How do people afford to live?

[Old One]

I don't get the "it depreciates faster than you can pay for it" line though -- to me, cars aren't an investment, they're a tool. You buy them to use them, not to resell them. I've had my current car for ten years, and I intend to drive it for at least several years more.

JD -

That comment comes from 2 sources.

1) If you purchase a new car on a note longer than 42-48 months (depending on make, model and downpayment), the car will be losing resale value faster than you are paying down the loan. Let's say you buy a new car for $25k and put $1k down. If you total the car 2 years into ownership - the car may only have a book value of $15k, but you owe $16.5k on the car loan. You are going to have to come up with $1.5k out of pocket just to pay the loan off. This is called being "upside down" on the car and is not a good position. Unless they are buying a used car or making a significant downpayment, I usually don't recommend people get a car loan of longer than 36 months, even if they plan to keep the car long term. If they can't afford it with a 36-month loan...they can't afford the car.

2) Cars take their steepest deprectiation in the first 2 years (usually 20-40%). Buying a 2-3 year old used car through a dealer pre-certification program (clean car, extended warranty, roadside assistance) is a much better way to go...let some other chump take the steep front-end depreciation...and you can finance 4-5 years without getting "upside down" on the transaction. This works even better if you drive the car for 7-10 years, bank the extra payments and aim to pay cash for the next and all future cars.

Many Americans buy brand new cars, finance them with 5-8 year car notes, drive them for 2-3 years and then trade them in on another brand new car. I did a regression analysis on this a couple of years ago using a 2-car couple buying $25,000 autos with each transaction and they ended up wasting something like $400,000 in depreciation and interest opportunity costs over a 30-year car buying time frame.

And don't even get me started on those 0% interest "deals" being offered by many dealers...bleah!

~ OO

 

[Old One]

No face to face gaming eh?

As for living well -- most people don't -- globally most people live in abject misery. Even those that don't (say in the US) have problems --

Let me use the US for an example

To live well -- say as well proportionatly as well as someone did in 1968 -- with a nice house and a car takes 2 incomes --

<SNIP>

Ace -

Interesting info and figures, but only part of the equation (politics aside). The other side of the wage coin is the national tax bite. According to the Tax Foundation, "Tax Freedom" day for the average American was April 17th, 2005. Up until that point, working Americans were paying all their wages (on an annualized basis) to support local, state and federal taxes (including "hidden" taxes and fees like state/federal gas taxes).

Even with the tax cuts enacted over the last several years, Americans, on average are still paying ~ 30% of their income to cover local, state and federal taxes - more than they spend on food, clothing and medical care combined.

I also don't necessarily buy the blanket statement that you need 2 incomes to equal one income in 1968, or maintain the same standard of living. When you run the analysis, which I often do for clients with small children - you often find that one spouse is working just to pay for childcare. When you factor in childcare/afterschool costs, commuting time/expense, business clothes/expense, the virtual necessity of a second car and associated expenses if you live in Suburbia and the intangibles of non-parental childcare, you find that an annual salary of $25,000 - $30,000 is essentially "break-even" for a family with 2 kids on an after-tax basis. Make that or less and you are just spinning your wheels.

I also think the expectations for many in this country on the things we must have today - house of a certain size, 2 cars, cable TV, high-speed internet, non-stop sports/social activities for our children - substantially exceed the norm of 1968.

~ OO

 

[Abstraction]

Even though I'm a guy, I hope to be a stay at home parent within a couple years. The one thing I want to point out in your analysis is that you seem to assume that a 1-income family with kids only needs one car? Not likely, these days.

My wife and I make a combined income of ~85,000 a year in northern New Mexico. This is very, very good for our area. We have 40-year old 4 bedroom, 2 bath house which cost us $120,000 (but we'll eventually pay a lot more). We should be living well with plenty saved. Unfortunately, 4 years ago we had a bad year. We had to get by for quite some time on "negative" income, using credit cards. We're still paying it down. Just a reminder to everyone, the interest you pay on high-interest credit cards is far more than the interest that can be made investing (rare cases aside). Put all your money to pay off your debt first. When that is gone, then you take that money and put into the bank/market.

 

[Ace]

Ace -

Interesting info and figures, but only part of the equation (politics aside). The other side of the wage coin is the national tax bite. According to the Tax Foundation, "Tax Freedom" day for the average American was April 17th, 2005. Up until that point, working Americans were paying all their wages (on an annualized basis) to support local, state and federal taxes (including "hidden" taxes and fees like state/federal gas taxes).

Even with the tax cuts enacted over the last several years, Americans, on average are still paying ~ 30% of their income to cover local, state and federal taxes - more than they spend on food, clothing and medical care combined.

I agree with you here. I realized I forgot the tax bite but was too lazy to fix my post. Worse we get low value on a $ per $ basis. High taxes are rarely good but if other expenses are lowered (food subsidy or socialized medicine) the effect is offset
European countries have rather extensive social welfare and national health care for not that much more in taxes --

I also don't necessarily buy the blanket statement that you need 2 incomes to equal one income in 1968, or maintain the same standard of living. When you run the analysis, which I often do for clients with small children - you often find that one spouse is working just to pay for childcare. When you factor in childcare/afterschool costs, commuting time/expense, business clothes/expense, the virtual necessity of a second car and associated expenses if you live in Suburbia and the intangibles of non-parental childcare, you find that an annual salary of $25,000 - $30,000 is essentially "break-even" for a family with 2 kids on an after-tax basis. Make that or less and you are just spinning your wheels.

Also true. The question is how many women (or non working men) have relationships stable enough to have a near certitude that the spouse will support them? With a 50% marriage failure rate it is incumbant that everyone have a career. There is a good chance that one parent (usually the woman) can become soul breadwinner. If she (or he) takes the opportunity hit to not work the risk of impoverishment is really high --

The US has some programs to help working mothers but no where enough since unskilled jobs pay so very little. And if she need daycare to work -- well there is a shortage of inexpensive options.

I also think the expectations for many in this country on the things we must have today - house of a certain size, 2 cars, cable TV, high-speed internet, non-stop sports/social activities for our children - substantially exceed the norm of 1968.

~ OO

A valid point but our society is consumption driven. Most of our media is paid for by adds, hell our whole public culture is commerce driven. Its little wonder people think they need moore and more
Even beyond that though anyone who works should get a decent portion of the pie. Since the "cool" stuff takes less time and effort input to make it is reasonable for a person to expect the same percentage of the total stuff -- if it takes 10 hours to make a widget in 1968 and 5 hours in 2005 it is reasonable that I can expect 2 Widgets

Now in terms of real prosperity and speaking only of SO-CAL where I live the only truely outrageous costs are housing and utilities . Everything else is as cheap or cheaper than most other places I have lived -- food (if you know where to shop) is dirt cheap --

Energy and Housing costs are high (IMO) because of policies keeping them that way --

In case of California housing -- (simplified here) large illegal and legal immigrant population and housing bubble effects
In energy -- (also simplified) profit concerns {Frex Anahiem city power costs one third to half what Con ed does} and unavoidable energy costs

I will refrain from offering solutions though if you relply let me know if you want to continue in E mail other--

My solutions are pure polotics and that violates forum rules

I think I have bent them a enough already

 

[Abstraction]

In the book Nickeled and Dimed the author, I forget her name, makes some very good points. One of the truly outrageous problems for the working poor is that they are in competition for the same real estate that the rich are. Of course, the rich always win that competition. Even in a neighborhood-size scale, many low-income (read affordable) areas are being cleared to make way for more profitable (expensive) developments. A large number of the working poor in urban areas actually get from day to day by renting motel rooms. The cost is astronomical, but they have to stay somewhere and there is no way to save up to get an affordable apartment. Just remember how hard the working poor have it when you start complaining about your own problems!

 

[Blue_Kryptonite]

Hearing about other parts of the country always boggles my mind.

120,000 1930s SqFt house, pristing condition, 3 bed, 1 bath, finished basement, in a suburban neighborhood. Paid the going rate of 65k last year.

2000 Ford Explorer, pristine condition. Paid 15k.

2 kids.

We eat out frequently, have four high-end computers, DSL wireless networked, 180-channel satellite.

We make 60k, total. Lots left over.

400 miles North of NYC. The REAL "upstate". Goddess, I love my town.

 

[drothgery]

Hearing about other parts of the country always boggles my mind.

120,000 1930s SqFt house, pristing condition, 3 bed, 1 bath, finished basement, in a suburban neighborhood. Paid the going rate of 65k last year.

...

400 miles North of NYC. The REAL "upstate". Goddess, I love my town.

I was always trying to leave Rochester while I lived there, but that was because I didn't know anyone there. It's not a bad place to live if you don't mind snow, and the only city in upstate NY that doesn't have negative population growth.

Can't say I regret leaving, though.

 

[mac1504]

The point is that money doesn't buy happiness, but poverty buys a lot of unhappiness.

Money doesn't buy happiness, but it buys me the type of misery I prefer.

 

[Whizbang Dustyboots]

This article says that in the Northeast, to live a good life with high quality stuff (basically, to be a Yuppie), your family of four needs to make at least $211,000 a year.

http://moneycentral.msn.com/content/invest/forbes/P121206.asp?GT1=6584

Now sure, I just graduated from college last year with an English degree, so it's not like I expect to be rich yet, and sure, the article is from Forbes so it might carry an air of unnecessarily high conceptions of wealth, but even the best jobs I'm seeing that someone with an undergraduate degree could get are around $40,000 a year. Me, I'm working 20 hours a week and will likely get about $12,000 a year, plus however much I make from E.N. Publishing and other writing work.

I'm guessing that both parents work, so that means $105,500 a year per parent. Or, if we say a 40 hour work week and 52 weeks a year, that's $50 an hour.

What I want to know is, where can I find a job like that? *grin*

For starters, it's not for people out of college. Come back when you're 45 or 50.

 

[Dirigible]

The human body has a lot of built in redundancy.

I know this guy in the Polish Mafia.

That's all I'm saying, Wick...