Spending less than you earn is a very simple concept, but it’s also very hard to do. Spending less than you earn is also absolutely essential if you want to have a decent future.

Nearly everyone borrows money to buy some things. I’ve borrowed larger amounts to buy cars and houses, and (when using my credit card) I’ve borrowed smaller amounts to buy nearly everything else. There is a cost to borrowing that money. I’m willing to pay it, and I’m fortunate enough to be able to pay it. I work very hard to make sure that my cost is kept well within my means. I also work very hard to pay off that debt as quickly as I can, so that I keep those costs as low as possible.

Is my budget balanced, even though have debt? Yes. I am paying off my debt and the related interested faster than it’s accumulating. I know when I will have my credit card debt paid off, when I’ll have my car paid off, and when I’ll have my house paid off. This is what I like to consider as a balanced budget.

There are four main differences between the way that I manage my budget and the way that the provincial and federal governments manage their budgets (I’m not talking about the amount of money that’s involved, I’m only talking about the way that it is managed):

1) I have a very small limit on my two credit cards ($1,000), and I pay them off each month. When I need to buy something, I can use my credit cards as very short term borrowing, and know that they are paid off. In this way I do not pay interest on them. Once a year I’ll pay a service charge.

Unfortunately this mechanism doesn’t exist for governments that are used to living in debt. Every lender knows that the government is in debt, and so they are happy to leave the government there. There are no short term interest free loans available to government.

2) I am spending less than I am earning. Some of the extra money is going to my debt and the rest of it is going to my retirement. I am paying more on my debt and interest than I am borrowing. My debt, and the related interest, are both going down. Once my debt has been paid off, I’ll be able to put more towards my retirement and will also be able to spend more.

The government provides services, and those services have a cost. The government is not very good at managing those costs, and has the opportunity to borrow more money, and so that’s what it does. Each year the federal government, and most provincial governments, have a deficit — they spend more than they earn — their debt goes up.

Some governments (the US is renowned for this) are proud of the fact that they are reducing the deficit. Some candidates even campaign on this. “Reducing the deficit” means “We are still going further in to debt, but we’re going in to debt more slowly than we were.”. This is candy coating a very big problem.

3) I know when my debt will be paid off. I know the interest rate, the amount that I’m paying towards my debt and interest, and how many months and years it will be before each debt (house, car, etc.) is gone. I don’t like being in debt or paying interest, and so I want to pay that off as soon as possible.

Since the provincial and federal governments are both adding to the debt instead of paying it off, this concept doesn’t exist. If we keep going the way that we are then the debt will never be paid off. It will be impossible to calculate.

4) I choose to have my debt; I choose to have the interest payments that go with it; and I choose when and how much I pay off. I can pay $5.00 a month towards my debt, or I can pay $50.00 a month towards my debt. Obviously paying $50.00 a month will pay it off faster.

The government chooses to have the debt; they choose to have the interest payments; and (through taxes) the government tells us how much money we are going to pay. We don’t get to choose how much we will pay. This is necessary, since the government has to have a set of rules that applies to everyone, but it still means that we can’t choose how much we are going to pay.

We have accumulated a huge amount of debt (the federal debt was $616 Billion in 2016[1], and the Nova Scotia debt was $15.7 Billion in 2016[2]). To pay that off today, each Canadian would have to pay 17,500 for the federal debt[3], and each Nova Scotian would have to pay an additional 17,033 for the provincial debt [4].

If things keep going the way that they are then both of those numbers will continue to rise. We will never be out of debt. As we die, the next generations will become responsible for the debt that we accumulated. This is a horrible legacy to leave.

In my view the government, both federal and provincial, needs to spend less than it earns (less than it taxes us). This will get us out of having a deficit every time, and will allow us to pay down our debt. Leaving less debt for our children is the right thing to do.

Our governments need to spend less than they earn – just like we do.

[1] Based on https://en.wikipedia.org/wiki/Canadian_public_debt
[2] Based on http://www.novascotia.ca/finance/en/home/investorrelations/outstandingdebt/default.aspx
[3] Based on https://en.wikipedia.org/wiki/Demographics_of_Canada
[4] Based on https://en.wikipedia.org/wiki/Demographics_of_Nova_Scotia