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Journal On Lawn's Journal: How to solve this financial mess we are all in 1

A nation cannot be free where its citizens are bonded in debt or reliant on welfare.

If the Lottery is a tax on people bad at math, then financial crisis such as the one we are going through are a tax on people who fail to fully account for value.

The Medici family, one of the richest in all of Europe, practically funded the movement we call the Renaissance. Much of that was on the good accounting practice of double-ledger accounting. But even with that stringent accounting, eventually their search for business went bankrupt. The powerful family was left with nothing left but a little political currency they could use to set one of themselves up as Pope. And what did they do when they obtained the Papacy? They spent the Catholic Church, itself rich enough to fund the largest building projects in Europe at the time, into the ground.

Here's something to think about. Lets say I need or want money, where do I get it? In an economic standpoint I see three basic transactions which get me money...

I can earn it.
I can sell for it.
I can take out a loan for it.

Each of those have their pluses and minuses.

Earning requires work, and establishing value for someone else who exchanges part of that value with you.

Selling means giving up something that could be useful to me.

And a loan requires me to take an obligation to somehow make the money later, by the two means above.

What if I could have the best of all those options. How about if instead of taking a debt for money, I get you to get into debt to pay me some money. In your new found abundance, each dollar is less valuable. Call it easy come, easy go, or perhaps your own personal inflation dilemma. It is burning a hole in your pocket and you are ready to spend it for something less valuable, less needed, then you were before. What if I sold you that something that was less valuable for more of that easy to come by money. Then, I'm richer, and you are in trouble.

I'm not saying that is in and of itself an evil process. In fact, at its worst it may be considered an unfairly churlish way of looking at how economies expand. The more money there is, the more that can promote the circulation of real value, and the more real value we all have the more prosperous we are and able to gain more money.

In essence, the only problem with that transaction is in the discrepancy between the money given and the value received. The personal inflation problem caused more of a bubble then sustained economic growth. And the only person to blame, caveat emptor, is the buyer. When the person's ability to account for their own money, and prioritize to get the most value from that money. Or in other words, they devalued their own money by the triviality of their purchase. Or in even fewer words, they showed poor business sense.

Perhaps we can simply say that good business sense boils down to the fact that the more people account for their own money and needs, the more they will demand respect for their money. I'd certainly like to say that is good business sense, but when I walked away with that persons money, I'd be patted on the back by investors with more money -- given I can show that I can reliably do that for the foreseeable future. So lets say that good moral business sense boils down to good accounting as well as understanding of yours and others needs.

The distinction of the two is so difficult to see. Especially when the money circulation is such that one can siphon off that value with a large supply of takers for a seemingly infinite length of time. With that kind of seemingly endless money supply, what is the difference between that and the truly moral sense of economic growth? Such is the problem the S.E.C. has in enforcing regulations on corporate accounting.

But I don't understand accounting like they do. But I can learn a lot of the principles of true value and wealth from my own accounting practice -- the one in my own home.

And one thing I've learned in my family budget is that it can't be built in a day. But that doesn't mean it is hard to do. Like building a kit car, a budget is the last step of turning the key on an economic engine built for your home. It depends on some very simple practices that need to be taken one at a time. Each step is much easier then building a car, and just like when you got your first car the result of taking on the extra maintenance is much greater freedom.

I've been working on my own financial budget, out of necessity, for many years now. For myself, I've settled on Ledger-CLI for my accounting, I hire financial advisers each year and talk with them regularly. I've even found that instead of riding roughshod over my bank statements each month, it is easier to spend a little time each few days to go receipts. The closer I can get to the actual transaction, the easier it gets to account for my finances as a whole. But your mileage may vary, your engine is your own to build and drive. the most important value you can gain is not the money as much as the process.

Many years ago I was offered stock by RedHat during their now legendary IPO. I think it had something to do with my paying a consultant a large sum of my own money to help fix NFS in the Linux Kernel to be more compatible with AIX for my job. But at the time I had re-entered college and on a very strict budget. I had $2000 I had budgeted to use for the rest of the school year, in fact I only needed $1600 of it. That also happened to be about the exact minimum lot purchase price.

And I walked away, much to the chagrin of people around me who were begging to be in the Redhat IPO. Why? Because at the time the stability of knowing I could pay for the rest of my college was more important to me then anything I could get with any more money. I'm not adverse to risk, recently I plunged a lot of money I'll probably never see again into a start-up with a few friends. But that taught me the line, where my needs were more important, and nothing could be sold for it.

The principle, more than the money is what ultimately saved me from divorce, bankruptcy, depression, etc... I'll take the principle I learned over the $2000 or maybe even $20,000 I would have made. That money, even if used wisely at the time, wasn't enough to generate any sustained wealth that would have been invulnerable to poorly managed risk later. But knowing the real value of what I had helped me save everything that I hold most valuable with far less money.

And, even more importantly, the more they will have the fiscal sure-footedness to scrap with their representatives when it comes to keeping them honest -- yet wise -- with how they use that money.

Why is this so important to me now? Its all about the Balanced Budget Amendment that so many people are talking about.

You see, as someone who values fiscal responsibility I'm a great fan of the tea party and their call for a balanced budget. I can even say I was ready to march with them. But that was until someone asked me the same thing I'm asking everyone around me -- how can I make a balanced budget compact for my own home that would allow me to respond to emergencies? I've made some attempts but haven't found one that I feel comfortable with.

And that is because in a decade effort I've learned that a budget, let alone a balanced budget, is only the culmination of many steps of financial security. Now granted, the federal government has the accounting practice already in place that I had to learn. But the devil is in even finer details for the bean counters to keep tabs on.

A nation cannot be free where its citizens are bonded in debt or reliant on welfare.

If I'm desperate, I can't hold my politicians' feet to the fire. Instead I'm doing something more like harassing and begging, which is really just more powerless and desperate -- a ready victim. But there is a more powerful option, but it isn't pretty. The other option is to try to extort it through civil disobedience, a move which hurts everyone to extort a bit of favor for yourself, as we saw in London.

People who don't know where they would stand if all of a sudden the river of government or economy went dry. And they don't know because they don't know their own financial situation from a hole in the ground (which it likely resembles very closely). The scared are always going to either hop onto any bandwagon promising hope and change -- rescue from their own plight -- or try to rob or extort their financial security at the governments expense like children throwing a tantrum to get more dessert.

Even if the government balances its budget, it will be powerless and at the whims of debt if the people are in debt. Scratch the surface of that conclusion just a little deeper and we see that it is our debt, handing over our unearned money for things of less value then they really hold, that actually caused the government debt crisis -- on so many levels.

Only a nation of individuals who practice financial freedom and stability can scrap with the politicians, letting them know that the politicians are really the needy and desperate ones. Only then can we hold their feet to the fire to give that money the respect it deserves. Only then can we collectively accept the need for real risk sometimes, but know when to draw the line before it robs us of our needs, and thus robs us of our freedom.

You can help out by making your own balanced budget. Take simple small steps that will wind up giving you the financial stability to look fearlessly at the times ahead, and help prevent such problems in the future.

And then, and only after that first step, help encourage others to do the same. From your neighbor to the federal government itself.

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How to solve this financial mess we are all in

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