Poverty

<a class="postlink" href="http://www.cracked.com/blog/5-things-nobody-tells-you-about-being-poor/" onclick="window.open(this.href);return false;">http://www.cracked.com/blog/5-things-no ... eing-poor/</a>

FOCUS: Read article and discuss.
ALT FOCUS: Financial decisions that were questionable at best.

 

My lefty ex-girlfriend made me read Barbara Ehrenreich's Nickel and Dimed where she, a writer, decides to quasi-see what it's like to be working poor. She still goes home on the weekends. Anyway it's an interesting look into how never being able to save any money fucks you over. My favorite part was when she went around applying for minimum wage jobs but used her real resume and nobody was impressed with her fancy degrees.

My strategy for dealing with this is to try not to think about it and save as much as I can.

 

My day rate puts me in probably the half percent of highest incomes in Australia. Pretty much everyone I know who knows how much I make says 'How much? Fuck you. Can I have a loan?'

The thing is, I got fucked in the property market by the GFC. I fucked myself with poor finance decisions around fictional equity value of property. I took a massive hit from depression. I was unemployed for a while and massively under employed for a lot longer. And to round out my shitty decisions, I had some shitty luck as well. I have unsecured personal debts totalling well above the national average yearly income. And that's after reducing my assets to the point that the total resale value of everything I own (Every item of clothing, stick of furniture, tool I use for work, etc) is probably less than I'll earn in the next five weeks to pay off as much of it as I could.

Every debt is in default. I've paid off a bunch of my smaller debts and I'm working through the larger ones now. But I was sued a couple of weeks ago and had to basically grovel and agree to pay them back next. I'm dodging bankruptcy and begging my friends for help with legal advice and dealing with the stress of working with my creditors. I really can't imagine ever accepting any kind of credit beyond a phone service contract ever again, and even the prospect of one day buying another house at this point makes me actively nauseuous. Even with my current income, I'll be in this position for at least another 18 months. It's fucked - but it was all avoidable and by and large - my own fault. If I've learned anything, it's that the credit market is a shitty place to be a consumer. If I could travel back in time and remake my financial decisions - I'd probably still have bought my house, my most expensive mistake, and learned from the fuckup, but I'd never have accepted a line of credit over $1000 and I'd never have let that debt age more than a month and the educational fuckup from my house would have just been an expensive lesson instead of the life/soul destroying disaster it turned into.

At this point, I've paid back damn near as much as I borrowed to my various creditors, and with the exception of my mortgages, I still owe as much again. Having short term unsecured credit lets you move from stupid to bankrupt at speed that you can't imagine is possible untill you've done it.

I fucked myself far harder than most people. But of all my friends, I know one couple who have consistently managed their credit responsibly while maintaining significant available credit. Everyone else I know with credit tries hard, but never really grasps that they are neither as smart nor as disciplined as they believe they are.

The people I know who are financially secure or actively well off? Not just wage slaves, or wage slaves with a nicer slave pen? Are people who created something. Without fail, people who found a way to create value and the majority of them never borrowed anything significant as part of that creation process.

Reading that article, all I can think is jesus christ, you people still use cheques? I'm almost thirty, and I've never owned a cheque book. I've banked probably less than 20 cheques in my entire life. Electronic bank transfers and use of a debit card is so easy and so viable here that I really don't know anyone who continues to use cheques except for a few business owners who have elderly accountants who reccomend it for tax reasons.

My advice to somebody who currently has no crushing debts? Don't ever get them. Don't take any kind of credit arrangement from Citibank under any circumstances. Don't take more debt than you can repay in a month for anything other than an appreciating asset that you genuinely believe will gain value at a rate higher than the interest that you're paying on the loan, and remember that even low risk investments are a gamble and never gamble if you can't afford to lose.

 

Raises hand. Oh, I was warned, ad nauseum, about taking on pointless credit card debt. My Dad got raped by them in his youth, and in the days of my childhood, we grew up broke. (Incidentally, that article is spot. fucking. on. When you have a shit car that needs endless repairs you can't afford, something as simple as a yellow sticker - not sure if you have the equivalent over there, but here it's a sticker from the cops that means your car isn't roadworthy - can really fuck up your day/month/year.) However, I'm a smart guy. I'm just going to have it for emergencies while travelling. I'm not really going to use this credit card I got, the one which waives the $60 application fee in exchange for a higher interest percentage. Fuck you Mum and Dad, I'm an adult and I can make my own decisions.

Yeah, not so much. Ran up $5k travelling through Europe, twice. Paid it off, ran up another $6k travelling through America. Paid that off, ran up $5k trying to drink my way out of job-related angst. (Clever. Spend your money distracting yourself from what you have to do to make that money. The system works.) Paid that off, but ran up $12k travelling through Vegas / Vietnam / Laos 3 months ago. Haven't even started paying that back, and it will take me well over a year. Nothing like the scale of Scootah's misfortunes, but still a constant weight on my soul.

That said, if I had the chance again? I'd probably do exactly the same thing. My travel-related memories are the best I have, and the travelling itself made me a better and more interesting person. Plus, it let me escape from a life of white-collar boredom, if only for a couple of months at a time (#firstworldproblems). I've seen quite a bit of the world, and some days the knowledge that there are other, more progressive, saner places in the world than my hometown sustains me. Of course, the flipside to this is that I've been back in the country less than 3 months and it feels like an eternity in purgatory. I'm dying to travel again, which I can't because I have $12k of debt.

So, you wouldn't necessarily endorse that night with the two strippers in the Skybox at Sapphire...

 

The simple rule is that the average person doesn't know shit about running their finances. In my experience, the best people at doing so? Single mothers. That's because they've had to. Even amongst that group there's some plenty who have failed.

There's plenty of factors why things are so bad: complacency, having it too good for too long, keeping up with the Joneses, rampant consumerism, declining wage rates as compared to the cost of living, market competition... blah, blah, blah.

I prefer the following - our capacity to earn is only outstripped by our capacity to spend. Unless you're one of the uber rich, no matter how much you earn you always seem capable of spending the vast chunk of it.

That might have been fine before the GFC when some of that earning was parlayed into investment (in which I include the family home - it is still and investment). However, now that the ass end has fallen out of everything, things are looking rather lean.

 

There's a couple nuggets of wisdom in that article.

1.) No Credit Can be Just as Damaging as Bad Credit:

Don't be shocked if you can't get a good mortgage rate if you were 'responsible' and never took out any debt. Saved up a boat load of cash and got a modest car so you wouldn't need to take out a loan? Good for you, that's not going on your credit report. Honestly, in this situation if you have the money, take out a loan and pay it off in full a month or two later, yeah you'll lose money in the short term (a very modest loss) but it'll be a very nice mark on your report.

I had to have this discussion ad nauseam with a friend, but your credit score isn't your financial responsibility score, it's your conditional expectation to make payments on time given your past history. If you have no history of paying debt, then they have nothing to go on. At the very least take out a credit card to pay something static like your gym membership and have an auto deduct set up to pay it off in full every month after the gym membership is deducted.

2.) because you're poor and you're using cheap shit that breaks:

Now I'm not suggesting getting the most expensive brand for the name, but you're really not saving money by buying the cheap thing that is going to break on you every year than buying the expensive one that will last you ten.

3.) Your Next Expensive Disaster is Always Around the Corner:

This is true for everyone, not just poor people, having a savings account with some "oh shit" money can save you an ass load of cash down the road, the example in the article is perfect, can't get to work because he can't afford to fix his car, if he cut back on something else a couple months earlier he could have avoided it.

I use them to pay rent, I honestly got so annoyed that I started paying six months up front (mainly did this for a discount though). Writing checks, and more importantly remembering having to write them is so fucking annoying, you'd figure this day in age we'd be passed it. The most annoying one I had was at my last place we had to mail a check, with the invoice to the oil company, so I couldn't even set it up online. I swear paying postage took a piece of my soul.

And I think we can all agree that pressing 'check' in the self checkout line at a grocery store should trigger a trap door to a snake pit.

 

Wait, are you one of those people who aren't poor and are disciplined with money yet actively choose to use cash/debit instead of a credit card? I've heard you people exist in theory, but I find it baffling.

 

I use credit cards almost exclusively, except for my mortgage and car payments. I learned very quickly that you absolutely need to pay these off every month. I had racked up almost $100k of credit card debt when I was around 25 years old. I paid it all off by myself, but when I calculated how much interest I had accrued over a 2 year period, I whipped myself into shape very quickly.

I still put around $5k-$8k on credit cards every month, but I am religious about paying them off. The benefits add up very quickly if you are committed to a certain airline, hotel, points, etc.; but you HAVE to pay them off every month. I really can't think of a reason why you would use a debit card versus a credit card unless you are extremely bad when it comes to managing your finances (I learned the hard way...but am much more diligent about it now).

 

I'm one of those people with a rewards card that charges a lot and pays off my balance every month so I get points for cash back rewards but pay little or no interest. Over the past 8 years I've managed to get about $1000 dollars in cash back rewards and have paid nowhere near that amount of interest. As a customer, I cost Chase money, so sometimes I wonder why they don't just up and cancel my cards on me. Anyone with knowledge on the topic know why that might be?

 

I'm in the interesting predicament of being stupidly indebted to student loans, but still having a bit of cash put aside. So even though I have over $2K in savings (which is not a lot, granted, but significant enough for a 21 year old living on his own), I'm also $130,000 in debt. 21 years old with $130K debt in my name.

So on the one hand I can never afford anything, because my savings are really there to help soften the blow of paying $900/month in student loans for the next 12 years. But at the same time, if I blow $30 on a dinner and movie, it doesn't really make much of a difference in terms of realistically reducing my debt.

Louie CK had a funny bit about how you reach a point where you've become so poor that it's not even depressing anymore, it's just kind of funny. That amount of money is going to take so long to pay off that the net effect for me isn't that I'm in debt for a while, it's that I'm taking a $11,000 pay cut for the next 10 years.

 

I believe you mean this, and yes, it's hilarious.

Sadly, this is an optimistic way of looking at it, taking $11,000 off your gross pay would be a lot better than paying $900 a month (mostly) after tax. Basically the guy making 30k/year is in a better spot financially than you if you make 41k/year. Especially if you consider the fact that if he loses his job he goes to $0/year, you go to - $11,000/year.

 

Because for every one of you (and me) there are 50 idiots who Chase banks off of. Credit fidelity is rare.

I'm an anti-focus, because my Dad properly installed good financial sense in me and it stuck (for the most part). I started a Roth IRA the year I turned 18 and have maxed it every year after that. I live on the same amount of money I made when I was a private in the Army, but I make 3x that now so I just save the rest. I use three credit cards regularly, but pay them all off... I've never carried a debt, not even for one month. I financed part of my car (a used one) just to build up more credit (my score is 840). Anything big I pay cash for, and I hide money from myself so I can't do anything stupid without having to make a huge effort to fetch the cash (I have a checking and savings account that is linked to a debit card, with 5K in each at all times for walking around money, and a bunch of other money stashed in different banks and instruments that, while liquid, would be a pain to turn into cash if I got the itch for, say, a new wakeboard boat).

I've never understood why anyone would live beyond their means. I don't have children, so that helps, but guess what: I don't have kids BECAUSE I want to be able to have a nice cushion once they come. Between my fiancee and I, we have a large enough egg that we can borrow against ourselves and pay ourselves back, just like a bank, sans interest. It's fucking too easy, but I guess for a lot of people new shit is pretty damned shiny.

And remember, I'm in the military as an enlisted dude. I'm not pulling in six figures. I live off $1500 (that includes my rent, car payment, insurance, everything) each month and put the rest in the bank. You'd be amazed how fast $3500 a month into a money market account turns into $100K.

As an aside, I still have cool toys. But I buy stuff that doesn't lose its value. New cars? Fancy, overpriced clothes? Eating out all the time? Pass.

 

Because you are the exception that lures people into getting a Chase card. "The rewards sounds great, and hey look this dude here can do it, so I can too," says John Smith. Turns out he was wrong, and now he's getting fucked in the ass to the tune of several thousand dollars, and so are thousands more like him. Chase and all other companies that offer rewards will happily shell out $1000 over 8 years for the rare cases like you- they make that back from everyone else in a month.

 

It's the internet. Shit doesn't need to make sense. It just needs to be preachy and fit focus.

FOCUS: I've been in debt and out of debt.

Being in debt is much more fun. You can do what you want, you can buy whatever you want, and you can act like your shit don't stink.

Unfortunately, it comes back and kicks you in the ass.

We ran up credit card debt of $15k, and then gave birth to my second son. After a week's stay in NICU, we had racked up medical bills of $5k. In order to make the minimum payments on our debt, I calculated that we had $100 a week to eat, pay medical bills, entertain ourselves, savings, etc.

I started doing work on the side, and we started taking an allowance of $20 each per week for our entertainment and lunches. Our health insurance already qualified as high deductible, so we fully utilized our HSA. Over $400 a month was put into that, and all medical bills were only paid out of there.

My work got busy, and I was pulling in $3k a month on top of wages. The side jobs took the stress of the minimum payments out of our budget, and we had enough money to feed 2 kids and save a little.

Every fucking penny went to debt.

We lived like this for 8 months (sans a 1 week vacation in the summer where we went to local attractions and went out to eat. It probably totaled $500.)

Suddenly, we were debt free (except for our mortgage which is $72k).

We still stick to the allowance system (although we have more flexibility for fun), and put money aside. After our initial medical bills got paid, our HSA began growing. I have $5k in there, and my maximum out of pocket for the year is $5k. My checking/savings balance hasn't been below $3k for over a year, and we're talking about putting our entire Christmas bonuses this year (last year it was $6k total) towards our mortgage.

I'm not perfect, and I'm not going to say this is the best plan. It's what worked for me.

The surprising thing to me was the HSA and how that changed the ballgame. We had carried a lower deductible insurance before, and it was over $720 a month. We switched to the highed deductible, and it fell to $350. We took those savings, and put them in the HSA (plus a little. HSA contributions via paycheck are not taxable at any level including FICA). I was kicking myself for not doing this before. Overall, we were paying more to the doctors, but that money was already shelled out to the HSA. The medical bills did not affect our budget. As we have been healthy in recent times, we haven't had any withdrawals from the HSA so that money just keeps growing and growing for tomorrow's expenses.

 

That, and they pull a portion of all of your purchases from the Merchant end that more than covers what they are paying you in rewards. Cards that give higher rewards just pass that cost along to the merchant.

 

130K in debt at 21 years old? So that is for an undergrad degree? That is just crazy. I thought that there were limits to how much they would loan for an undergrad degree.

Add me to the group of people who uses a credit card for about 99% of purchases and then pays it back at the end of the month, results in some sweet travel perks. I do have some student loans (mine was about $20K for grad school), but I am paying them back as quickly as possible so I no longer have that hanging over my head.

 

I've always been confused about this piece, does the portion of the merchant fee go to the bank? I though it all went to whoever was providing the technology (Visa/Mastercard) and the bank got the interest and fees.