5 ms·

You simply cannot spend all of your income. If you have a full time job, no savings, and are spending all of your income, or even close (say above 70%, 80%), yo

You simply cannot spend all of your income. If you have a full time job, no savings, and are spending all of your income, or even close (say above 70%, 80%), you are in a full-blown crisis mode situation. It will manifest itself in all sorts of ways. If you have a limited supply of basically anything and use all of it the same issue would arise. If you had 50L of water to use per day, and all of your activities used 49.5L of it, then you would be in a water crisis, because if you ever e.g. needed to wash an extra shirt you simply couldn't, it would be impossible.

marmaduke 7y ago
This is a good point. In France, your mortgage monthly amount usually can't exceed 35%, and the bank takes into account any other loans you have (eg car payments). This is super annoying if you're the thrifty sort, but in the end, they're taking away a foot gun, by limiting your 'debt rate' (taux d'endettement)
Someone1234 7y ago
> You simply cannot spend all of your income. So people making $7.20/hour should be living on $5/hour? People are spending all their income, but inflation adjusted income has been stagnant for the middle class and below[0]. Combine this with the costs of living (like healthcare) increasing and you've created a situation where a lot of households are struggling to have money left over (or are commonly indebted). [0] https://www.advisorperspectives.com/dshort/updates/2018/10/16/u-s-household-incomes-a-51-year-perspective https://www.advisorperspectives.com/dshort/updates/2018/10/1...
- esotericn 7y ago
  People making $7.20 an hour in most places I can think of in the Western world are in crisis, yes. I don't know what they "should" do. It sounds like they're really in a pickle indeed and the solution (if one even exists) is going to be very dependent on individual circumstance.
- nitwit005 7y ago
  People in poorer circumstances save at a higher rate elsewhere in the world, and used to in the US a few decades ago. The main issue is perhaps what you hint at the end there. Credit has gotten far more available, so people are no longer used to saving to make purchases, and are in the habit of going into debt.
  - blunte 7y ago
    This is a huge oversimplification. You're completely ignoring so many factors, including rising housing costs. This article illustrates it well: https://www.businessinsider.com/how-high-income-and-low-income-americans-spend-their-money-2017-3?international=true&r=US&IR=T https://www.businessinsider.com/how-high-income-and-low-inco... The bottom 20% earners spend 40% of their income on housing. The top 20% spend 30% of their income on housing. And keep in mind, that housing that the poor people are paying for would be considered horrid compared to the housing that the rich people spend their money on. If you were to look at the housing prices in the areas that the bottom 20% are renting/owning, and apply that price to what the top 20% earn, the top 20% would be spending less than 5% of their income on housing (comparing apples to apples). Yes, credit has made it much worse for the poor people. Credit appeared to be a way to save them from a difficult short term or starting situation, but predatory lending (provably so) has essentially enslaved them. The bigger question is, how/why do the bottom 20% start off in such bad situations (in some countries)? The answer almost always involves corporate influence of government.
    - nitwit005 7y ago
      I'm happy to agree about housing costs, but my main suggestion was that poverty and the personal savings rate don't have as strong a link as you seemed to be assuming. You haven't really said anything to contradict that.
blunte 7y ago
This is very good advice to give someone who starts from a position of neutral or positive finances. It is practically useless advice to give to a poor person who grew up poor, in an area where prices are increasing much faster than their income. This is a very well known problem. The poor person must make financial decisions out of absolute short term necessity that result in worse financial futures compared to one who has the starting finances to think long term. One good example is in everyday choices, like buying shoes. A good pair of shoes, the type you would wear to a job (whether working boots or business casual) may cost around $80. Most of us here think that's low, but it's a reasonable example. Those $80 shoes should last a few years with some maintenance (low cost maintenance). The cheap shoes cost $15. They will be very poorly made (probably by children or effective slave labor), and they will come apart within a year (despite your efforts to keep them clean or make small repairs). The poor person will have to buy new shoes more often, and the overall cost will probably be higher than if they had been able to _invest_ in better shoes. Used cars are another good example. The $500 beater will require more maintenance and be less reliable than the $3000 used car, but the poor person doesn't get to choose wisely. So they buy the $500 car, drive far each day to work (since they cannot afford to live close their job due to rising property prices). Their car breaks down or otherwise requires $xxx in repairs frequently. In the end, they will spend more on their car than the person who could afford the $3k up front. Now, perhaps the poor person can get a loan so they can make some wiser buying decisions. We know how that goes. Once saddled with debt, they are statistically far less likely to get out of debt and reach a positive financial situation. If you look at the numbers on poverty in the US, you'll see just how many poor kids you are asking something impossible of.
- esotericn 7y ago
  You are speaking to someone who grew up poor and could never dream of spending even $500 on a car. This does not need to be explained to me. I don't claim to have the solution. And neither am I asking anything of anyone in particular. I am simply staying the facts. It is a crisis situation to be in, and only by treating it as such can it be solved. This is not advice but fact. Perhaps an individual can do nothing about their situation. Their future light cone may be fixed, like the event horizon of a black hole. So it goes.

marmaduke 7y ago

This is a good point. In France, your mortgage monthly amount usually can't exceed 35%, and the bank takes into account any other loans you have (eg car payments). This is super annoying if you're the thrifty sort, but in the end, they're taking away a foot gun, by limiting your 'debt rate' (taux d'endettement)

Someone1234 7y ago

> You simply cannot spend all of your income. So people making $7.20/hour should be living on $5/hour? People are spending all their income, but inflation adjusted income has been stagnant for the middle class and below[0]. Combine this with the costs of living (like healthcare) increasing and you've created a situation where a lot of households are struggling to have money left over (or are commonly indebted). [0] https://www.advisorperspectives.com/dshort/updates/2018/10/16/u-s-household-incomes-a-51-year-perspective https://www.advisorperspectives.com/dshort/updates/2018/10/1...

esotericn 7y ago
People making $7.20 an hour in most places I can think of in the Western world are in crisis, yes. I don't know what they "should" do. It sounds like they're really in a pickle indeed and the solution (if one even exists) is going to be very dependent on individual circumstance.
nitwit005 7y ago
People in poorer circumstances save at a higher rate elsewhere in the world, and used to in the US a few decades ago. The main issue is perhaps what you hint at the end there. Credit has gotten far more available, so people are no longer used to saving to make purchases, and are in the habit of going into debt.
- blunte 7y ago
  This is a huge oversimplification. You're completely ignoring so many factors, including rising housing costs. This article illustrates it well: https://www.businessinsider.com/how-high-income-and-low-income-americans-spend-their-money-2017-3?international=true&r=US&IR=T https://www.businessinsider.com/how-high-income-and-low-inco... The bottom 20% earners spend 40% of their income on housing. The top 20% spend 30% of their income on housing. And keep in mind, that housing that the poor people are paying for would be considered horrid compared to the housing that the rich people spend their money on. If you were to look at the housing prices in the areas that the bottom 20% are renting/owning, and apply that price to what the top 20% earn, the top 20% would be spending less than 5% of their income on housing (comparing apples to apples). Yes, credit has made it much worse for the poor people. Credit appeared to be a way to save them from a difficult short term or starting situation, but predatory lending (provably so) has essentially enslaved them. The bigger question is, how/why do the bottom 20% start off in such bad situations (in some countries)? The answer almost always involves corporate influence of government.
  - nitwit005 7y ago
    I'm happy to agree about housing costs, but my main suggestion was that poverty and the personal savings rate don't have as strong a link as you seemed to be assuming. You haven't really said anything to contradict that.

blunte 7y ago

This is very good advice to give someone who starts from a position of neutral or positive finances. It is practically useless advice to give to a poor person who grew up poor, in an area where prices are increasing much faster than their income. This is a very well known problem. The poor person must make financial decisions out of absolute short term necessity that result in worse financial futures compared to one who has the starting finances to think long term. One good example is in everyday choices, like buying shoes. A good pair of shoes, the type you would wear to a job (whether working boots or business casual) may cost around $80. Most of us here think that's low, but it's a reasonable example. Those $80 shoes should last a few years with some maintenance (low cost maintenance). The cheap shoes cost $15. They will be very poorly made (probably by children or effective slave labor), and they will come apart within a year (despite your efforts to keep them clean or make small repairs). The poor person will have to buy new shoes more often, and the overall cost will probably be higher than if they had been able to _invest_ in better shoes. Used cars are another good example. The $500 beater will require more maintenance and be less reliable than the $3000 used car, but the poor person doesn't get to choose wisely. So they buy the $500 car, drive far each day to work (since they cannot afford to live close their job due to rising property prices). Their car breaks down or otherwise requires $xxx in repairs frequently. In the end, they will spend more on their car than the person who could afford the $3k up front. Now, perhaps the poor person can get a loan so they can make some wiser buying decisions. We know how that goes. Once saddled with debt, they are statistically far less likely to get out of debt and reach a positive financial situation. If you look at the numbers on poverty in the US, you'll see just how many poor kids you are asking something impossible of.

esotericn 7y ago
You are speaking to someone who grew up poor and could never dream of spending even $500 on a car. This does not need to be explained to me. I don't claim to have the solution. And neither am I asking anything of anyone in particular. I am simply staying the facts. It is a crisis situation to be in, and only by treating it as such can it be solved. This is not advice but fact. Perhaps an individual can do nothing about their situation. Their future light cone may be fixed, like the event horizon of a black hole. So it goes.