The Secret Shame of Middle Class Americans

[ChocolateReignRemix]

No, back in the 1960s and 1970s 30 year mortgages made sense for some people because job stability was very different than now.  Back in the day people had the same employer for decades.  That's not the norm now-it's the exception.  It's also poor use of money because of the amount of interest being spent.  House resale was better then because markets were more stable than they are now and people couldn't or wouldn't spend their equity before they sold their house.  Now a days, people should get a 15 year if you get one at all. Their housing costs should not exceed 25% of take home pay.  Housing costs are the single most common problem expense for most Americans.  

 

Yes as I've repeated many times in this thread, it's fine to buy a new car if you can afford a new car.  Most people who buy new cars can't really afford them because they're spending money on more car and none on savings and retirement.  If you can consistently save for savings and retirement at a reasonable rate and you can afford a new car and want one, then you should buy a new car.  If not, the new car is a bad financial decision unless you have unusually low expenses that make up for it.

 

 

Whether it is a poor use of money or not is a depends. I won't go into any more detail as you simply have some backwards thinking and are factually incorrect.

[ChocolateReignRemix]

No one ever claimed a repair would never be needed.  Or a major repair.  I don't know where you got the idea that I'm unaware of that.  That's what the $1000 minimum emergency fund and then the 3-6 months worth of expenses savings is for.  For the occasional.  However, people who do their homework can see that some vehicles have much worse repair records than others.  If you choose to buy a car that is more likely to have repairs then you should plan accordingly by having additional savings beyond the general guidelines because you know darn well it's more likely to happen.  If you buy a car without doing that kind of homework, you're choosing to gamble and gambling rarely pays off.

 

 

I made that statement because you said:

".For example, if they have a car that isn't known for a great repaid record, they could easily have an emergency repair in the $1000+ range."

 

It doesn't matter what the repair record is - ish happens.

 

Edited April 21, 2016 by ChocolateReignRemix

[ChocolateReignRemix]

So, here's my question. We have fairly sizable 401Ks. At the moment it's about double DH's annual salary (we're in our 30s). We max out employer matching (resulting in a contribution of ~16% of our income). We have had savings, but they have been exhausted by unavoidable home repairs and buying a used van. We've been without debt, but then we've had several major expenses hit at one time (2 AC units totally $14K) that we financed with no interest, and a few others that are on a credit card. I could stop 401K contributions and try to build up the 3-6 month cushion. But I'm getting an incredible return on that money (because of employer matching, never mind return on investment), so instead I skate along with about $4K in savings, $2K in credit card debt, $7K in interest-free debt. I figure if I ever had to pay for something in cash and couldn't finance it no interest, we could borrow from our 401K. It would have to be a pretty crazy thing (certainly NOT a wedding for our daughters), and only if we were facing bankruptcy or extremely high interest rate to borrow it otherwise. 

 

Am I financially stupid?

 

No, you are not.  While it would be best to work on building up the reserve, and taking a 401K loan should always be a last resort, maxing out the employer match now will pay off much more in the long run.

 

[SKL]

I really notice those things as well, and I think they are a good example of items that people really do think are necessities for living.  That, for example, having their kids share is really inadaquate parenting somehow. 

 

I also find it interesting that when I was looking at standard house plans, in order to avoid some of those things (three full bathrooms or all bedrooms with giant closets) I had to look at the "cottage" section.

 

I wonder how much of the change is because we no longer assume our children will leave the nest while still teens.

 

I recently built two new bedrooms for my daughters, because although they didn't mind sharing a small room as kids, we all expect that they will live in the house until they are young adults, possibly longer.  I expect that they will eventually inherit the house, and there's no particular reason why they shouldn't live here unless and until they get married or move for a job.  But no, I don't expect them to love sharing a small room when they are in their teens or 20s.  Having a comfortable room at home will save them money if they attend a college they can commute to (which is likely given the selection of nearby colleges).

 

You could say I added the bedrooms because I *do* expect my kids to share, the way I share, as an adult in a house with other adults.  If they decide not to, other use can be made of their rooms.

 

We also added another small bathroom, because in the grand scheme of things, it is not a big deal.  We think it will increase the value of the house in case we ever decide to move out, though we currently have no such plans.

 

Another consideration is that work spaces are moving out of office buildings and into homes.  An office worker may be reduced to a tiny shared cubicle at work, so with the portability of laptops, it can be more comfortable to work at home in one's pajamas near a window with a pleasant view.  When I design new spaces at home, I assume work is going to be done there.  I need a printer table and files and space to spread papers around.  I need a comfortable chair for sitting erect hour after hour - the moon chair doesn't cut it.  On the other hand, being able to work at home can reduce other expenditures such as gasoline, wardrobe, and after-school child care costs.

 

Depending on the area, a bigger house doesn't cost much more anyway.  I've seen tiny houses in the LA area for ~$400K and big houses in the Midwest for ~$100K (less if it's a fixer-upper).  We won't even talk about the cost of a shower stall in NYC.  :p  Space is important to me, so I live in a place where space is affordable.

 

FTR we only have one eating area.  :P

Edited April 21, 2016 by SKL

[ChocolateReignRemix]

Long before I heard of DR I had figured out a 30 year mortgage was nuts. For me any way. My thinking and decision was that if I had to go 30 years I really couldn't afford the house. There are exceptions of course.....like my SIL who bought a house on 30 year mortgage and her payment to were about the same as her public housing rent.

 

For the most part people are over buying houses.

 

And it is difficult to remember that when we seem to be the only ones not living in fancy houses.

 

To be honest though most of my close friends are living similar to us house wise.

 

You don't have to use all 30 years to pay the mortgage.  You can take a 30 year at a slightly higher interest rate (part of which you can deduct) and use the difference between the 30 year and 15 year payments to help build savings/emergency funds/retirement funds while young.  As your income rises over time, the home payment becomes smaller relative to the household income, and you can either start making additional payments on the principal, or if rates are better than when you purchased, you can refinance into a 15 year or mortgage.

 

Based on the bolded I am can only assume you haven't noticed the the surge in home sales over the past couple of years.

[Scarlett]

You don't have to use all 30 years to pay the mortgage. You can take a 30 year at a slightly higher interest rate (part of which you can deduct) and use the difference between the 30 year and 15 year payments to help build savings/emergency funds/retirement funds while young. As your income rises over time, the home payment becomes smaller relative to the household income, and you can either start making additional payments on the principal, or if rates are better than when you purchased, you can refinance into a 15 year or mortgage.

 

Based on the bolded I am can only assume you haven't noticed the the surge in home sales over the past couple of years.

Well yes I know that. I would love to see the statistics of people who actually pay a mortgage off early. I think most people don't.

 

As to the increase in home sales.....how does that mean people aren't over buying?

Edited April 21, 2016 by Scarlett

[ChocolateReignRemix]

Well yes I know that. I would love to see the statistics of people who actually pay a mortgage off early. I think most people don't.

 

As to the increase in home sales.....how does that mean people aren't over buying!

 

It would probably be because on my iPad I horribly misread a word lol,  Ignore that statement.

 

On that point, I don't believe there is evidence that most people are over buying.  It varies greatly by market, and there isn't a "real" definition of over buying to apply to the numbers.  Many try to use the standard of an X-multiple (usually 2.5-3) of household income, which is not entirely accurate now as that rule of thumb was based on higher interest rates than we currently have in the market.

 

Regarding early pay offs, it depends on ho you calculate it.  Some retirees/empty nesters who still have a small mortgage will sell and downsize into a smaller home when they could have paid off the mortgage instead.  I would wager the number who actually pay a mortgage off early, or who could so if they chose, is higher than you imagine.

Edited April 21, 2016 by ChocolateReignRemix

[Joker]

.

Edited April 21, 2016 by Joker

[hornblower]

My only knowledge of Canadian house prices comes from HGTV.  I often wonder if people take out 100 year mortgages or something.  I don't know how they do it. 

 

I live in a Vancouver suburb & I can't see how it's done. I really can't. We couldn't afford to buy our own house now. 

 

The cheapest house in my neighbourhood is a teensy tiny old and ugly 2 bdr & 1 bath 1000 sq ft rancher. Minimum to buy is a down payment of 42,000 and income of 289,000.  

 

Minimum wage is 10.45.  Incomes are stagnant. 

 

The theory is that 

 

1. everyone is growing pot. 

2. everyone is living with many generations, suites (legal & otherwise), and boarders (hosting foreign students is extremely common) 

3. many people are tenants & the actual owners are extremely wealthy offshore investors who are funneling money out of China 

 

 

[SKL]

Well yes I know that. I would love to see the statistics of people who actually pay a mortgage off early. I think most people don't.

 

As to the increase in home sales.....how does that mean people aren't over buying?

 

We took a 30-year mortgage and paid it off early.

 

It is nice to have flexibility to pay more when you can, and less when you need to, without getting your credit dinged.  Of course one needs some financial discipline to put the extra money down on the house (or other loans) instead of buying that shiny new toy.

 

I know some people who planned it so they paid off their house by the time they retired, which for them meant they paid off their 30-year mortgage early.

 

Edited April 21, 2016 by SKL

[kubiac]

 

+ I really need to make financial literacy a more formal part of my kids' educations. I do a lot informally, but I need to formalize things ASAP. These financial choices we make control a lot of our destiny!

 

 

I was just reading that because Thomas Jefferson died so heavily in debt, his heirs were forced to sell all his ~135 slaves at auction. The auction shattered families, nuclear and extended, who had been living together at Monticello for sometimes as long as 75+ years. Financial choices control not just your destiny, but very possibly the destinies of your dependents, be they children, pets or your chattel slaves.

[TranquilMind]

This just isn't reality for huge portions of the country, especially areas with a high concentration of jobs for the newly graduated.

 

I just looked up homes in my area (NoVA, so HCOL, but the cheapest area of NoVA for DC commuting) that would only cost 25% of take home pay for a 15 year mortgage. The ONLY listing that showed up was for a 1 bed 1 bath 450 sqft condo. But, it had $306/month HOA fees, and that doesn't include a parking spot, which runs in the 20000-30000 range. And our take home pay is above average for our area, edging close to upper middle class.

 

And it's not like renting is an alternative to a 30 year mortgage. To rent a 2 bed apartment, which doesn't include utilities around here, or a parking spot, is a minimum of $1400 a month. This is reality for young couples now. A 15 year mortgage only costing 25% takehome is a dream for even the well off. And you can't just blame it on the area, because the cities are where the jobs are. 

 

Just as an aside, I drove by a tiny home I sold some time ago to a family.  There was a for-rent sign in the yard, to my surprise.  So, of course I looked it up online, having owned several homes in the area.  The rent for this tiny place was $1,300!  I own a larger, nicer house down the road on which the mortgage payment is less than half that. 

 

I couldn't believe it.   

[marbel]

NM. 
 

Edited April 21, 2016 by marbel

[Katy]

So, here's my question. We have fairly sizable 401Ks. At the moment it's about double DH's annual salary (we're in our 30s). We max out employer matching (resulting in a contribution of ~16% of our income). We have had savings, but they have been exhausted by unavoidable home repairs and buying a used van. We've been without debt, but then we've had several major expenses hit at one time (2 AC units totally $14K) that we financed with no interest, and a few others that are on a credit card. I could stop 401K contributions and try to build up the 3-6 month cushion. But I'm getting an incredible return on that money (because of employer matching, never mind return on investment), so instead I skate along with about $4K in savings, $2K in credit card debt, $7K in interest-free debt. I figure if I ever had to pay for something in cash and couldn't finance it no interest, we could borrow from our 401K. It would have to be a pretty crazy thing (certainly NOT a wedding for our daughters), and only if we were facing bankruptcy or extremely high interest rate to borrow it otherwise. 

 

Am I financially stupid?

 

I don't think so.  We've made some pretty similar decisions.

[Pawz4me]

So, here's my question. We have fairly sizable 401Ks. At the moment it's about double DH's annual salary (we're in our 30s). We max out employer matching (resulting in a contribution of ~16% of our income). We have had savings, but they have been exhausted by unavoidable home repairs and buying a used van. We've been without debt, but then we've had several major expenses hit at one time (2 AC units totally $14K) that we financed with no interest, and a few others that are on a credit card. I could stop 401K contributions and try to build up the 3-6 month cushion. But I'm getting an incredible return on that money (because of employer matching, never mind return on investment), so instead I skate along with about $4K in savings, $2K in credit card debt, $7K in interest-free debt. I figure if I ever had to pay for something in cash and couldn't finance it no interest, we could borrow from our 401K. It would have to be a pretty crazy thing (certainly NOT a wedding for our daughters), and only if we were facing bankruptcy or extremely high interest rate to borrow it otherwise. 

 

Am I financially stupid?

 

No, I don't think so.  Except I would prioritize paying off the credit card debt unless you have an extremely low interest rate.

 

I think it's often financially stupid to make being debt free some kind of Holy Grail.  If you (generic) need to be debt free for peace of mind then okay.  But frequently it doesn't make any sense financially, and can be a costly mistake over time.

Edited April 21, 2016 by Pawz4me

[PinkyandtheBrains.]

Well yes I know that. I would love to see the statistics of people who actually pay a mortgage off early. I think most people don't.

 

As to the increase in home sales.....how does that mean people aren't over buying?

Most of my immediate and extended family took out 30 year mortgages and are in process of paying them off early, or refinanced as 15 year and still paying off early.

[Pawz4me]

Well yes I know that. I would love to see the statistics of people who actually pay a mortgage off early. I think most people don't.

 

We could pay our mortgage off early -- could have done so years ago.  But it would have been a very financially stupid move.  Our average return on investments over the years has been much better than our mortgage interest rate.

[Bluegoat]

When I call it a right, I'm referring to U.S. Constitutional law.

 

 

That was a case about the legalization of birth control--however, the principle applies equally to the choice to have a child as the choice not to.

 

Yes, I assumed you meant it that way.  I am not sure it is the best way to understand it which was my point - I think it may actually lead to unfortunate attitudes.  We have plenty of rights that we may not be wise to follow under different circumstances. We have the right to spend our money how we like, but that may be very unwise, and people might be quite right to make that assessment.  Many people seem to think of procreation that way - it is something we choose or not, it is like a consumer right.  Those who judge unwisely are not only hurting themselves and their families, they are quite possibly burdening the state and society, for which judgement is often unsympathetic.

 

Under those circumstances choices about having children might be left up to the individual, but there will be significant social pressures and judgements around choices.  maybe even more - in the UK there was talk not that long ago about only giving social security support for up to (I think) two children - after that the state would no longer support the persons poor consumer choice to procreate.

[Bluegoat]

My only knowledge of Canadian house prices comes from HGTV.  I often wonder if people take out 100 year mortgages or something.  I don't know how they do it. 

 

I think the mortgage regulations now don't allow for more than a 25 year mortgage.

 

But the problem I think is mainly that the home prices on HGTV are mostly looking at hugly overpriced markets - namely Vancouver and Toronto.  That would be similar to taking prices in NYC or London(UK) as reflective of the national prices. 

 

THose big cities IMO are going to have serious social problems as a result of their housing issues.

[Scarlett]

No, I don't think so. Except I would prioritize paying off the credit card debt unless you have an extremely low interest rate.

 

I think it's often financially stupid to make being debt free some kind of Holy Grail. If you (generic) need to be debt free for peace of mind then okay. But frequently it doesn't make any sense financially, and can be a costly mistake over time.

I dont think being debt free is realistic for most people. Especially a mortgage. But I do t see how it could ever b considered a costly mistake.

[DawnM]

Well, I guess it depends. I just ran the numbers for a salary of $100,000. I would consider that well off. A 15 year mortgage at 25% of their take home would allow for $200,000 home purchase. (That's not including taxes, insurance, or PMI in their mortgage.) For $200000 they could have a 1 bed 780 sqft condo. But it has $389 in HOA fees, but does include 1 parking spot. And I want to stress this is in one of the least expensive areas to live in and be able to commute to DC. Not the cheapest (that's in MD) but close to it.

 

$100,000 yearly salary sounds well off. I would not consider that able to afford decent housing on a 15 year mortgage no.

 

 

I know a lot of places are more expensive.  My friends live in Fredericksburg, VA.  Her husband commutes to DC.  They purchased their 2,400 sq. ft, 4 bedroom home for $160K 17 years ago.  She said it was last appraised last year at $340K.  

 

So, I would imagine you could indeed find something in the $200K-$250K range for smaller that would not be a 1 bedroom condo.

 

But I also am not opposed to 30 year mortgages, which would allow someone making $100K to purchase a $340K house.  Sometimes it is just necessary.  And the hope is that you will make more down the road, particularly if you are under age 40 when you purchase.

[DawnM]

Just as an aside, I drove by a tiny home I sold some time ago to a family.  There was a for-rent sign in the yard, to my surprise.  So, of course I looked it up online, having owned several homes in the area.  The rent for this tiny place was $1,300!  I own a larger, nicer house down the road on which the mortgage payment is less than half that. 

 

I couldn't believe it.   

 

Whoah!

 

DH suggested we put a couple in our backyard and rent them out.  Not sure I will share this as I don't want renters in our backyard!  

 

Our neighbors had one delivered to their house.  It is in their woods and you can't see it well, but it is a trailer looking one story thing that apparently has a bathroom, a bedroom, and a kitchen.  But he uses it as his office.

[SparklyUnicorn]

Well yes I know that. I would love to see the statistics of people who actually pay a mortgage off early. I think most people don't.

 

 

 

I don't personally know anyone who has done this.  We could potentially do it, but I don't think in our case it would be the wisest thing.  The biggest thing is the house is very old and I don't think the value is going to ever go up that much.  This really is not what I'd call an investment house.  But what it has been for us is a lower cost housing option and the opportunity to no longer have to deal with the crap we hate about renting.  We are paying significantly less to own verses what we paid to rent in the exact same area.

[bettyandbob]

I know a lot of places are more expensive. My friends live in Fredericksburg, VA. Her husband commutes to DC. They purchased their 2,400 sq. ft, 4 bedroom home for $160K 17 years ago. She said it was last appraised last year at $340K.

 

So, I would imagine you could indeed find something in the $200K-$250K range for smaller that would not be a 1 bedroom condo.

This all depends on where in the DC or NOVA are the person works and what the family considers reasonable commute. If one works near the Pentagon or in Springfield and works predictable hours that can be flexed around commuting trends, then Fredericksburg might be a reasonable place to live for the job. However, Fredericksburg is really far out for many, many jobs in the DC area. Fredericksburg is not an example for most people. There are things to consider like one parent may leave home before the kids wake and not return until after bedtime. That would make a medium to large house not worth considering for my family. My townhouse was 180K 20 years ago. Similar models are mid to high 400s today. No way we could buy this house again. One bedroom rentals are $1500/month near me.

[creekland]

There is a wide, wide margin between "derail your life" and "never actually live your life because you're waiting for everything to be just so."

 

:iagree:  I'm definitely not in the "save, save, save" camp.  I've seen too many folks do that and not ever be able to use their money (death, illness, Alzheimers).  In the meantime, they grew older and missed out on so much of life - thinking they'd get to it tomorrow.

 

I'm also not in the "no debt" camp.  Leveraged debt (esp 30 year mortgages) helped us tremendously with our savings.  We still have them on our rental properties.  By thoughtfully buying more house (actually land) than we could technically afford in our early days, we've reaped a ton by splitting off and selling some of it.  

 

We married young (I was 20) and had our first child when I was 24.  No regrets at all.  We're still able to enjoy youthful pursuits with them and hope to continue that for far longer.

 

We travel - often - as simple as camping, as extravagant as oceanfront.  We've even done Disney more than once, but not often as it's certainly not a Top 10 destination even if it is fun.  For the same $$, there are far more places we would choose to go.

 

We do scrimp and save in other areas to pay for what we want to do, but we don't scrimp and save everywhere and forgo actual life.  We just make (intelligent) choices based upon options we have and what we want.

 

Had we listened to advice on this thread... our lives would have been so different and certainly not better!

 

As to why middle america is unable to afford $400 in emergencies?  I blame most of it on HCOL areas.  One of the choices we made was NOT to live in one (it was an option).  That was the best financial decision we ever made TBH.  Ok... maybe second.  Getting our college degrees at a good college (even with 5 figure debt) was probably #1, but those decisions were made prior to our getting married.

 

At least it's less than 50% unable to afford the emergency.  That means more than 50% of us have no problem with it.  Count me among those who would put it on a cc (to reap rewards) and pay for it next month.  I'll actually be doing that with $1400 on Monday - paying for it in June the way the cc billing falls (no interest).

[EmseB]

I read somewhere recently that home prices are going up close to pre-2008 levels again, and the mortgage industry is being encouraged by our government, again, to loan to people who would not qualify based on credit scores and such. I can't find the article right now, but it seems that we are setting ourselves up for the middle class to take another big devaluation of their assets. It seems we not only want to eat our cake and have it too, but also want to eat it right now. Why have we convinced ourselves that we need to buy so much with money we don't have?

[Pawz4me]

I dont think being debt free is realistic for most people. Especially a mortgage. But I do t see how it could ever b considered a costly mistake.

 

I'm assuming you meant "don't see how it could ever be considered a costly mistake"?  If so, that's an easy answer -- because money in investments may earn more over time than the cost of mortgage interest.  Right now our mortgage rate is 2.75 percent.  Even being relatively conservative with our investments (which is prudent at our age) we're easily able to earn better returns on our money than that.  That's true of any type of investing, but probably particularly true if someone prioritizes paying off a mortgage versus maxing out contributions to a retirement fund and misses out on employer matching.

[DawnM]

This all depends on where in the DC or NOVA are the person works and what the family considers reasonable commute. If one works near the Pentagon or in Springfield and works predictable hours that can be flexed around commuting trends, then Fredericksburg might be a reasonable place to live for the job. However, Fredericksburg is really far out for many, many jobs in the DC area. Fredericksburg is not an example for most people. There are things to consider like one parent may leave home before the kids wake and not return until after bedtime. That would make a medium to large house not worth considering for my family. My townhouse was 180K 20 years ago. Similar models are mid to high 400s today. No way we could buy this house again. One bedroom rentals are $1500/month near me.

 

Right.  And i have lived in a very high COL area.  But that is one huge reason we moved out completely.

 

But I don't think it is worth spending over 50% of your take home pay for just housing.  If you make $100K, buying a $500K home is really not reasonable.  People do it.  But I personally don't think it is wise.

[shanvan]

I get a bit annoyed by the people who congratulate themselves for how well they have managed their money while not "keeping up with the Joneses". It really doesn't take much to put you into debt and into a shaky position. We are pretty frugal and at one time we had a healthy savings/investment and little debt. We have never had cable TV,  dh's car is 14 years old and has rolled over miles, my kids don't wear new or expensive clothes, gifts are practical, we haven't taken a vacation in years and before that our vacations were camping trips, we all get our hair cut at a cheap walk-in place, our furniture is 15+ years old and has holes in it, we rarely eat out, our TVs are 15 years old, I took the kids to a movie theater this year for the first time in 5 years. We do spend money on some kids activities and homeschool materials, but otherwise we're pretty frugal. When the economy took a dive, our investments (not aggressive at all!) lost a huge amount of value and we hoped we could ride it out and recoup some of it. Instead, my dh lost his job and because of his field and age, it took him FOUR YEARS to find anything beyond very low wage temporary jobs with no benefits or time off. My education and background is the same as his, so I couldn't be much help. We considered selling our house and moving, but houses were practically being given away at that time in our neighborhood and we have adult children and elderly parents in this area. We ended up having to take the rest of the investment money out just to pay basic bills and when everything (refrigerator, washing machine, car) starting breaking and dh had an injury that put him out of work for a few weeks, we put repairs and medical bills on credit cards. Now we are in debt and it's going to take us a while to dig out. There's NO money to put in savings. We need to put every spare cent to debt reduction right now.

I had a very similar reaction to the article and posts.  We are in a similar situation but Dh is still working a job that pays about HALF of his salary before he lost his job.   We went from middle class to low income in 2 years.  And, I will admit, I make decisions others would judge harshly.  We do drive out of state for trips even though we owe money.  We are going to owe money for a long time, but my aunt in her 70's may not be alive when and if we have our debt paid off and I can justify the cost of visiting her.  People win out over money in my book.  Otoh, Ds is going to the college that offered him free tuition, so we do the best we can.   I spent $5 last year to go to the movies with my mom.  Many people would say I had no business to spend that $5.  Whatever. .. trust me, it was necessary for my own sanity.   The older I get the more I realize I really can't judge decisions made by others.  It's hard to know all of the circumstances and a lot of what has been said is true.  We live in strange times when what is normal to most is spending money all the time.  How can it be otherwise?  We live in a consumer economy. 

[tm919]

I don't personally know anyone who has done this.  We could potentially do it, but I don't think in our case it would be the wisest thing.  The biggest thing is the house is very old and I don't think the value is going to ever go up that much.  This really is not what I'd call an investment house.  But what it has been for us is a lower cost housing option and the opportunity to no longer have to deal with the crap we hate about renting.  We are paying significantly less to own verses what we paid to rent in the exact same area.

My parents did. And we probably will. We've paid an extra $100 or so on the principal every month since getting the mortgage.

Regarding the house price stuff, we did buy at 25% our income. But I have to commute 2 hours (each way) to my job. Many of my friends and acquaintances in town have the same type of commute into a big city. I sometimes think we made the wrong decision not paying more for a house closer to our workplaces, so my husband could actually see the children more than a few minutes on average weekdays. I don't really see an answer for us, except to go back in time and go into lines of work less tied to major cities.

 

I think part of "overspending" and low savings is psychological -- but we do ourselves a disservice if we convince ourselves it's (almost) "all in our heads."

[SparklyUnicorn]

 

 

I think part of "overspending" and low savings is psychological -- but we do ourselves a disservice if we convince ourselves it's (almost) "all in our heads."

 

I'm not quite sure what you mean with that.

 

I think a big part of it is we often aren't taught how to handle money.  In school I never had a class that talked about financial stuff.  My parents were of the mindset that financial stuff was highly personal and children had no right to know any of it.  I at least have done a little better in that department in that I do tell my kids about our financial information.  How else are they going to figure this out?  Yes they'll figure it out, but it might be how I figured it out: by making a lot of mistakes. 

 

 

[PeachyDoodle]

I'm not quite sure what you mean with that.

 

I think a big part of it is we often aren't taught how to handle money.  In school I never had a class that talked about financial stuff.  My parents were of the mindset that financial stuff was highly personal and children had no right to know any of it.  I at least have done a little better in that department in that I do tell my kids about our financial information.  How else are they going to figure this out?  Yes they'll figure it out, but it might be how I figured it out: by making a lot of mistakes. 

 

ITA. I was very lucky that my parents did a good job teaching us to be financially literate. DH had zero instruction from his parents. They were so private about their money that they didn't even let each other know what they had. They divided all the bills; he paid some and she paid some. They never shared anything.

 

Fortunately, DH and I were young when we met and he absorbed some things from my family. Unfortunately, that didn't stop him from making some pretty major mistakes during the years when he had to handle the finances for our family because I was dealing with some post-partum issues. We are just now digging out from those mistakes since I have taken back the reigns.

 

Our children will definitely have a solid financial education. We have already started it.

 

[SparklyUnicorn]

ITA. I was very lucky that my parents did a good job teaching us to be financially literate. DH had zero instruction from his parents. They were so private about their money that they didn't even let each other know what they had. They divided all the bills; he paid some and she paid some. They never shared anything.

 

 

 

 

Whew, that's pretty hard core.  My dad's father wouldn't fill out the financial aid information for him to go to college because he didn't want my dad to know what he made or others to know.  The thought makes me pretty angry.  So my dad could not go to school.  But because these attitudes can run deep and be passed on, my dad had a hard time with it.  He gave me the information, but I know it was not easy for him. 

 

At this point I tell my kids everything.  Anything from salary to what the mortgage is and to what the electric bill is. 

[happypamama]

This all depends on where in the DC or NOVA are the person works and what the family considers reasonable commute. If one works near the Pentagon or in Springfield and works predictable hours that can be flexed around commuting trends, then Fredericksburg might be a reasonable place to live for the job. However, Fredericksburg is really far out for many, many jobs in the DC area. Fredericksburg is not an example for most people. There are things to consider like one parent may leave home before the kids wake and not return until after bedtime. That would make a medium to large house not worth considering for my family. My townhouse was 180K 20 years ago. Similar models are mid to high 400s today. No way we could buy this house again. One bedroom rentals are $1500/month near me.

Plus the commuting costs add up too. DH commutes 40 miles each way. It's a very pleasant commute, as far as commutes go, in that it's a straight road with little traffic and pretty scenery, but 40 miles adds up in gas, plus two to four new tires every year. Now, we pay less for housing up here than we would closer to his office, so it's probably a trade-off, but living further out from a job does mean higher commuting costs. (And, of course, it costs in time, in that it's an hour and a half every day that he's driving instead of sleeping or spending time with his family. I'd say it probably also costs in that it leaves no opportunity for him or me to have a second job too, but as our children get older, that's less of an issue.). You really have to crunch all the numbers when deciding how close to live to work.

 

(When we lived outside of DC, we lived in PG County, and DH would drive into the city as needed, an hour and a half each way sometimes for a fifteen mile drive, in miserable traffic. And since he needed his tools and truck, he couldn't take public transportation. So no wonder he jumped at the chance to have the commute he does now. Don't miss that DC drive at all!)

[SparklyUnicorn]

Having a short commute was very important to my husband.  So we live where we live in large part because of that.  In order to live in a less urban area we'd have to travel far.  That's not worth it to him and I don't blame him.

 

His commute is about 10 minutes.

 

 

[tm919]

I'm not quite sure what you mean with that.

 

I think a big part of it is we often aren't taught how to handle money.  In school I never had a class that talked about financial stuff.  My parents were of the mindset that financial stuff was highly personal and children had no right to know any of it.  I at least have done a little better in that department in that I do tell my kids about our financial information.  How else are they going to figure this out?  Yes they'll figure it out, but it might be how I figured it out: by making a lot of mistakes. 

I just mean that there are actually real-life constraints that cause people to break the financial "rules" even if they know them. Yes, part of it is that we compare ourselves to a level of consumption we shouldn't. That part is psychological.

 

But, for example: I could never blame anyone who chose to spend more than 25% or whatever is recommended on a home, if they are tied by their work to high COL areas. In our area, I know many families where one or both parents see their child 30 minutes or less per day during the week. Those are the families that bought responsibly -- despite the fact that the jobs available to the parents were deep in areas they could not really afford. Then, I know families that struggle to pay their mortgage and everything else because they bought closer to their work -- but they can actually be home by 6 PM and spend the night with the family. We chose to be financially responsible. End result: My husband hardly sees the kids during the week. 

 

I just don't think the "keeping up with the..." logic is the entire story. It's definitely PART of the story. But if we don't acknowledge there are real structural constraints, it can seem like we've "failed" when really it was a rock or a hard place situation. 

Edited April 21, 2016 by tm919

[Bluegoat]

I think one of the issues with HCOL areas is that they tend to have a lot of jobs, and especially certain kinds of jobs.

 

I think that it often isn't something young people who are trying to think about careers and training consider - where am I likely to end up living if I study in this field?  Even if the salaies are good, is that because I am likely to live in an expensive area?  Or is this something I can do in a variety of settings, or the place I'd like to be?

[SparklyUnicorn]

I just mean that there are actually real-life constraints that cause people to break the financial "rules" even if they know them. Yes, part of it is that we compare ourselves to a level of consumption we shouldn't. That part is psychological.

 

But, for example: I could never blame anyone who chose to spend more than 25% or whatever is recommended on a home, if they are tied by their work to high COL areas. In our area, I know many families where one or both parents see their child 30 minutes or less per day during the week. Those are the families that bought responsibly -- despite the fact that the jobs available to the parents were deep in areas they could not really afford. Then, I know families that struggle to pay their mortgage and everything else because they bought closer to their work -- but they can actually be home by 6 PM and spend the night with the family. We chose to be financially responsible. End result: My husband hardly sees the kids during the week. 

 

I just don't think the "keeping up with the..." logic is the entire story. It's definitely PART of the story. But if we don't acknowledge there are real structural constraints, it can seem like we've "failed" when really it was a rock or a hard place situation. 

 

So true.  Yes. 

 

It's hard to find the perfect balance of area, desired jobs, cost of living, etc. 

[Bluegoat]

Having a short commute was very important to my husband.  So we live where we live in large part because of that.  In order to live in a less urban area we'd have to travel far.  That's not worth it to him and I don't blame him.

 

His commute is about 10 minutes.

 

Yes, us too.  We used to have a commute of over an hour each way.  We loved the place where we lived, but it was a lot of time spent.

 

And when we crunched the numbers, we found it would be cheaper to have a house in the city than the commute.

 

We got a house right on a bus route that goes to dh's office, so for a long time we managed with only one car which was a big savings.  In fact, with several good bus routes and walking distance to some services, we could go without a car at all if we really needed to cut costs, which ads significant flexbility.  And his bus ride is less than 10 min each way.

[SparklyUnicorn]

Yes, us too.  We used to have a commute of over an hour each way.  We loved the place where we lived, but it was a lot of time spent.

 

And when we crunched the numbers, we found it would be cheaper to have a house in the city than the commute.

 

We got a house right on a bus route that goes to dh's office, so for a long time we managed with only one car which was a big savings.  In fact, with several good bus routes and walking distance to some services, we could go without a car at all if we really needed to cut costs, which ads significant flexbility.  And his bus ride is less than 10 min each way.

 

Yeah only once did I have a job with a fairly long commute.  I absolutely hated that.

 

Nice thing too is if absolutely necessary my husband could take a bus there.  He doesn't, but he could if he had to.  It's just from here to there it's probably an hour with all the stops.  That would be fine out of necessity, but would suck normally.

[Scarlett]

I'm assuming you meant "don't see how it could ever be considered a costly mistake"? If so, that's an easy answer -- because money in investments may earn more over time than the cost of mortgage interest. Right now our mortgage rate is 2.75 percent. Even being relatively conservative with our investments (which is prudent at our age) we're easily able to earn better returns on our money than that. That's true of any type of investing, but probably particularly true if someone prioritizes paying off a mortgage versus maxing out contributions to a retirement fund and misses out on employer matching.

Investing instead of paying off a mortgage early....is one thing....I don't agree with it but that is a personal decision. But I was speaking to your comment that being debt free can be costly. You could do both. Pay off you mortgage and invest. Being in debt is not a requirement for success.

Edited April 21, 2016 by Scarlett

[SparklyUnicorn]

Investing instead of paying off a mortgage early....is one thing....I don't agree with it but that is a personal decision. But I was speaking to your comment that being debt free can be costly. You could do both. Pay off you mortgage and invest. Being in debt is not a requirement for success.

 

It depends on the house.  Some houses aren't much of an investment and/or one might have no plans to stay there for a long time.  So there may be no real point to quickly paying it off.

[Scarlett]

It depends on the house. Some houses aren't much of an investment and/or one might have no plans to stay there for a long time. So there may be no real point to quickly paying it off.

Because paying it off gives you more money to spend on other things.

[HomeAgain]

Because paying it off gives you more money to spend on other things.

 

Also, it gives you more freedom if you have to move.  We've paid a small extra on our mortgage since we got here, between $20-30 each month.  That money snowballed and cut our interest payments, cut the life of the mortgage, AND we put ourselves in a decent position to be able to sell and break even/make a profit within the first three years, even though the market has gone down.  If we need to sell, we can.  We don't have to wait because we're underwater.

[Scarlett]

Also, it gives you more freedom if you have to move. We've paid a small extra on our mortgage since we got here, between $20-30 each month. That money snowballed and cut our interest payments, cut the life of the mortgage, AND we put ourselves in a decent position to be able to sell and break even/make a profit within the first three years, even though the market has gone down. If we need to sell, we can. We don't have to wait because we're underwater.

So true. We have no mortgage and it feels really good. I know we at least have a place to live if something bad happens and there is less money coming in.

 

I think paying off a mortgage is much more than just crunching numbers and saying well we have 3% mortgage I terets but we are making 5% in investments. Investments are NEVER secure. So you are keeping a known debt in favor of an unknown investment.

[Bluegoat]

So true. We have no mortgage and it feels really good. I know we at least have a place to live if something bad happens and there is less money coming in.

 

I think paying off a mortgage is much more than just crunching numbers and saying well we have 3% mortgage I terets but we are making 5% in investments. Investments are NEVER secure. So you are keeping a known debt in favor of an unknown investment.

 

Did you see that movie, the Queen of Vairsailles?

 

IIRC, that is why they lost their new house (which would have been the largest and possibly tackiest house in America), and were in serious danger of losing the old one -  the husband had everything mortgaged so he could invest the money for a greater return.

 

Now that was not a matter of investing in a very conservative way, but at the time I think it seemed quite sensible.

[SparklyUnicorn]

Because paying it off gives you more money to spend on other things.

 

It depends on how much you have to stretch to pay it off quickly. I assume my expenses now are much higher than they will be 15 years from now.  I need more money now.

[Tsuga]

Yes, because the middle class has been getting poorer for decades, while the amount of stuff we are supposed to buy as good consumers "keeping up appearances" has constantly increased.

 

If only we had that stuff we are supposed to have to explain why a teacher's / educator's salary going up by all of 20% has magically made it impossible to buy a house that has increased in price tenfold over the same time period.

 

Can I please have my Hawaiian vacation and Xbox please? Because all I got was a husband leaving me and that's it.

 

Can I have all my new clothes, because my clothes expenditure over the past five years has been $200 for three people and I'm a working professional. Everything else has been "coupons": rewards, or Goodwill.

 

So, so tired of hearing that I'm not saving because I have cable and Netflix. Can I please have that? Where's my cable?

[SparklyUnicorn]

The house payment portion of my mortgage is about $400.  So if paid off I'd have an extra $400 a month, but not now.  Not for say 15 years if I paid it off sooner.  That's not huge.  Some people pay more than that for their car.  (Also, keep in mind that property taxes here are very high.)

 

So what I have is a very low rent payment with all of the money going towards what benefits me rather than a landlord. 

 

I guess I don't think "bottom line" thinking always makes the most sense.  I'll have more money in 15 years simply because in 15 years I won't have children living at home.  So is there any real point to stretching myself now when I need more money now?

[creekland]

Investing instead of paying off a mortgage early....is one thing....I don't agree with it but that is a personal decision. But I was speaking to your comment that being debt free can be costly. You could do both. Pay off you mortgage and invest. Being in debt is not a requirement for success.

 

You can't really do both.  If you take 20K and pay off your mortgage, that is your investment.  You don't get another 20K except by adding up monthly payments over time.  In that same amount of time, the 20K could have produced a bit more elsewhere.

 

So true. We have no mortgage and it feels really good. I know we at least have a place to live if something bad happens and there is less money coming in.

 

I think paying off a mortgage is much more than just crunching numbers and saying well we have 3% mortgage I terets but we are making 5% in investments. Investments are NEVER secure. So you are keeping a known debt in favor of an unknown investment.

 

True.  One has to be comfortable with leveraging debt.  Not everyone is.  All I can say is it worked well for us.  We wouldn't be in the financial position we're in now if we hadn't taken the risk.  We'd be nowhere close to the financial position we're in now actually.  The first investment provided for the second and it snowballed from there.  We even lost a TON when most of us did - and still came out ahead with the leveraged debt bit.