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People get into financial troubles for many reasons, most of them beyond their control. Divorce is one. Job layoffs are another. Medical emergencies are one more. Changes in interest rates for variable rate mortgages are a major problem for people. As is a declining stock market. Personal self-indulgence is way down on the list of causes for mortgage foreclosure.
"Beyond their control". Are you saying people can't put aside a 6-month reserve - or that they can't get a FIXED RATE mortgage - or that they somehow need their investments that are tied into the stock market? I am taken aback that you are insinuating that these situations are beyond someone's control. People chose not to.
People that get into an ARM and then later, when that ARM readjusts and they can't afford it, have gotten themselves into the issue. This is indeed self-indulgence. They cooked the books to get themselves into a home they should not have been able to afford.
With the exclusion of people that are retired and living off their investments, the stock market going down should simply be a non-issue for immediate finances. If someone was greedy and thought they could make a quick buck and invested money they needed to pay bills later that month or year, then I would propose that is indeed self-indulgence.
Divorce, job loss and catastrophic medical issues are much harder to plan for - so I'm not really worried about those being mentioned, but people should have a 6-month reserve to ensure they can drastically increase their ability to make it through job loss or medical issues. People chose not to.
I read a very interesting article on the psyche of debt that I can't seem to find anymore, so I'll try to restate some of it. Something that I found VERY interesting is that people that had a home income of less than $50K were less likely to have non-mortgage debt. They are less comfortable with debt in general. People making $100K/year or more were more comfortable with debt and felt debt was something that you can't avoid and needed in today's society. It seems to me that this could be extrapolated to say that people that make more, spend more. It wouldn't be too far fetched to make the jump that then maybe they are spending more than they are making and can end up in debt troubles.
The only thing I know is that my wife and I are very fiscally conservative. We have 6 months of income in a high yield savings account. We "pay" ourselves monthly for our paid-for vehicles so when the time comes to get a new one, we can pay cash for them. We bought a home at a price point that we can make ends meet on only one salary should we need to do that for some unforeseen reason. We are perfectly happy driving our 6 and 8 year old vehicles. We recently refinanced our home to simply drop our rate over a percentage point. While we don't necessarily "feed the economy" to the extent we could if we chose to live a life on credit, we also keep the economy on more even keel - as when it goes south and things go all cheap, that's when we open the purse strings a bit more...
I am even more fiscally conservative having no debt at all (because I hate being indebted to anyone, in general) and am in the lucky situation where I actually was able to save up (much) more than 6 months living costs but some of my relatives can't do that because they make so little money. Median household income in for example Bexar county (San Antonio, where my relatives live) is just $38k. From wikipedia:
The median income for a household in the county was $38,328, and the median income for a family was $43,724. Males had a median income of $30,756 versus $24,920 for females. The per capita income for the county was $18,363. About 12.70% of families and 15.90% of the population were below the poverty line, including 22.40% of those under age 18 and 12.20% of those age 65 or over.
Brian, you probably make well above $100k/year (from your previous posts, I gather you hold a professional job in the IT industry) and it is relatively easy to be financially secure given those circumstances.
If I was only making some $30k/year and had to pay rent or a mortgage, I'd not be able to save anything.
Plano isn't really a city you go visit. There's nothing wrong with it - it's just a lot of the same stuff... subdivisions, shopping centers, churches, schools. Not really a destination IMO.
Brian
You're right that it's not a tourist destination, but rather just an affluent suburb. But I'd still like to check it out someday. I know of some acquaintances in the area (McKinney and Richardson), so if I visit them, then that would be an oppt. to pass by Plano.
I am even more fiscally conservative having no debt at all (because I hate being indebted to anyone, in general) and am in the lucky situation where I actually was able to save up (much) more than 6 months living costs but some of my relatives can't do that because they make so little money. Median household income in for example Bexar county (San Antonio, where my relatives live) is just $38k. From wikipedia:
The median income for a household in the county was $38,328, and the median income for a family was $43,724. Males had a median income of $30,756 versus $24,920 for females. The per capita income for the county was $18,363. About 12.70% of families and 15.90% of the population were below the poverty line, including 22.40% of those under age 18 and 12.20% of those age 65 or over.
Brian, you probably make well above $100k/year (from your previous posts, I gather you hold a professional job in the IT industry) and it is relatively easy to be financially secure given those circumstances.
If I was only making some $30k/year and had to pay rent or a mortgage, I'd not be able to save anything.
Don't mistake me for a professional. LOL! Just kidding. Yes, I am a professional in the IT Industry. While it may be easy to be financially secure in my situation - the article I read actually stated the opposite. Their data showed that when people moved over the $100K scale, they had MORE debt and expected to maintain that debt, although debt didn't bother them much because they think they can handle it. Whereas a person making under $50K hated debt.
Growing up, my father was an elementary school teacher. My mom stayed home to keep my butt out of trouble. Even on a meager school teacher salary in a state that has income tax (Michigan), my parents were able to buy a home, pay cash for vehicles and save some for retirement outside my father's pension. Incidentally, they paid extra every month on their home and had it paid off well before retirement.
When I first moved out on my own, I paid cash for used vehicles because that is what I could afford. I bought a couple of cars on credit, but quickly learned that a car simply gets you from point A to point Z and depreciates - so why spend much on it (and we're talking about a Saturn, not a BMW or Mercedes). I certainly didn't make the money I do now, having started about $21K/year. I had a room mate.
My point is that people make choices. Call them what they are. Don't sugar coat it to make people feel better for making bad ones. Tell it the way it is, maybe they'll actually learn something instead of blaming everyone else for their woes. It's called accountability. The US is very short on it.
People, your spartan fiscal discipline may be admirable, but the vast majority of the population is not expected to have 6 months of income in the event of a $50,000 medical bill, or a 4 month job loss. Nor would it be realistic to think they can engineer such a safety net for themselves.
Blaming someone going through a financial crisis not of their making... is cruel as well as absurd. What would you say if they were out of work for 8 months? They were irresponsible not to have 1 year's income socked away?
How many people would deliberately downgrade their housing to ghetto status, live on beans and rice, and send their children to substandard schools, just on the small but finite chance that they will have severe marital problems, an elderly relative that requires expensive care, or a collapse in the employment market for their only marketable skill?
The plain truth is that America, especially north of the Sunbelt, but even within it, is increasingly buffeted by factors that stress the middle class. And to the extent that we lose our middle class, we become a third world country. And in order to achieve middle class status, the dream of millions, they live on their income.
People, your spartan fiscal discipline may be admirable, but the vast majority of the population is not expected to have 6 months of income in the event of a $50,000 medical bill, or a 4 month job loss. Nor would it be realistic to think they can engineer such a safety net for themselves.
Correct on the 50K medical bill. But I know people that don't have $500 saved, yet have the newest cell phone and iPod + digital cable + new car. Now, by nature having 6 months expenses means having a 4-month job search is covered.
Quote:
Originally Posted by aceplace
Blaming someone going through a financial crisis not of their making... is cruel as well as absurd. What would you say if they were out of work for 8 months? They were irresponsible not to have 1 year's income socked away?
Nope, just the age old 6-month rule should apply. You can't plan for everything. But you should plan for something. This reminds me of a commercial from a bank I saw when I was a kid. It said that people never plan to fail - they merely fail to plan.
Quote:
Originally Posted by aceplace
How many people would deliberately downgrade their housing to ghetto status, live on beans and rice, and send their children to substandard schools, just on the small but finite chance that they will have severe marital problems, an elderly relative that requires expensive care, or a collapse in the employment market for their only marketable skill?
Yeah, that's what people have to do - live in the getto and eat Raamen noodles. I clearly stated that marital problems and catastrophic as such can't be planned for - but even these would be made easier if they had the aforementioned 6-month savings. It at least buys one time to make the necessary changes in your lifestyle without having to knee jerk react.
Quote:
Originally Posted by aceplace
The plain truth is that America, especially north of the Sunbelt, but even within it, is increasingly buffeted by factors that stress the middle class. And to the extent that we lose our middle class, we become a third world country. And in order to achieve middle class status, the dream of millions, they live on their income.
While I fully agree with what you are saying, a portion of this is because middle class wants to live like upper class and spends accordingly. We are live in a very materialistic society and are ultimately paying for some of our choices.
You are 100% correct. Homeownership in Texas is higher than CA by about 8%. The real big difference is that when you buy a house in CA you are all tapped out and have virtually nothing left for life, retirement. Then there is the little fact that you get a whole lot more house for your money in TX.
Where did the 8% number come from ? I know people in San Jose that have a combined family income of over 200k. They live pretty modestly. In the Bay Area, it's pretty common for your mortgage to be north of 5k.
The saving grace is that salaries are better in the Bay, but not nearly good enough to make up for the delta in the cost of living.
San Diego and LA are a little less expensive, but the Salaries in those areas are subpar compared to places like Dallas/New York/Bay Area.
In North TX, you can live pretty well on about 80k. That's unheard of in CA unless you purchased your house prior to 2000.
"Beyond their control". Are you saying people can't put aside a 6-month reserve - or that they can't get a FIXED RATE mortgage - or that they somehow need their investments that are tied into the stock market? I am taken aback that you are insinuating that these situations are beyond someone's control. People chose not to.
People that get into an ARM and then later, when that ARM readjusts and they can't afford it, have gotten themselves into the issue. This is indeed self-indulgence. They cooked the books to get themselves into a home they should not have been able to afford.
With the exclusion of people that are retired and living off their investments, the stock market going down should simply be a non-issue for immediate finances. If someone was greedy and thought they could make a quick buck and invested money they needed to pay bills later that month or year, then I would propose that is indeed self-indulgence.
Divorce, job loss and catastrophic medical issues are much harder to plan for - so I'm not really worried about those being mentioned, but people should have a 6-month reserve to ensure they can drastically increase their ability to make it through job loss or medical issues. People chose not to.
I read a very interesting article on the psyche of debt that I can't seem to find anymore, so I'll try to restate some of it. Something that I found VERY interesting is that people that had a home income of less than $50K were less likely to have non-mortgage debt. They are less comfortable with debt in general. People making $100K/year or more were more comfortable with debt and felt debt was something that you can't avoid and needed in today's society. It seems to me that this could be extrapolated to say that people that make more, spend more. It wouldn't be too far fetched to make the jump that then maybe they are spending more than they are making and can end up in debt troubles.
The only thing I know is that my wife and I are very fiscally conservative. We have 6 months of income in a high yield savings account. We "pay" ourselves monthly for our paid-for vehicles so when the time comes to get a new one, we can pay cash for them. We bought a home at a price point that we can make ends meet on only one salary should we need to do that for some unforeseen reason. We are perfectly happy driving our 6 and 8 year old vehicles. We recently refinanced our home to simply drop our rate over a percentage point. While we don't necessarily "feed the economy" to the extent we could if we chose to live a life on credit, we also keep the economy on more even keel - as when it goes south and things go all cheap, that's when we open the purse strings a bit more...
Brian
I could not have said it better myself. Anyone that thinks that it's not possible, tune into 570 AM on a Friday between 1-4 PM and listen to the huge number of people calling Dave Ramsey's show telling how they paid off 25k of debt making 40k a year and how they have a 6 month emergency fund.
We chose to do some stupid things when we were younger, but we got on the fast track to fixing those and now we have everything paid off except the house, and hopefully that'll be taken care of in the next year. The Dallas area presents a wonderful opportunity to own an inexpensive home, make a great salary, and change your life for the better.
People, your spartan fiscal discipline may be admirable, but the vast majority of the population is not expected to have 6 months of income in the event of a $50,000 medical bill, or a 4 month job loss. Nor would it be realistic to think they can engineer such a safety net for themselves.
I don't expect anyone to have anything... as long as they don't expect my sympathy or money for a lack of planning. Now for those unforseen medical bills or divorce or some other major life changing event that no one can plan for, that's quite a different story.
Quote:
Blaming someone going through a financial crisis not of their making... is cruel as well as absurd. What would you say if they were out of work for 8 months? They were irresponsible not to have 1 year's income socked away?
Cruel? How about realistic... we do live in the real world here, not fantasyland. 6 months is a reasonable estimate for a 1 income home, 3-4 months is reasonable for a 2 income home. The chance of losing 2 incomes at the same time is pretty low, thus the smaller the cushion required. Now if someone had no debt other than their home and lost their job for say 8 months, they can easily build up the extra 2 months padding by working while they look for a job. You deliver newspapers on the weekends, deliver pizzas at night, stock shelves at walmart at night... whatever it takes to put food on the table. But your emergency fund lessens the blow because your living expenses are already taken care of for that period. Any additional income helps stretch it further, as does living on ramen for those 6 months.
Quote:
How many people would deliberately downgrade their housing to ghetto status, live on beans and rice, and send their children to substandard schools, just on the small but finite chance that they will have severe marital problems, an elderly relative that requires expensive care, or a collapse in the employment market for their only marketable skill?
Ghetto? Get serious... we're in the Dallas area where you can get a fabulous home for $150k. I've got coworkers in San Jose that would give up their first born child to pay $300k for a home as nice as one for $150k here.
Quote:
The plain truth is that America, especially north of the Sunbelt, but even within it, is increasingly buffeted by factors that stress the middle class. And to the extent that we lose our middle class, we become a third world country. And in order to achieve middle class status, the dream of millions, they live on their income.
The plain truth is that most Americans don't save any money and go deeply into debt on depreciating assets. It's no business of mine how they spend their money, but don't expect sympathy for me when it all catches up to them.
How in the world did we get from what the OP posted months ago to everyone expressing their views on financial self sufficiency and their personal means and methods of achieving such?? Anyhoo, if you folks would like to continue this in the chat thread or the Business and Finance forum I say please, go for it.
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Anyhoo, if you folks would like to continue this in the chat thread or the Business and Finance forum I say please, go for it. 
