American debt may not be at a peak (that occurred during World War II) but that doesn’t mean that we shouldn’t worried about the status of our finances. The graph below shows the projected American debt for the next couple decades (courtesy of the Heritage Foundation).
If you are like most of the general public, you’re probably thinking, “How does this affect me? I’m financially stable right now.”
What We Can Learn from the Greek Debt Crisis
If you look into the past financial status of Greece, you’ll find some disturbing correlations with the American debt situation as of late. 25 years ago the Greek debt was about 75 percent of it’s economy. Looking at the chart above, you may notice that we are at that exact position along our timeline. Our debt is approximately 75 percent of our economy.
The approximate debt growth will place us at 180 percent more than our economy come 2039. As of right now, Greece is at 175 percent. This may be like looking into a glass ball. The difference is that we can grow inflation by printing money off to pay loans but that can only occur for so long before we will run into some serious trouble.
What Preparations Can We Make?
As individuals, we can do very little to directly affect the country’s debt crisis. However, taking measures to ensure that you have a personal emergency fund can help you during times of crisis in the future. While you may not be able to directly impact our country’s debt, you can lessen your change of going into debt into the future.
How Could the Greek Debt Crisis Affect Me?
There are a couple ways that this crisis could affect you. Your European vacations could get cheaper because of the instability of the euro which hit a 12-year low in March. If the euro stays that low, the strength of the dollar can make your money last longer when you’re on vacation overseas.
It also mean that your mortgage rates could stay low. The US central bank has been mulling over the ideas of raising its benchmark interest rate. That is a big “if” however, due to the caveats that come with those types of changes: undue market volatility, the strength of the dollar in terms of U.S. experts, etc.
Takeaways for Your Personal Income
We can learn so much from the crisis including this critical personal finance lesson that everyone should learn: Balance and budget your personal interests with necessities for keeping your life afloat. This doesn’t just mean that you need to buy the no-name brand of shampoo instead of name-brand supplies. It means that you need to plan for emergencies that may happen in the future, your retirement, and possibly personal interest expenses that may occur in the future (like vacations).
It is all about discipline. Stop using your credit cards. Don’t get rid of them – that would actually be counterproductive. Instead wipe out your credit card debt using the avalanche or snowball method and start spending less than you earn. Look at the financial implications of the decisions that you are making when you go out shopping. Even the smallest changes can really make a difference.
The main lesson that we can learn from Greece is that we can’t operate on a budget deficit for long before things begin to crumble.
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