Aug 30

How to Reduce Debt: Show Me the Savings, and I’ll Show You the Money

How to Reduce Debt:
Show Me the Savings, and I’ll Show You the Money

by J. A. Gedra

Many people find themselves in debt for a variety of reasons: college loans, medical bills, or acquiring a large collection of beany babies. For whatever reason, many people now owe more money than they have. What can be done to fix their finances? The best way is to decrease spending. Instead of spending their money on more goods and services, people can apply their saved money to the debt they owe.

How much one needs to cut back depends on a variety of variables, but the most import thing to do is to start cutting back. For example, try to reduce your spending by 1% or one penny for every dollar spent. Can you cut back one penny? Instead of spending $100 dollars on a new pair of jeans is it possible to restrain yourself and only spend $99?

This cutting back of 1 penny for each dollar spent is called the Penny Plan, and it has been suggested as a way to fix the Federal Budget of the United States of America. At this time, the Federal Government owes over $16,000,000,000,000, and the situation is becoming worse with a federal deficit of just under $800,000,000,000 for the 2013 federal budget. According to onecentsolution.org, “If the government cuts one cent out of every dollar of its total spending (excluding interest payments) each year for five years, and then caps overall federal spending at 18 percent of national income from then on, we can reduce federal spending by $7.5 trillion over 10 years and balance the budget by 2019.”

Such a simple plan, what could go wrong? Everyone agrees that there is a great deal of fraud, waste, and abuse in government programs; therefore, no government employee should oppose a decrease in government spending, right? Wrong. Every government employee agrees that there is a great deal of waste in government spending, but interestingly the waste never occurs in their own agency. In fact, not only is there no waste, their program needs additional funding. Apparently all federal employees are far sighted; they can see the abuse in other government agencies but are completely oblivious to the abuse in their own.

What explains federal employees’ vision problems? The problem lies in the fact that federal employees, like all human beings, are motivated by self-interest. They realize that a cut in spending means that they have less. No one wants to lose, we are all loss averse. Instead of accepting a cut to their budget to help the overall Federal Government, federal workers kick and scream about the inhumanity. Any mention of a potential cut results in wailing that millions of children will starve, elder citizens will be thrown out on the streets, and zombies will rise up from their graves, because the 1% cut has brought about an apocalypse and the end of all life on the planet. It makes one wonder what would happen if a 2% cut was asked for.

Is there a way to prevent the cacophony of complaints that arise every time a decrease in spending is suggested? Yes. People fear decreases in spending because of self-interest, they fear loss. If you want people to not complain and even help decrease spending, an incentive system needs to be developed where federal employees personally benefit from decreases in spending. I call it the More Money for You Plan. In order to help motivate program directors to discover and reduce government waste, they will be rewarded with a finder’s fee. If they can reduce their program’s budget by 1%, they will receive 10% of the money saved. For example, a program with a $100 million dollar budget would need to decrease its spending by $1 million. Once this decrease has occurred, the director of this program would receive $100,000. I am willing to bet most directors will discover all kinds of savings once they start to be personally rewarded for reducing their budget.

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