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Owning Your Problem
I have to point my readers to a totally unexpected personal finance reflection, 10 Ways to Stay Poor Forever, featured on Budgets are Sexy by Ms. Adams. Ms. Adams, in the comments section, writes that social programs turned her into a government assistance junkie and calls her own life repugnant. What I like about this post is that the author has owned her problem. That is empowering.
I like this post because the author is taking ownership of her issue. Because it was so blunt, I originally thought it was a satire piece, but apparently not. In the 10 Ways to Stay Poor Forever, she manages to summarize months worth of blog material here at Orthonomics.
How to "Stay Poor Forever", the kitzur.
- Don't pay your bills.
- Rely on windfalls.
- Avoid manual labor, babysitting, and extra jobs.
- Spend your time chasing government assistance.
- Congratulate yourself on lack of a mortgage.
- Waste time finding yourself and your next career.
- Spend time on "work at home opportunities" and multi-level marketing schemes.
- Spend too much time shopping and finding deals, even though you don't have money to spend and a budget.
- Don't make realistic plans.
- Throw tantrums when you run out of money and celebrate a paycheck by spending money.
- And #11, a latte habit.
47 comments:
The frum version would include #11 - something non-frum people who are struggling, even if they "want to stay poor" forever, would NEVER do:
11. Choose private school even though you can't afford it.
(I will preemptively tell Miami Al that I know there are poor people who send their kids to private school, but those people do not make the decision lightly or in a knee-jerk way).
SL - I think you need to write up a frum version. Some of these are more germane to our community than others.
Not seeing a huge difference. Proud of not having a mortgage, how is that different from being proud of not paying taxes because everything is under the table.
Forget manual labor jobs, plenty of frum Jews will avoid manual labor for their own benefit...
"Waste time finding yourself and your next career."
We don't do that... not like encouraging able bodied adults to push off education/jobs 1-2 years to go to Israel then start families young...
"Don't make realistic plans."
I feel like every couple under 25 that moves in has a "five year plan" to move to Israel that prevents them from establishing themselves locally. If there was a 5 year plan to move to Israel, great, but it seems like it was more of a 5 year hope and dream.
There ARE poor people that use private schools... generally charity supported Catholic schools designed to help poor people better themselves. No comparison between those and the RW Yeshivot designed to limit people's English skills and keep them in poverty.
I disagree with this one
Congratulate yourself on lack of a mortgage
unless I'm not understanding it?
I think home ownership is WAY overrated.
I think these point sum up very well issues.
1. Don't pay your bills, get hit with interest and start bleeding $. Our community has plenty of people carrying plenty of debt.
2. Rely on windfalls: I know so many people who rely on that tax refund and when they lose a credit, go nuts. There is plenty of talk about the miracle of unexpected money from an inheritance etc.
3. Avoid manual labor, etc: How many people don't even clean their own home, kal v'chomer. . . . .
4. Spend time chasing government assistance: Not so relevant in more MO communities, but chasing gov't pork is the occupation of frum politicians (see post of child care from this month) and in Monsey and Brooklyn, a person doesn't even need to apply for foodstamps solo, there are community members who take care of it (see imamother... eye opening)
5. Lack of mortgage/credit: Long term homeownership is generally wealth building (but TDR has a point).
6. Waste time finding yourself: So many people I know seem to hold off entrance into the marketplace using avoidance techniques. Too many treat jobs like shidduchim, not willing to settle for less. I'd say the point is relevant. Sometimes we have to learn to like a job we really don't like, rather than avoid the job in the first place.
7. MLM/Work at Home Ops: Just posted about the commotion in Lakewood as another MLM has left people holding the bag. It is practically a personality disorder to constantly be chasing opportunity instead of buckling down and "working for the man". Too many people think they should be "the man" from the get go and refuse to deal with the workplace. Nothing wrong with starting your own business, but there is something wrong with avoiding reality and chasing dreams.
8. Spending too much because it is a deal: Universal issue. But we even tzedakah organizations dedicated to setting up "shops" where people without funds can get the right clothing for yom tov, etc for free. The universal standard makes this point very relevant.
9. No realistic plans: The "T" word, 'nuff said.
10. Tantrums running out of money would be the scholarship issue for some and I find that the worst habit of those who could be better off is the lack of discipline to take earned money and start digging out of a hole. Instead they reward themselves with whatever it is and the hole gets bigger. The inability to buckle down is why some will always live on the edge.
Our #11s could be so many little things: dry cleaning, disposable everything, pizza (just a slice), school lunches, and the million other "little things" that add up BIG.
Kinda scary how much of this I saw in my previous community where we lived after just getting married. So many of the young couples there did these things and did many of them proudly and bragged about it.
I'd include under "don't pay your own bills" the idea of having someone else pay your bills for you, usually parents. Can't even tell you how many couples flaunted having their parents pay their rent or lease on a car.
As a community we've taken "finding yourself" to a whole new level as Miami Al points out. For some it ends up okay, but for others they're constantly playing catch up due to those few years as they now have kids and a ton of bills and no ability to build a high enough paying career.
Old community had so many young mothers doing these ridiculous MLMs thinking they were making a fortune and not realizing profits are income NET expenses (and that time is an expense of sorts when weighed against other earning opportunities especially).
I'd also include under the "spend too much time shopping" the ridiculous luxuries people buy when they don't have 2 cents to rub together. So many of the young couples we knew went on expensive vacations, had huge HDTV's, premium cable packages, etc. Nothing wrong with luxuries when you can afford them and have real savings.
Finally, the "realistic plans" thing is a HUGE problem communally and personally. I think maybe 20% of couples, if that, have a realistic plan for ever paying full tuition, for example. Tons of couples never plan for how they'll ever even be self-sufficient even without tuition. It seems everyone wants to buy an expensive house in the same 5 square mile area even though they make $60k and have 2 kids and expect more on the way. People are just living in "la la" land. Just heard about a couple who JUST realized after 6+ years of marriage and 2 kids that they don't make enough money (even with extra jobs) to afford to live in this area and that maybe now it's time for the husband to get the certifications he needs for his jobs which are currently being overlooked by the Jewish organization he works for. Insanity.
A tax refund doesn't equal a windfall; it's your own money.
Thanks for the shout out! Glad you enjoyed the guest post - it def. sparked some debate over on our site ;)
My wife & I recently made the difficult decision of putting our kids in public school. We were tired of always being broke and not saving enough for retirement. The backlash however has been judgmental remarks (lack of bitachon, etc.) & sermon after sermon. My wife & I are planning a move to the west coast & we'd love to see some of these people when we're retired.
I went over to the OP and saw the 10 Ways list but then saw her Sexy and All Get Out Dreams. Her dreams, INMO, are part of the problem too. Of course she wants a car that runs and dishes that match and buying clthes from a department store as opposed to thrift stores, but is buying and more buying going to help her stay out of debt? Perhaps her goals should be a thriving IRA and 401(c), plans to keep buying at the thrift stores (but staying on budget) and buying a used but serviceable 2008 Toyota Sienna to drive the family? She claims she needs these goals to power through to no-debt land.
Any other thoughts?
Yael,
You absolutely have a good point. And after many years of overspending, if a family wants to gain a foothold, they will need to have even more careful spending patterns. There is nothing wrong with thrift stores or used vans of a lower price point than the Sienna. If it wasn't for Kashrut, I'd buy dishes there too because there is always something nice.
That said, it is hard to criticize someone who has hit rock bottom and clearly recognized that their situation is their problem of their making. I've yet to meet a broke person who says, "this is my own fault, darnit".
Something has to be a motivation and so I'm not going to tear apart the motivation. If they make a commitment to pay their bills on time, the math with show that shopping for necessities at the thrift store it is where it is at.
A few other things:
1) You can't out earn stupid!
2) You can't wander out of debt.
3) You can't borrow your way out of debt.
4) Your money problems are caused by the guy in the mirror.
5) No Is a wonderful word!
I will admit I have drank the Dave Ramsey Kool-aid, and my wife and I are about to start doing his Financial Peace University. Honestly I think a lot more Jews need ot do that.
Because we work way to hard to be broke!
I agree with 9/10 of these, but I take issue with the work from home/MLM point.
There are certainly legitimate work from home businesses. In addition, I myself earn a nice salary by working online for a large established company. These days, there are ways to work virtually instead of shlepping in to the office every day.
As far as MLM, sure, many if not most of them are scams, but some people really do make a living with them. It may not be everybody's cup o' tea, but there are certainly success stories. People do earn a living with legitimate companies, say Tupperware.
Again, this sort of thing isn't everybody's cup of tea, you probably have to know a lot of people, not everyone can be successful, it takes a certain personality, you need to get in early, and so on and so forth, but my brother in law, who's been working for an MLM business for years now, and earning in the high 6 figures is proof otherwise.
From what I understand about MLM's you can make a lot of money on them, but to do so you are going to have to work really hard for many years before you see major cash.
In addition to make a lot of money in a MLM you need to spend 99% of your time recruiting sales people, not selling the product yourself.
The problem with MLM's is that they often portray it as work 3 hrs /week and make a fortune which is of course not the case. It is not easy money any more than any other sales job would be
(No direct experience, just what I heard Dave Ramsey talk about a few times)
SaraS:
"As far as MLM, sure, many if not most of them are scams, but some people really do make a living with them. It may not be everybody's cup o' tea, but there are certainly success stories."
i'm not sure what your point is. by your own admission it won't work for most people. your comment sounds like people who say don't knock dropping out of college because look at how successful bill gate became.
Like others, I agree with the bulk of this post, but take issue with the "mortgage" line. Having a mortgage means that you have a long-term debt; it does not mean that you have financial acumen.
I don't have a mortgage because I've chosen to rent and put money into actual investment vehicles (my retirement accounts, company stock purchase plan, and bank savings) rather than overextend myself and buy an overpriced house.
Homeownership as a means to build wealth made sense under certain circumstances (steady employment, affordable monthly payments, long-term community stability) which do not generally apply to most contemporary homeowners.
efrax:
At this point in time, a mortgage means a tax deduction. Everyone has to work the numbers for themselves and speak to their accountant to see if it is right for them.
When we bought our home, we calculated that it would cost us less (as a two family) than renting a similar home/area, plus we would get the tax deduction.
I actually think those are excellent goals to have as part of a financial overhaul.
They are well within the reach of someone who adjusts their spending habits and has a good job (or multiple jobs).
Had she been talking about goals that were out of reach, that would worry me much more.
NEPHEW, EFREX:
as nephew points out, rent vs. own has to be decided on a case by case situation. i think potentially owning makes more sense, but only within limits. most of us do not adhere to those limits when we actually do make the transition from rent to own.
Nephew & Abba:
Exactly correct. There are situations where buying makes sense, and situations where it does not. Having or not having a mortgage is therefore not a meaningful indicator of one's financial stability, and should therefore not be on the otherwise excellent posted list.
Efrex,
There are situations where renting a home makes sense. If your primary deduction is the mortgage deduction, then you have to factor in losing the standard deduction, which makes it MUCH smaller.
There are situations where owning a home makes sense (especially in states like Texas/Florida where in the case of bankruptcy, you keep your house with all it's equity).
There are situations where owning a smaller home than renting makes sense -- a hobbyist gardener would like to own a lawn for example.
There is NO situations where renting because you don't have the ability to get a mortgage makes sense, which was the example in the "how to be poor" post.
Home ownership isn't necessarily the "best" investment, but given the ease of 5:1 leverage (33:1 in the nutty times) and the "forced savings" aspect, it's probably not a horrible one. If someone isn't good financially, but retires with a home owned in the clear, they can probably cover their taxes with social security, much harder if they need to rent.
If you are renting and investing the rest, terrific. But for people that would rent and go out to dinner more, they are way better off owning a home with a 15 year or even 30 year fixed mortgage.
SL - thank you. Excellent clarification.
Around here, I see a lot of people buying houses that they'll never be able to afford once tuition kicks in. They justify it by noting that not only do they get the interest tax deduction, but they get the "scholarship deduction," too. In other words, you can save money by living in a cramped apartment and spend the money you saved on tuition, or you can live in a nice big house and get scholarship.
Avi,
Even better are those in Bergen County who do expansions on there house to spend down their savings right before their first kid enters yeshiva so that they don't have to spend down their savings on tuition and can immediately go on scholarship.
Avi, what you describe is an unique aspect of the "frum economy" that's not duplicated elsewhere.
Any financial advisor worth his or her salt would advise a client that if there is "free money" available, to take it, assuming there are no catches.
True, a family may be required to "spend down" their savings in order to qualify for a scholarship, but in reality (1) this doesn't always happen, (2) the family may not have much in the way of savings anyway, and (3) the house is not subject to spend-down and is a very valuable asset, albeit an illiquid one.
From a communal financial standpoint, though, this incentive to overbuy on a house, and to avoid tuition, is horrible.
That's because the "frum economy" has imposed a near 100% tax burden in a very broad income bracket, but with deductions for approved spending (including mortgages).
So, when Family A buys (or updates) a house, the money they spend is not taxed by the frum world.
Family B, who lived more frugally, will have the unspent income taxed at 100%.
Both families now have the same effective income, only one of them has an asset to show for it (and to use).
Tesyaa,
This is NOT unique to the Frum Economy.
Years ago my friend was building modeling software for financial aid consulting companies. While the software was more complicated, it basically came down do:
1. Maximize your Mortgage
2. Eliminate unsecured debts (roll them into mortgage)
3. Dump anything else into annuities or other life insurance products -- coincidentally, this company ALSO sold annuities
The reason for this? "Normal" families are NOT able to "pay for college," and the financial aid formulas called for 25% of savings to go toward it. As a result, people entering their college years were doing EXACTLY what the Frum families were doing, only they were doing it 20 years later.
Given your town-based public school system, are you going to suggest that people don't overbuy house to move to a nicer school district at when child #1 is turning 5?
It's more pronounced in Frum circles, but it's NOT unique.
Al, it's so much less pronounced that it's hard to compare. Unless you are earning enough that you will be paying full tuition at a private university with no financial aid, college costs are less overall that yeshiva. And frum people tend to have more kids, magnifying the effect. And some frum people still plan to send their kids to college. And in terms of the housing market and school districts, even the best school districts contain some smaller, older houses that are reasonably priced but still get you the benefits of a great school district.
My point was that financial advisors SHOULD recommend plans that get you free money, subsidies, scholarships, etc.
Of course this is rational economic behavior. That doesn't mean it is a good moral choice or that it makes any sense from a communal perspective (unless home ownership and renovations are a Torah value I'm simply unaware of).
Avi - the incentive structure is the problem, not the behavior in response to that incentive structure.
Communally it's horrible.
Tesyaa,
It is more pronounced.
HOWEVER, a secular family sending 2 children to private university are hitting these costs in their mid 40s. That is time to have acquired some wealth and some savings. Wiping our your savings at 45 when you first child enters college and trying to rebuild at 53 when the last one leaves is MUCH harder than a 28 year old "spending down their savings" and limping along with home equity and 401(k)s.
And you are wrong with "Unless you are earning enough that you will be paying full tuition at a private university with no financial aid" those people are fine.
The problem is that the financial aid formula is:
X% of income + 25% of savings from parent + 75% of savings from child less $Y, "allowed expenses" like mortgage, etc.
It's the SAME equation.
So, if you are frugal and saved money, and don't protect it, in your 40s, it all goes to private colleges. No different than the Yeshiva situation.
Re: "And in terms of the housing market and school districts, even the best school districts contain some smaller, older houses that are reasonably priced but still get you the benefits of a great school district."
And the people in a Frum community that attend send to a school send to the same school whether they are in a $5m mansion or a rented apartment. If you stretch to live in Teaneck, you'll be able to send to a Teaneck Yeshiva, regardless of if you can afford it.
I'm seeing a different in magnitude, NOT situation.
You can
Avi, Friend of Chump, SL, et al;
What "safeguards"/questions would you suggest the scholarship committees use to filter out this type of abuse?
I have sat on a committee in the NY/NJ area. We asked some questions that would get to this, but it is all based on ppl filling out the forms fully and honestly. Unfortunately, someone employing that strategy may not fill in much of the info that would uncover such info. i.e. fill in market value, mortgage debt, but not show that it was optional improvements.
I know of a family that bragged that they were on scholarship and remodeled their kitchen. The following year, the scholarship committee gave them significantly less. Granted, for each such case a group is aware of, there are likely others that are using the same strategy.
Another anecdote:
Our scholarship committee was more lenient on families that had need, but showed a good effort in terms of living simply, staying in an appartment if applicable, getting a smaller house (compared to avg in the area...)
Were they better off overall? I can't fully answer that. But they do get higher aid than others in the equivalent comparables.
Al: The private college tuition situation and yeshiva tuition is not quite the same, at least when it comes to shielding assets. There are some more options for college, including student loans. Also, college students can start at a community college or community college and then transfer to a four-year university or go to one of the many excellent public univesrities and save some money that way. OJ families don't have as many options to choose from if they want to be a member in good standing of their particular community.
Anon 4:53,
We weren't talking about social differences.
We're talking about the economic considerations and shielding of assets with home ownership.
On the other hand, I can buy credits *now* (at current rates, effectively) for a child, that they can use for their tuition at a flagship State University when the time comes, or with any other school that has a reciprocal agreement.
And I have a long time to put that money aside.
Rashi commentary on tractate Avot, chapter 2, paragraph 2:
Those who study and labor in Torah and also work to support themselves will not desire or steal the money of others.
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Abba's Rantings:
My point was that saying that work-from-home jobs or MLM's are a way to stay poor is a ridiculous blanket generalization.
Yes, not everything works for everyone, as is the case with any job from Lawyer to Janitor. But as there ARE in fact people earning an honest living this way, it's NOT a way to stay poor. Quite the contrary.
http://www.nytimes.com/2011/06/19/fashion/social-qs-plenty-of-seats-but-only-one-behind-the-wheel.html?scp=2&sq=social%20q%27s&st=cse
Wedding Bill Blues
My daughter is in the planning stages of a wedding that is far too expensive for my wife and me to afford. We would love to give it to her, but we just don’t have the money for an over-the-top affair. My wife thinks we should pull the plug right away, but I think we should explore taking out a loan to pay for it. I really want my daughter to have her dream wedding. How do you think we should handle this?
R.G., Hartford
Hang on, while I find a Scrabble-tile necklace and channel Suze Orman for you: “No loans.” Please don’t go into hock to pay for a wedding. It’s great that you want to give your daughter her big day, but even better to teach her by example to live within her means.
As to timing, I agree with your wife. Speak up sooner rather than later by saying, “Honey, I wish we could give you the wedding of the century, but we just can’t afford it.” Then let her know exactly how much you can contribute. Perhaps she and her fiancé, or his parents, may be able to contribute the balance.
Or perhaps, my preference, the couple with bling in their eyes will settle on a modest affair, and leave over-the-topness to folks like the Kardashians, whose weddings are probably underwritten by off-brand liquors as hungry for the publicity as they are.
Mr. Cohen, any plans to contribute to the conversation, or are you just promoting your site? Because if I were SL, I'd ban you for being a troll. A very nice troll, a troll who quotes Torah rather than shtus, but a troll nonetheless.
Anon 1:18,
Are there ways of combatting this? Yes. Will they be palatable? That's real question. One approach would be to account for home value in their assets and deduct an amortized amount of that from the scholarship. Home inspections would be needed to determine actual renovated value vs. what the applicant claims the value to be. Some would view this as extreme - they prefer taking people at their word. Besides, are you also going to do business inspections to find out if the person is keeping two sets of books or freelancing at night and not reporting that income to the scholarship committee? (Or the IRS?) If you're afraid that this is leading to communal mismanagement of limited tzedaka funds, you probably should.
Even if you had people on the committees willing to do this, it would effectively mean saying, "no" to some families who have $100K equity in a $600K house - or worse, are under water - and have no intention of selling and moving back into an apartment just so they can qualify for more scholarship. In effect, catching the abusers of the system would turn them into public school or charter school parents. Our schools and Rabbinic leadership are more concerned with this outcome than with the schools giving out more scholarship than is deserved.
Just deleted a few comments.
Now I'm curious about what I missed by just coming in now, though I suppose you wanted to spare your readers some nastiness. I see some references to "trolls." I put up a link to the post.
wow! I like your post! you made me think a second thought.. very practical!..
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