSAs), which can offer one of the most effective means of saving for qualified medical expenses now and in retirement. Depending on the type of account, your contributions can grow tax-deferred or tax-free.

With a traditional 401(k) or IRA, your contributions are pre-tax, which means that they generally reduce your taxable income and, in turn, lower your tax bill in the year you make them. Your contributions won’t avoid taxes entirely; you’ll pay income taxes on any money you withdraw from your traditional 401(k) or IRA in retirement.

A Roth 401(k) or IRA works the opposite way. Contributions are made after-tax, with money that has already been taxed, and you generally don’t have to pay taxes when you withdraw from your Roth 401(k) or Roth IRA.

So how does a person determine which type of 401(k) or IRA to contribute to: a traditional or Roth account? There are several things to consider, but for many, the answer comes down to a simple question: Am I better off paying taxes now or later? For those who expect their tax rate in retirement to be higher than their current rate, tax-free withdrawals from a Roth 401(k) or IRA might be a better choice. On the other hand, for those who expect their tax rate to go down in retirement, a traditional 401(k) or traditional IRA may make more sense.

For those who can, it may make sense to contribute to both a traditional and a Roth account. That can provide the flexibility of taxable and tax-free options when it comes time to take withdrawals in retirement, which can help manage taxes. Those who aren’t sure of their future tax picture could choose to make both types of contributions.

It’s important to note that if you get an employer match or profit-sharing contribution from your employer, those contributions are always to a traditional 401(k), even if you are making only Roth 401(k) contributions. So you may already be contributing to both types of accounts.

Alternative saving options to consider:

If you’re self-employed or a small-business owner, then small-business retirement plans like a self-employed 401(k) or SIMPLE or SEP IRA allow you to set aside a certain percentage of your income.

You may be able to contribute to an IRA even if you aren’t working. As long as one spouse works, the non-working spouse can have a spousal IRA and contribute to their own traditional IRA or Roth IRA. You must file a joint federal income tax return. Spousal IRAs are also eligible for catch-up contributions.

If you have an HSA-eligible health plan, money contributed to an HSA is tax-deductible.2 And withdrawals for qualified medical expenses—now or in the future—are tax-free (that includes the money contributed as well as any earnings).

The cost of health care in retirement will likely continue to increase, so it can be a good idea to prepare specifically for those expenses.

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need approximately $300,000 saved (after tax) to cover health care expenses in retirement.

Saving in an HSA can reduce the amount you need because contributions, earnings, and withdrawals are tax-free when used to pay for qualified medical expenses.

If you have an HSA, consider contributing money above and beyond the amount you think you’ll need for the current year’s health care expenses. If you’re able to invest some of it for the future, you may have some of your future health care expenses covered.

3. Asset mix: How you invest

Stocks have historically outperformed bonds and cash over the long term. So when investing for a goal like retirement that is years away, it can make sense to have more invested in stocks and stock mutual funds. But higher volatility also comes with investing in stocks, so you need to be comfortable with the risks.

We believe that an appropriate mix of investments should be based on your time horizon, financial situation, and tolerance for risk. As a general rule, investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

Take a look at our 4 investment mixes3 (see chart) and how they performed historically over a long period of time. As the chart illustrates, the conservative mix has historically provided much less growth than a mix with more stocks, but less volatility too. Having a significant exposure to stocks that’s appropriate for your investing time frame may help grow savings.

Choose the amount of stocks you are comfortable with

Data source: Fidelity Investments and Morningstar Inc, 2020 (1926-2019). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. See below for detailed information.

Think ahead

When retirement is years away and you have many other financial demands, it may be hard to focus on the future, but saving for retirement with the 3 A’s in mind can help.

References:

  1. https://www.fidelity.com/viewpoints/retirement/successful-saving

The Optimist

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“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Winston Churchill

Research shows that optimists enjoy many health and lifestyle benefits, including greater achievement, greater health, a sense of persistence toward goals, greater emotional health, increased longevity, and lower reactivity to stress.

Promise Yourself

To be SO STRONG that nothing can disturb your peace of mind.

To talk health, happiness and prosperity to every person you meet.

To make all your friends feel that there is something in them.

To look at the sunny side of everything and make your optimism come true.

To think only of the best, to work only for the best and to expect only the best.

To be just as enthusiastic about the success of others as you are about your own.

To forget the mistakes of the past and press on to the GREATER ACHIEVEMENTS of the future.

To wear a cheerful countenance AT ALL TIMES and give every living creature you meet a smile.

To give so much time to the improvement of yourself that you have NO TIME to criticize others.

To be too large for worry, too noble for anger, too strong for fear, and too happy to permit the presence of trouble.

Eckhart Tolle, author of The Power of Now wrote, “Realize deeply that the present moment is all you ever have. Make the now the primary focus of your life. Whereas before you dwelt in time and paid brief visits to the now, have your dwelling place in the now and pay brief visits to the past and future when required to deal with the practical aspects of your life situation.”

Optimism is about seeing potential and working creatively with—but not being limited by— the challenges. Optimism combines having a positive outlook of what’s happening now and having a positive vision of the future.

The key to optimism is understanding how you are narrating the story of the events and experiences of your life. A story has many angles. But all the angles of the story don’t matter. What only matters is how you perceive the story, how you accept it and how you react to it. While we don’t have control over what’s occurring on Wall Street or Main Street, we do have control over how we interpret the events playing out in our own lives.

Optimism is about being positive and confident regarding our work and effort, something each of us is capable of doing in our own way. Research in Positive Psychology tells us that those who adopt an optimistic mindset are healthier, less prone to depression, live longer, and lead happier more satisfying lives.

Optimists look for opportunities for growth and positive change, but more importantly, they stay tethered to the present reality. It’s not about pretending that all is well or about avoiding challenging situations. It’s about thinking accurately, acting with confidence, making calculated risks, and when things go wrong, perceiving those setbacks as temporary, and using innovation, flexibility and resilience to learn from the fall and move forward.

“Believe it can be done. When you believe something can be done, really believe, your mind will find the ways to do it. Believing a solution paves the way to solution.” – David J. Schwartz

References:

  1. https://www.verywellmind.com/become-more-of-an-optimist-3144818
  2. https://tamarchansky.com/tools/safe-optimism/
  3. https://www.optimist.org/Documents/creed_poster.pdf

 

Health, Wealth, Emotional Well-Being, Purpose and Success

Taxes: Income and Property

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“In this world, nothing is certain except death and taxes.” Ben Franklin

After-tax income inequality has grown over the long term. Between 1979 and 2018, the share of aggregate after-tax income of the top 1% of households grew significantly from 7.4% to 13.6%. In contrast, the shares for the bottom 90 percent of households declined. Tax Policy CenterWealth inequality has also widened. The average white household had $402,000 in unrealized capital gains in 2019, compared with $94,000 for Black households and $130,000 for Hispanic or Latino households. These disparities have generally widened over time. Tax Policy Center

Virtually all families hold some amount of financial assets, broadly defined as brokerage, checking, savings and retirement accounts to name a few. While 98% of families held checking or savings accounts in 2019, only 50% of families held retirement accounts and 15% owned stocks. Tax Policy Center

Salaries and wages are the largest sources of income for most households. In 2018, they comprised 68% of total adjusted gross income across all individual income tax returns, but only 17% for those with incomes over $10 million. Tax Policy Center

Income from capital gains made up about 8% of aggregate adjusted gross income (AGI) in 2018, but this varied by income level. For those with AGI over $10 million, capital gains accounted for nearly half of their income. Tax Policy Center

In 2019, the median net worth for those with college degrees was four times higher than for those with high school diplomas and nearly 15 times higher than for those without high school diplomas. Tax Policy Center

Overall, the share of US families with education loan debt went from 9% in 1989 to 21% in 2019. About 30% of Black families had education loan debt in 2019, compared with 20% of White families and 14% of Latino families. Tax Policy Center

Federal taxes are moderately progressive overall. In 2018, the top 1% had 16.6% of total income before taxes and 13.6% after taxes. Contrastingly, the lowest quintile had 3.8% before taxes and 7.1% after taxes. Tax Policy Center

In fiscal year 2019, state and local governments raised $577 billion in property taxes. As a share of general revenue, New Hampshire relied the most on property tax revenue (36%) whereas Alabama and New Mexico relied the least (7%). Tax Policy Center

State and local taxes as a share of income ranged from 7% in Tennessee to 15% in North Dakota in 2019. This does not measure comparative tax burdens on states’ residents because it includes taxes on business activities borne by residents of other states. Tax Policy Center

Total tax revenue (including federal, state, and local taxes) as a share of GDP was 24.5% for the US in 2019. Tax Policy Center

Wealthier Americans may be more stressed regarding inflation, economic uncertainty and market volatility, but lower-income Americans have much more to fear from rising prices and are experiencing greater daily impact to their wallets. They tend to have less financial cushion to handle higher prices for food, gas, and other necessities, according to the Tax Policy Center.

The above financial inequality and tax snippets are interesting facts/information garnered from the nonprofit Tax Policy Center.

References:

  1. https://www.taxpolicycenter.org/fiscal-fact/top-1-income
  2. https://www.axios.com/wealth-inflation-fears-money-financial-assets-52779e2d-8940-4b87-85cd-29c65744fb29.html

How the Economy Works by Ray Dalio

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“Credit is important because it means borrowers can increase their spending. This is fundamental because one person’s spending is another person’s income.” Ray Dalio

Ray Dalio is one of most successful hedge fund managers and founder of Bridgewater Associates. He credits much of his success to guiding principles that he has used to make decisions both in his professional and in his personal life.

How the Economic Machine Works – “The economy is like a machine. At the most fundamental level it is a relatively simple machine, yet it is not well understood,” explains Ray Dalio.

Economic principles discussed:

  • Economy – The economy is simply the sum of all transactions repeated again and again over a long period of time. Money and credit account for the total spending in an economy.
  • Transactions – the exchange of money or credit between a buyer and seller for goods, services or financial assets.
  • Markets – “All buyers and sellers making transactions represent the market. For example, we have wheat markets, stock markets, steel markets, oil markets and so on.The combination of all of these sub-markets is the entire market, or the entire economy.” Ray Dalio
  • Governments – the biggest buyer and seller of goods, services and financial assets. The government consists of two parts: the central government that collect taxes and spend money; and, the central bank which controls the amount of money flowing through the economy. It does this by influencing interest rates and printing more money.
  • Central Bank – The Central Bank can only buy financial assets, not goods and services. To support the economy, the Central Bank buys Government bonds which gives the Central Government the ability to buy goods and service.
  • Price – the result of total spending / quantity sold.
  • Credit – Credit “is the most important part of the economy because it is the biggest and most volatile part”. Credit can be created out of thin air — in fact, in 2016, the US$50 trillion of the US$53 trillion in the economy was credit, as opposed to ‘real’ money. Credit is important because it means borrowers can increase their spending. This is fundamental because one person’s spending is another person’s income. Credit is bad when it finances over-consumption and borrowers are unable to pay the debt back.
  • Lenders – lend money to make more of it. When lenders believe borrowers will repay, credit is created.
  • Borrowers – borrowing is pulling spending forward which relates to borrowing money to buy something you can’t afford, such as a house, a car, a business or stocks. Borrowers promise to repay the amount borrowed (the principal) with interest. Borrowing creates cycles.
  • Debt – Debt allows you to consume more than you produce when it is acquired, and forces you to consume less when you have to pay it back. “When credit is issued it becomes debt. It’s a liability for the borrower, and an asset for the lender. It disappears when the transaction is settled.
  • Interest Rates – When interest rates are high, borrowing is low. When interest rates are low, borrowing is high.
  • Spending – one person’s spending is another person’s income. Total spending is the sum of money spent plus of credit spent.
  • Income – one person’s spending is another person’s income
  • Monetary Cycles – economy expansion and recession cycles.
  • Inflation – inflation is when prices rise. When spending is faster than the production of goods, it means that we have more demand than supply, which results in inflation.
  • Deflation – when spending decreases, prices tend to decline.
  • Expansion – growing markets and increasing transactions
  • Recession – Economic activity decreases, and if unchecked this can lead to a recession.
  • Bubbles – when the price of assets far exceed the value of the assets
  • Debt Burden – When incomes grow in relation to debt, things are kept in balance. But a debt burden emerges when debt growth exceeds income growth. This debt to income ratio is the debt burden.
  • Productivity – innovation and hard working raises productivity, which equates to the amount of goods and services produced.

Three rules of thumb for life

Source: Ray Dalio

According to Dalio, there are “three rules of thumb” with which to navigate the economy, be it in your own businesses, organisations you work at or your personal finances.

  1. Don’t have debt rise faster than income (because debt burdens will eventually crush you).
  2. Don’t have income rise faster than productivity — it will eventually render you uncompetitive.
  3. Do all you can to raise productivity — in the long run that’s what matters most.

References:

  1. https://www.nofilter.media/posts/ray-dalios-economic-machine-12-minute-summary
  2. https://www.amazon.com/gp/product/1501124021/ref=as_li_qf_asin_il_tl_nodl?

Visualization: Your Life In Focus

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“The key to effective visualization is to create the most detailed, clear, and vivid a picture to focus on.”

Research shows that the more you focus on the things you desire, the better chance you have at getting them. Thus, knowing what you want and focusing on what you want are essential for success and achieving your best life.

As you might ascertain, having a clear direction of where you’re headed or where you want to go is essential. Without a clear purpose and goals, it can be very easy to get caught up in things that aren’t actually moving you forward in your life’s journey.

For example, struggling comedian and actor, Jim Carrey used to picture himself being the greatest actor in the world. When Carey was still a “wannabe” during one of his appearances on “The Oprah Winfrey Show”, he spoke about his early days trying to make it in the entertainment business. He was broke and had no future. But he took a blank check and wrote out $10 million dollars to himself for acting services rendered and dated it five year in the future.

Subsequently, he carried that check in his wallet at all times and looked at it every morning, visualizing receiving $10 million. Five years after he wrote the check to himself, he found out that he was going to earn $10 million from the movie “Dumb and Dumber.”

“Create the highest, grandest vision possible for your life, because you become what you believe.” Oprah Winfrey

Vision boarding is an excellent way to get clear on your goals. Creating a vision board is a powerful way of getting to know yourself and what it is you truly want in your life.

A vision board is essentially a physical (or digital) manifestation of your goals. Vision boarding involves collecting images or objects that speak to the future you want to create and arranging them on a board for a tangible and aesthetically pleasing reminder of where you’re heading.

References:

  1. https://seatgeek.com/tba/articles/oprah-winfrey-2020-vision-tour-dates-tickets/
  2. https://www.mindbodygreen.com/0-20630/8-successful-people-who-use-the-power-of-visualization.html
  3. https://www.mindbodygreen.com/articles/how-to-make-a-vision-board

 

“Success = Knowing, Growing, Acting and Serving.”

True Gratitude

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“The more you are in a state of gratitude, the more you will attract things to be grateful for.” – Unknown

We, as Americans, have a lot to be grateful for. Especially, the many simple and common things that we take for granted daily in life.

Robert Emmons, perhaps the world’s leading scientific expert on gratitude, explains that gratitude has two key components:

  • First, “it’s an affirmation of goodness. We affirm that there are good things in the world, gifts and benefits we’ve received.”
  • The second part of gratitude is that, “we recognize that the sources of this goodness are outside of ourselves. … We acknowledge that other people—or even higher powers, if you’re of a spiritual mindset—gave us many gifts, big and small, to help us achieve the goodness in our lives.”

Essentially, the social and emotional dimensions are especially important to gratitude.

Gratitude, “true gratitude”, encourages us to appreciate tangible and intangible gifts we receive from others and to pay them forward. Effectively, gratitude strengthens the bonds between individuals who mutually help or show appreciation for each other. Additionally, gratitude enhances emotional well-being.

True gratitude is more than an action which we decide to do by an act of will power. It is a feeling that arises in the heart, not an act of will power. And it is a good feeling. When it rises in our hearts, we like it. It is part of happiness, not misery. True gratitude is a form of delight.

But true gratitude is more than delighting in a gift. It is more than feeling happy that you got something you wanted. It is a feeling of happiness directed toward a person for giving you something good. It is a happiness that comes not merely from the gift, but from the act of giving. True gratitude is a happy feeling you have about a giver because of his giving something good to you or doing something good for you.
Showing true gratitude is one of the simplest yet most powerful things we, as humans, can do for each other, states Emmons. Studies show that people who practice true gratitude consistently report a host of benefits:

Physical

  • Stronger immune systems
  • Less bothered by aches and pains
  • Lower blood pressure
  • Exercise more and take better care of their health
  • Sleep longer and feel more refreshed upon waking

Psychological

  • Higher levels of positive emotions
  • More alert, alive, and awake
  • More joy and pleasure
  • More optimism and happiness

Social

  • More helpful, generous, and compassionate
  • More forgiving
  • More outgoing
  • Feel less lonely and isolated.

The social benefits are especially significant here because, after all, true gratitude is all about social and emotional well-being.

In short, true gratitude is good for our bodies, our minds, and our relationships.

True gratitude is one of the best safeguards against excessive material attachment and also opens us up to real generosity. It implicitly acknowledges that all the good things in our lives are properly seen as gifts. We may have worked hard and lived prudently to attain our comforts and securities, but even if we have, we are always indebted to others for the opportunity to work hard and build good lives for ourselves and families.

References:

  1. https://greatergood.berkeley.edu/topic/gratitude/definition
  2. https://www.desiringgod.org/messages/grace-gratitude-and-the-glory-of-god
  3. https://www.ncregister.com/commentaries/in-gratitude-for-god-s-grace-and-mercy
  4. https://greatergood.berkeley.edu/article/item/why_gratitude_is_good

Staying Invested Matters

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Investors are more likely to reach their long-term goals if they remain invested and avoid short-term decisions that may take them off course.

Staying the course during market volatility is often difficult for many investors. Some choose to move to cash investments, while others try to time the market. Regrettably, these investors are often buying high and selling low—and miss the rallies that follow the challenging periods.

Yet, staying invested through market ups and downs can help you stay on track to reach your investment goals.

Once you’ve determined how much you want to invest, setting up automatic transfers to your investment account or periodic investments can help you stay on track.

For example, investors often make suboptimal investing decisions when emotions take over, tending to buy out of excitement when the market is going up and sell out of fear when the market is falling. Markets do ultimately normalize, and when they do, those who stay invested may benefit more than those who don’t.  Consider this:

  • By missing some of the market’s best days, investors can lose out on critical opportunities to grow their portfolio. Market timing can have devastating results.
  • Seven of the best 10 days occurred within two weeks of the 10 worst days.
  • The second worst day for the markets during the early days of the COVID-19 pandemic, March 12, 2020, was immediately followed by the second best day of the year.

Trying to time the bottom is never considered a sound strategy for long-term investing.

Staying invested during periods of heighten market volatility is an important strategy as, historically, six of the ten best days in the market occur within two weeks of the ten worst days; those who miss the best days miss out on performance.

Thus, the decision to stay invested during market turmoil is often better than timing
when to sell and buy.

References:

  1. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/principles-for-investing/
  2. https://www.pimco.com/en-us/resources/education/the-benefits-of-staying-invested/

U.S. Fiscal Deficit and Federal Debt Challenges

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The Congressional Budget Office (CBO) projects that under current law the U.S. Federal Debt will double as a share of the economy over the next 30 years, rising from 100 percent of GDP in 2021 to 200 percent in 2051. The Concord Coalition

Elected leaders have long known that the federal budget is on an unsustainable trajectory, yet elected leaders of both parties have “delayed, dodged or simply ignored the warnings”, writes Robert L. Bixby, executive director of The Concord Coalition. In fact, elected leaders have recklessly piled on new fiscal spending and cut federal taxes.

In fiscal year 2020, the reported federal budget deficit increased for the fifth consecutive year. Driven largely by the federal government’s response to the COVID-19 pandemic, the federal budget deficit for fiscal year 2020 reached $3.1 trillion—triple the level in fiscal year 2019. This represents the largest budget deficit as a share of GDP since 1945.

The unsustainable fiscal path strains the federal budget and contributes to growing debt.

  • Federal Deficit – The federal deficit is the amount by which the government’s spending exceeds its revenues for a given period, usually a fiscal year.
  • Federal (National) Debt – Federal debt is the amount of money that the federal government owes, either to its investors (debt held by the public) or to itself (intragovernmental debt).

According to CBO, high and rising federal debt increases the likelihood of a fiscal crisis and could lead to a large drop in the value of the dollar or to a loss of confidence in the government’s ability or commitment to repay its debt in full.

Consequences of rising debt. Rising debt could also cause policymakers to feel restrained in their capacity to support the economy during a downturn or unexpected events, such as global military conflicts, natural disasters, or public health emergencies. After the current pandemic recedes and the economy substantially recovers, policymakers should turn their attention to swiftly developing a strategy to change the long-term fiscal path. The sooner actions are taken, the less drastic the changes will need to be.

Effects of compounding interest. Persistently low interest rates have resulted in lower spending on net interest. However, due to the substantial size of the debt, GAO projects net interest will become the largest category of spending by 2050, growing from 1.6 percent of GDP in 2020 to 8.9 percent of GDP by 2050. The costs of debt vary based on interest rates, and increased rates can have a compounding effect on the debt. Spending on net interest was $345 billion in fiscal year 2020 and is projected to exceed $1 trillion in fiscal year 2033.

As a result, the U.S. has arrived at a critical point with the National Debt nearing its highest level as a share of the economy since World War II and climbing steadily upward.

The nonpartisan Congressional Budget Office (CBO) projects that under current law the debt will double as a share of the economy over the next 30 years, rising from 100 percent of GDP in 2021 to 200 percent in 2051.

The main drivers of the escalating U.S. National Debt are the nation’s aging population and rising health care costs, which translate into ever-rising spending for popular benefit programs such as Social Security and Medicare. Revenues are projected to rise as well, but not by enough to keep pace with spending.

Health care. Total health care spending (public and private) in the United States continues to grow faster than the economy and is driven both by an increase in the proportion of the population enrolled in Medicare and by the increase in health care spending per beneficiary. GAO projects federal spending on major health care programs to grow from 5.9 percent of GDP in fiscal year 2020 to 8.0 percent of GDP in fiscal year 2050.

Social Security. Demographic factors, such as longer lifespans, an aging population, and slower labor force growth, are straining Social Security programs and contributing to a gap between program costs and revenues. GAO projects spending on Social Security will grow from 5.2 percent of GDP in fiscal year 2020 to 6.1 percent of GDP in fiscal year 2050.

As the trustees of those two programs warned in their respective 2021 report, Social Security and Medicare both face long-term cash shortfalls under currently scheduled benefits and financing. Both programs will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging. Medicare also sees its share of GDP grow through the late 2070s due to projected increases in the volume and intensity of services provided.

Trustees’ warnings over several decades have been consistent, and yet inaction has turned what was once seen as a long-term problem into a much more immediate concern. The trustees project that the combined Social Security trust funds will be exhausted by 2034 and the Medicare Hospital Insurance trust fund will be exhausted by 2026, leaving little time to phase in changes that would prevent sudden benefit cuts, tax increases, or higher deficits.

Whether it’s the Social Security and Medicare trust funds or the overall federal budget, delay does not just burdened future generations, it actually increases that cost. According to a 2020 estimate by the Congressional Budget Office, the annual amount of deficit reduction needed to keep the debt at 100 percent of GDP in 2050 would rise from 2.9 percent of GDP to 4.8 percent if actions were delayed by 10 years.

America’s growing fiscal deficit and federal debt

Historically, spikes in debt are often correlated with major events such as wars and economic disruptions, such as a pandemic. Deficits went up during the crisis and came down when the crisis passed. We are witness to that dynamic now after the pandemic-induced recession.

Deficit reduction is a natural phenomenon of an economic recovery after a recession or economic downturn. However, deficit reduction would change the preexisting and long-standing imbalance between revenues and spending. Increasingly, episodic crises will simply add to a trajectory of debt that is already on an unsustainable path.

One thing is certain. New unexpected future challenges that will require extraordinary measures will arise that will occur and surprise future presidents. And some future challenges should not be surprises at all, such as a new pandemic or a climate crisis.

“We have not put ourselves in a stronger fiscal or economic position to deal with today’s unanticipated events by allowing old problems to fester, nor will we be in a stronger position in the future if we continue forward with our heads in the sand,” states Bixby.

America’s net debt currently stands at approximately 124% of nominal GDP (historically high and unprecedented). The debt level continues to get worse, but at an accelerated pace over the ensuing decades. We have time to fix it, but this problem will not age well, and the sooner we start to fix it, the better. If we don’t fix the growing federal deficit and ballooning federal debt, it will morph itself into a fiscal and debt beast we won’t like.

References:

  1. https://thehill-com.cdn.ampproject.org/c/s/thehill.com/opinion/finance/596740-bidens-had-many-surprises-this-term-the-budget-crisis-isnt-one-of-them
  2. https://www.gao.gov/assets/gao-21-275sp.pdf
  3. https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287

The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy. The Coalition is dedicated to educating the public about the causes and consequences of large-and-growing federal budget deficits and national debt, the long-term challenges facing the economy and how to build a sound fiscal future for all generations.