Liz Weston write an interesting article about 7 surefire ways to stay poor. She says there are 7 ways that keep you poor.
- Getting the Big Stuff Wrong
- Confusing Needs and Wants
- Considering Only Month Payments
- Failing to Track where the Money Goes
- Carrying Credit Card Debt
- Living Close to the Edge
- Squandering what you have
I have to say I fully agree with the list. And the first item, getting the big things wrong, is what I preach the most. I don’t understand why people worry about their grocery bills, cable, internet, cell phones. Yes it adds up a $100 here, $100 there.
But what’s the point of squeezing a couple hundred out of a budget when you have a home eating 50% of your salary? Or a car eating 25% of your salary or a car note of $400-500/month? Right there is your grocery, cable, cell phone, and internet money. Also $400-500/month car payments are completely in line with a normal size car payment of 5 years and $25k, or someone buying a Honda Accord or Toyota Camry. So it’s not an extravagent car, but it does add up fast.
And it goes hand in hand with point 3: considering only the monthly payments. Sure a car payment of $400/month doesn’t seem like much until you realize your on the hook every month for $400! Then suddenly it seems like a lot when you are trying to pay off credit cards or student loans, you realize how much of your income is tied up in “Monthly Obligations”!
So follow these rules laid out by Liz if you want to stay poor. If you want to build wealth however, that’s another post.
20 responses so far ↓
1 Barb1954 // Jul 19, 2008 at 1:54 pm
I would never take out a five-year car loan. As Suze Orman says, if you can’t afford to pay for a car in three years, you can’t afford it. I’ve never paid more than $225/month for a car loan. Either we put lots of cash down, had a trade-in, or put a less expensive car. I just cannot see paying that much for transportation.
2 Kristy // Jul 20, 2008 at 6:33 am
I do think the little things add up. Though DH and I do not need to worry about “little” items, we still do and it helps us keep up with our savings goals. You are correct though that the big things are more important, but I think the little stuff does help in the long term.
3 Livingalmostlarge // Jul 20, 2008 at 10:22 am
I think the problem is the big items because one of the PF Bloggers is interested in having his wife stay at home with their baby. But the problem is the house is 45% of his pay. And cutting the food budget, clothes, pretty much everything (he did a budget) isn’t helping. 45% is just the problem, no matter how little they eat, no cable, no cell, etc, the house PITI is still a lot. Then add in maintenance and repairs?
They could pretty much starve and still not make it. The little stuff would probably fall into line if they had kept their house more reasonable.
4 Kristy // Jul 21, 2008 at 6:07 am
They never should have been allowed to have a loan that eats 45% of their budget for a house payment. Not my problem.
If you read my post, it said the big items are more important, however, I still feel that the little items can add up. For instance, if I were to cut out eating out, cable, cell phone, I would save about $400 a month, $4800 per year…is that insignificant?? Last year DH and I started writing everything we spend down and I started saving $200 a month in groceries, again is that insignificant??
5 Livingalmostlarge // Jul 21, 2008 at 10:08 am
Definitely not $400/month isn’t a little. BUT if you don’t even have $400/month to cut because you are using credit cards to live on, then how do you cut? I am assuming there even is $400/month.
But as you see in the case of 45% PITI there isn’t even $400/month to cut. Unfortunately that’s why it’s more important to keep it in line. Because most people will let everything go but the house or car payment. And so they’ll charge groceries, utilities, extras, etc. And make the car and house payment. So there is no extra cash to cut.
I’ve seen it in many budgets, they have very little “Snowball” more like a “snowflake” to get out of debt. And that’s because they have too much tied up in housing or transportation to pay off debt. 45% of home, they’ll pay that first and everything else afterwards. Thus what can they cut except the home?
6 Kristy // Jul 21, 2008 at 10:44 am
I would be willing to bet that they have ways to cut out a few hundred a month and that most people are not willing to do so. How did they get a loan in the first place that was 45% of their pay?? Why would anyone do that in the first place? If they are charging extras, then they can’t afford it.
I too have seen many budgets and guess what? Most people don’t want to cut the fat to begin with, whether its little or small. Everyone thinks they are “entitled” to the big house, car, extras, etc. What do you think has been happening in this country the past few years…most Americans have been living way beyond their means.
To the couple who has a mortgage that’s 45% of their income….they need to get rid of the mortgage, sell the house even if its for a loss.
7 LivingAlmostLarge // Jul 21, 2008 at 11:16 am
They got it before they accidentally got pregnant and their income is set to drop as she wants to stay at home for the new baby.
Income
JB Paycheck $2,666
Total $2,666
Fixed Monthly Expenses
Mortgage $1,200
Groceries (Wal-Mart, Costco) $450
Utilities (Electricity, Gas, Water) $170
Trash $21
Auto/Life Insurance $130
Auto Gas $115
Cell Phones $100
Total $2,186
Monthly Liabilities
Car Loan $326
JB Student Loan $51
P Student Loan $102
Total $479
There is $1 leftover, so the only place they can cut is groceries. I assume trash might be a HOA fee for everyone, utlities might go up with her at home all day, gas he says is just for him, maybe cut the cell phones and get him prepaid, but then they’d have to get a home phone.
So their $450/month groceries for 4 people needs to be cut, maybe they can get down to $200/month but that’s $250.
However there is the car payment and house. It’s together 60% of their income.
Realize this budget has no give, no retirement, no emergency money. Where can they cut other than a home or car too expensive? Something which if they had lower expenses would allow them to probably live off of $2666.
8 Kristy // Jul 21, 2008 at 2:55 pm
So they accidently got pregnant? Maybe they can’t afford a baby. Or maybe the wife needs to work if they don’t have savings. Typical that no one plans for these type of things. Or they could sell the house and move somewhere cheaper. What about the car payment…$325 is alot per month, can’t they get a beater? These are just options. Obviously there are ways to slash expenses.
9 Livingalmostlarge // Jul 21, 2008 at 5:47 pm
Anyone can afford a baby, it doesn’t cost much. But as I said these large fixed costs like a mortgage and car which are not easy to slash, should have been considered before they purchased.
It’s all fine to say cut the groceries, cut this for $400/month, but you see their car costs almost that much, so if they got rid of it then they’d be in better shape.
However, with the house still being expensive it’d be tough. With a beater car they’d have to payoff the upside down amount on the car and save more for repairs. There is very little give in the budget right now as posted.
I did suggest her working because I don’t think they can really afford for her to stop. They really just need more income. They just bought the house unfortunately 1 month ago so if they were to sell they would be out a lot of money.
10 Kristy // Jul 22, 2008 at 6:05 am
If she is going to work, then yes a baby can be expensive. I agree that it is not too expensive to have a child, but if you add in daycare, the costs add up. Obviously they did not plan well when purchasing a home and car.
11 LivingAlmostLarge // Jul 22, 2008 at 10:45 am
Expense of daycare depends on where you live. It can be $150/month or more in some areas. I noticed a lot of places people pay very little.
12 Kristy // Jul 22, 2008 at 10:48 am
I would love to know where you can find daycare for $150 a month!! Good luck with that one. I live in a fairly rural area and for an infant I paid $740 a month, or $8,880 per year. For my 2 year old I now pay $540 a month, or $6,480 per year. You may be talking per week, but I doubt its per month.
13 LivingAlmostLarge // Jul 22, 2008 at 10:52 am
Small town where I grew up in. But more than that if you read some message boards, especially the baby center there is a huge variation in cost of watching a child.
Where we live now it’s $2k/month for a baby and for a 3 year old my carpool lady pays $1800/month. And she’s not unusual. It’s common to cost at a minimum $1500.
But I was reading babycenter mostly and it’s pretty cheap when you look at people’s budgets.
14 Kristy // Jul 22, 2008 at 10:56 am
That is less than $1 per hour based on a 40 hour work week and 4 weeks a month. I am really shocked by the cheapness of daycare. Trust me I realize that it varies ( I do have a child in daycare), but to pay someone less than $1 an hour is ridiculously low.
18 Adonna // Aug 3, 2008 at 2:35 am
I live in Charlotte, NC and here childcare runs from $120 /wk up to $160/wk or more.
Something that they may not have considered it what I am doing. I have two children 6 & 3 in a great private school /preschool. My hubby works Monday - Thursday and also Saturdays. I work Tuesdays & Thursday while 3yr old goes to preschool from 9:30am - 4pm and 6yr old goes to after school care until 4pm. Hubby watches kids on Fridays & Sundays, while I work.
In effect, I’m working 4 days per week and paying the equivalent of 1 child’s fees for full-time care even though I have 2 children that are going part-time. In other words, work when your spouse is off and use part-time care to fill in the rest.
Just something to consider. Where there is a will, there is a wayto make it budget friendly!
20 LivingAlmostLarge // Aug 7, 2008 at 2:44 pm
I agree, where they is a will, there is a way! My cousin will pay about $150 in the small town they live in. I think it depends again that there are few jobs around and this is better than nothing.
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