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Many don't have $2,000 for a rainy day

money.cnn.com

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Re: Many don't have $2,000 for a rainy day

#61

Post by gyepi »

anonymouser wrote: post #43

I have a question for HN hackers. I make over 6 figure a year. My wife doesn't work. She keeps telling me that we are not middle class, and that I should earn more if I want to afford us a middle class lifestyle, because everything is very expensive now. She also thinks that I'm a bit of an underachiever, professionally, for earning only 120K a year. Am I an underachiever or is she out of touch with Midwestern Americ…

The problem is that "middle class" comprises a fairly wide range so your income level qualifies as middle class as would twice as much of an income.

According to:

http://www.reuters.com/article/2010/09/14/us-usa-taxes-middl...

"Some academics divide the middle class into an upper bracket that includes professionals and middle managers who hold postgraduate degrees and often earn more than $100,000 and a less affluent lower middle class that typically has some college education with household incomes around the national median. Median household income in the United States was $52,175 in 2008, according to the U.S. Census Bureau."

Re: Many don't have $2,000 for a rainy day

#62

Post by Duff »

anonymouser wrote: post #43

I have a question for HN hackers. I make over 6 figure a year. My wife doesn't work. She keeps telling me that we are not middle class, and that I should earn more if I want to afford us a middle class lifestyle, because everything is very expensive now. She also thinks that I'm a bit of an underachiever, professionally, for earning only 120K a year. Am I an underachiever or is she out of touch with Midwestern Americ…

It depends on where you live. Where I am, a 4 bedroom house in the city (mediocre school district) is $180k. So $120k is a good chunk of change, and you can comfortably live on a single income.

If her vision of a "middle class lifestyle" is buying lots of shiny things, you're screwed.

Re: Many don't have $2,000 for a rainy day

#63

Post by llimllib »

ebiester wrote: post #24
billybob wrote: post #6

If you don't have enough money to handle an emergency, you have an emergency. Go ahead and panic. Trade your car for a cheaper one, move into a cheaper apartment, stop eating out, sell your TV, and get an emergency fund . If you're already living on toasted rats in a cardboard box, that's different, but if you've got unnecessary expenditures, you should really cut those out and get an emergency fund. To do otherwise…

You're looking at it from a middle class perspective. Unfortunately, most of these people are also deep in debt and have already made such cuts. This is the byproduct of double digit unemployment as much as anything. As much as we talk about consumption, most of it is at the middle class level. Now, I've seen poor people make very bad decisions, but many are on purchases you and I would make without a second thought.…

> Unfortunately, most of these people are also deep in debt and have already made such cuts.

You might be underestimating the middle-class-ness of the problem. My first job out of college was pre-screening people's credit reports (in 2004, so in quite good economic times), and it was shocking how many middle-class and lower-rich-class people were living way beyond their means, while applying for expensive short-term debt to cover it up.

The worst I saw was the owner of a local chain of stores whose wife or girlfriend was clearly cleaning him out, and he was applying for short-term unsecured debt.

Re: Many don't have $2,000 for a rainy day

#64

Post by jsdalton »

What interested me was the cross-cultural comparison, which is only alluded to in the CNN article but explained a bit more in depth here: http://blogs.wsj.com/economics/2011/05/23/nearly-half-of-ame...

> Meanwhile, Lusardi, Schneider and Tufano also looked at how different countries compare. They consulted with local partners to set the number used in local currency at a comparable level. “Perceived capacity to cope with an emergency is lowest in the U.S., U.K. and Germany, all countries in which 50% of households or more would probably or certainly be unable to come up with the emergency funds,” the authors wrote. “France and Portugal occupy an intermediate position; 46% of respondents in Portugal would certainly or probably be unable to come up with the funds as would 37% of those in France. The highest levels of coping capacity are found in Canada (28% certainly or probably unable), Netherlands (27.9%), and Italy (20%).”

Re: Many don't have $2,000 for a rainy day

#65

Post by AndyKelley »

PonyGumbo wrote: post #32
naner wrote: post #16

$2,000 is not a "large medical bill" in the US. An unexpected medical problem will likely cost a lot more.

An appendectomy with an overnight hospital stay (went in at 8pm, left around 3pm the next day) was $24,000.

What part of that does insurance play?

Re: Many don't have $2,000 for a rainy day

#66

Post by illumin8 »

GFischer wrote: post #30
pavel_lishin wrote: post #23

Earlier quoted context omitted.

Does having a credit card count? What if someone has a $5k debt on a credit card, and only $1k in savings? Should they prioritize getting more cash into a low-interest savings account, while racking up interest on the CC?

I currently don't have U$ 2.000 (not an American, but having money for a rainy day should be worldwide), but I could raise them with a (high interest) loan in about 30 minutes. The article says they don't count, though: "29.5% said they would have to resort to credit cards, a home equity line of credit, reverse mortgage or unsecured loan. "

I hate to break it to you but you're living beyond your means. A high interest loan is not an emergency fund. Ideally you should have enough money to live for 6-12 months if your income stopped tomorrow.

I know when I was younger I didn't have such things, but then the recession of 2002 hit and I found out really quickly how much it sucks trying to make a house payment with an unemployment check.

Re: Many don't have $2,000 for a rainy day

#67

Post by illumin8 »

sosuke wrote: post #26
ssharp wrote: post #11

I think it's very important to instill saving behaviors early on in your adult life. After graduating college, I had plenty of debt, but still made sure I was putting money into a savings account. Technically, it would have been much wiser to put any excess money towards 15% APR credit card debt than in 5% saving accounts (5% savings accounts did exist for a few years prior to the 2008 collapse), but actually having…

A lottery-linked savings account sounds awesome since I already play low-odds lottery and put money into savings every month. Texas won't give up their lotteries or multi-state lotteries for anything though.

Lottery is just a tax for those that are bad at math. Why would you do both? Putting money into a low yield savings account will get you a statistically better return over your entire lifetime than buying a few powerball tickets every week.

Re: Many don't have $2,000 for a rainy day

#68

Post by dailyrorschach »

noodle wrote: post #45
pavel_lishin wrote: post #23

Earlier quoted context omitted.

Does having a credit card count? What if someone has a $5k debt on a credit card, and only $1k in savings? Should they prioritize getting more cash into a low-interest savings account, while racking up interest on the CC?

this is how i typically recommend people to prioritize their money: (1) pay your bills (2) get a small emergency fund together (enough to pay for a small emergency, car breakdown, 1 month's living expenses, etc) (3) pay down high interest debt (credit cards, etc) (4) get a large emergency fund together (enough to support you for a few months if you lose your job, major emergency, etc) (5) invest and pay down low inte…

This is exactly how I've been doing it. Auto-transfer set up on the bank account, and taking cash out for spending money instead of just letting myself use a credit or debit card.

Re: Many don't have $2,000 for a rainy day

#69

Post by jrockway »

Duff wrote: post #55
ebiester wrote: post #24

Earlier quoted context omitted.

You're looking at it from a middle class perspective. Unfortunately, most of these people are also deep in debt and have already made such cuts. This is the byproduct of double digit unemployment as much as anything. As much as we talk about consumption, most of it is at the middle class level. Now, I've seen poor people make very bad decisions, but many are on purchases you and I would make without a second thought.…

Responsibility is not a class issue. The lady who cleans our office is poor by any definition. She works 14 hours a day, every day. She has two kids, no TV, and has cash saved up to buy Christmas presents and school uniforms. The guy in the next office makes $110k/year leases a BMW 5 series, owns a new condo, and goes out of the country on vacation 3 times a year. Who's irresponsible?

Neither?

When you get paid a lot of money, it's easier to be less careful with your money and not have anything bad happen. It's easy to contribute the maximum to your 401k, have the best health insurance and flexible spending account, save $1000 a month, and still buy a lot of things. If you lose your job, you'll probably get another one. And banks are more than happy to loan you money to bridge the transition.

All I'm saying is that consumption is not bad for any intrinsic reason other than the taboo of consumption.

(Let's look at your examples: owning a new condo, and going out of the country on vacation 3 times a year. New condos cost the same as old condos. You're paying for the ground under them. You're going to pay for that, in some form regardless of whether you rent or buy, so this isn't much of a "consumption" issue. Going on vacation isn't amazingly expensive. A cheap round-trip flight out of the US is $500. If you have friends, that's the total expense right there. So again, not an amazing display of financial ineptitude.)

Re: Many don't have $2,000 for a rainy day

#70

Post by jtbigwoo »

anonymouser wrote: post #43

I have a question for HN hackers. I make over 6 figure a year. My wife doesn't work. She keeps telling me that we are not middle class, and that I should earn more if I want to afford us a middle class lifestyle, because everything is very expensive now. She also thinks that I'm a bit of an underachiever, professionally, for earning only 120K a year. Am I an underachiever or is she out of touch with Midwestern Americ…

$120k a year is more income than about 90% of U.S. households. The median household income in the U.S. is about $45,000.

Your wife needs to find different friends.

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