Understanding the role the government plays in your personal finances
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The government especially at the federal level seems, so far away and its choices may or may not have the biggest immediate impact on your day to day life. The biggest areas that they impact our lives in are when it comes to taxes, inflation/recessions, and healthcare.
- Taxes
When it comes to taxes it is no secret that the government has a enormous influence over the taxes you pay. Things for you to be mindful of are the minimum taxable income and the amount for your standard deduction. Both have enormous impacts on how much you will be getting back from your tax return. At the local and state level you also have to be concerned with the rates of sales tax. This will vary from state to state and can dramatically increase or decrease the amount you are paying per transaction.
2. Inflation and recessions
When it comes to inflation and recession the government can raise or lower interest rates. It can also provide stimulus through direct funding or to businesses with subsidies. This can affect you directly in the case of stimulus checks. Most notably the control of interest rates can directly influence your ability to buy a home or the grow the money you save in savings accounts. Inflation can also be seen in the price of goods. A great example of this is the $5 dollar footlong from Subway in 2008, whereas now the price of a footlong sandwich is closer to $10 in 2022. Inflation occurs in all areas besides food, but it is most noticeable when it comes to food. When recessions occur, there is the likelihood of job loss or the loss of value when it comes to investments. If you are of retirement age, that is not something you want to see; and the loss of even 20% of your retirement asset’s value can make a dramatic difference in the day to day life of a retired person.
3. Healthcare
Healthcare is a major concern for most people. After all everyone wants to be able to access care if they get sick. For most people the impact of the government on healthcare comes towards what kind of mandatory benefits to employees get or if someone is unemployed. Healthcare also comes with a number of rules such as when you can no longer be on your parent’s insurance or when it comes to healthcare for the unemployed or elderly.
With all of this in mind, is everything personal finance related influenced by government. Yes, it is, but the key factor to financial success is how you re-act to what they do. If you re-act well and plan accordingly, it makes it much easier to grow and maintain your wealth.
