Tuesday, September 8, 2009

Unfunded Liabilities 101

Unfunded liabilities are insidious critters. Say for example you buy a ten year old house. When you buy it the roof is fine. But it has a fifteen year roof which, after five years, starts leaking. Time for the roofer but you didn’t include the cost of a new roof in your budget. Congratulations, you’ve just experienced your first unfunded liability. Now you must take away from other spending, draw on savings or get a loan.

Let's play a game. Make a list of all your future liabilities: a college education, retirement or simply the replacement of your car? How many of these have a funding plan? Those that don't are unfunded liabilities. Now think about the government. If you are a taxpayer, every future commitment the government makes becomes your obligation...

Next week the low hanging fruit, the auto industry.

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