Millions of Americans to Fall off an 'Income Cliff'

Thank you Ma'am. Much appreciated.

My job puts me in contact with young adults on a weekly basis. I try to give back to the world by talking to them some about being financially smart. It is true that paying massive amounts of interest is a finance killer. It is also true that money can make more money. This knowledge is what I try to instill in others.

Example:

The average cost of a home in Texas is about $210,000. ( https://www.businessinsider.com/ave...-washington-dc-2019-6?op=1#28-texas-207301-24 )

Consider "Young Couple A" and "Young Couple B" who have equivalent jobs and incomes.

Couple A decides they deserve a better house than average, so they buy a $300,000 house. They make a $30,000 down payment and get a 30 year mortgage at 5% interest. Monthly payment is $1,476 and they faithfully make that monthly payment for the next 30 years.

The actual cost of the $300,000 house ends up being $560,000 out of Couple A's pocket.

Contrast that to Couple B. They decide to be financially smart and buy a less-than-average house for $150,000. $15,000 down payment, 30 year loan at 5%. Monthly payment is $724. Faithfully make their payments, the actual cost to Couple B is $275,000 out of their pocket.

But that's just the tip of the iceberg....

Couple B saved $15,000 on the down payment and are saving $752 per month as compared to Couple A. Now, here is the amazing part:

Couple B takes that $15,000 and starts an investment account, and then takes the saved $752 per month and invests it in mutual funds/index funds, which, on average pay 8% per year over the long term. ( https://www.thebalance.com/what-is-the-average-mutual-fund-return-4773782 )

So every month for 30 years, couple B puts $752 dollars into their investment fund. (even though the link I posted said 8%, I will be more conservative and use 7% in the calculation) net result after 30 years:

$1,000,000 in their investment account.

Oh sure, Couple A got to deduct some money from their IRS filings, and Couple B will owe some taxes on the million dollars they accumulated, and I won't be surprised if some here quibble with the numbers a bit, but that won't change the overall facts any.

So, which of the couples was financially smart? Crank, I know you know the answer already!

And this same scenario can be downsized to fit most income groups... results still similar. And it doesn't just apply to houses. Loans on cars, money wasted on beer dope cigarettes ESPN and a myriad amount of wasteful things.

Livin' the good life baby! Congrats to you and yours for the good decisions y'all made over the years. Great stuff!

 

Trump is proof that never everyone born with a silver spoon is smart

 

yep, next Month is when it starts getting ugly if Trump doesn't get this virus under control, Trump may have to extend that to save the economy, though he is definitely against it - he does not want to help the people, but this is an election year....

 

The GDP per capital went up 80% between 1979 and 2014.

It certainly does. You said, "And per capita GDP has only increased 20%."

Not for me, and I don't think it's beyond most people on the forum.

 

No I wouldn't. I've lived without things many First Worlders take for granted, for decades. City water, grid power, air conditioning, clothes dryers, new clothes, haircuts, nice cars, plush holidays, etc.

 

Perfect! This is exactly what I'm talking about. You could even add a third couple, who instead of the first two scenarios chose to rent because they didn't like sacrificing their fun to save for a down-payment. They'll end up paying out somewhere between A's and B's monthly payments over that 30 years, and come out with nothing to show for it, and no savings to invest. They'll also enter their retirement years with no housing security, and no financial security - all because they convinced themselves that life is short. The irony being that they very often live way longer than they can afford to live.

Self-discipline is the key to financial security, always.

 

I always said you should be born rich and work your way poor.
I lived my life like that and it was fun.

 

One of my co-workers did the exact thing you mention in your rental scenario, and now he is a bitter old man, feeling that the "system" was rigged against him, and that wealthy people are bad. Deep inside though, he knows that he made poor decisions.

 

So you are poor now?

 

Probably not, but not nearly as rich as I was. What do I need with a big house. There are only 2 of us now.
And I no longer have the reflexes for the fast cars.
So I'm living my frugal years now.
Money is no good till you spend it.

 

What a silly comment - even if true - but its not. There are many "smart" people who are not good with money - not with good job - just starting out - as a young person or in business.

Either way - there is a Tsunami coming - and its not going to be pretty - and the longer we stay in lockdown - or partial lockdown - the bigger that wave will be.

Smart people realize that there are a very high number of people in this nation living paycheck to paycheck - and a whole lot of businesses in the same boat.

 

Smart people who don't have a safety net aren't all that smart. Do you have a safety net?

 

but plenty of internet?

 

half of American lives on min wage.... not everyone has the ability to save tens of thousands for a rainy day

many are resorting to living in their cars and some states are trying to crack down on that and make it a crime to sleep in your car

 

Corporations, like Walmart, are the Welfare Queens of Capitalism because taxpayers are SUBSIDIZING their payrolls so that GREED OBSESSED shareholders can get BIGGER dividends at the expense of We the People.

FORCE corporations to pay living wages and the problem goes away.

 

raise the min wage and it won't matter who they hire - but the fact that most Americans live off the min wage, means the min wage need to keep up cost of living increases

 

Yet IQ is involved in financial intelligence. Can't escape it. As IQ is involved in having too many kids and kids of non married house holds. Truth is IQ affects most choices.

As a population average IQ people once had an economy that allowed them middle class success. That is gone!

 

You are the exception as I do get out until the covid was brought to us.

So you could live the American Dream but decided not to?

All of the legal immigrants came here because they didn't want poverty but to prosper. With the status symbols of conspicuous consumption.

But its your choice and I don't fault you.

I have always lived within my means but never volunteer lower standards. I always bought new cars but wore them out before buying another one. Generally bout every ten years. But took care of them.

I could have lived upper middle class but chose instead to pay living wages that dropped me into middle middle class. And would never choose working poor standards unless I was working poor. Never financed a car except the first one. Had a savings account that bought the car every decade.

Never had a credit card. But my wife did . She was a public school teacher all her life but paid off the card each month.

 

I think there may be a disconnect here. It appears that at least to some degree, you were being financially smart. So I must ask, are you in danger of falling off the financial cliff right now? I am guessing that you are doing just fine, so no one is saying you are financially dumb.

As for living the American Dream, is consumerism all there is to it? For some, the American Dream is to be financially secure and when the covid shows up, there is no cliff to fall off of.

 

Financially smart people make more than minimum wage.

 

Do you think employers who take advantage of the system and break the law by hiring illegal workers are going to bother paying them a higher minimum wage? No, they already pay them off the books. There are a ton of people who work for cash, and raising the minimum wage makes it even easier for illegals to compete for jobs against Americans citizens. We need more enforcement and stiffer punishments for hiring illegals. Labor is subject to supply and demand. Remove some of the supply, and wages will go up naturally.

 

A fool and his money are soon parted. That won't change. Best to be one of the ones with financial smarts. It doesn't take a genius that spending more than you make leads to financial failure.

 

I should be leaving my kids and grandkids a bit of assets. I always lived within our means..But income was more than sufficient. So you gotta save the surplus, right?

The american dream is to own a home, afford to raise a couple of kids and send them to college with saved money. The dream is to own a dependable car for transportation . And to live comfortably.. The dream is for your kids proper as you did.

So I lived it coming from being poor in the early years of my life. The American Dream. Thanks in part to uncle Sam. Being a vet my uncle Sam financed my college and living expenses. Thank FDR too. He gave what I needed to rise up. This program helped to create and fuel our economy. But not a.service sector economy but a diverse economy. Our golden age.

 

We agree on that point.

I think lower IQ drives it..Druggies generally have lower IQ. And anyone who can't do basic accounting..Not to forget those people who only live today and driven by a strong tendency to pursue great pleasure in the now. No thought for tomorrow. Low IQ.

 

Only investors are important. It is reflected in the law that said corporations have to max out profits for investors in that corporation. We didn't have that law prior. Wonder what it cost corporations in bribery? Their return on investment must be huge! Yet it has disemboweled Americans.