There's a new kid on the block. This new kid is "the educated poor." S/he is someone with a higher degree, whether bachelor's or master's level, but makes a smaller income and has student debt. In combination with his/her education, the new kid is only employable in certain geographies and economies because his/her education is only useful in these specific places and economies. Adding to the mix, the specific habitats that the educated poor inhabit are so expensive that even good wages are quickly consumed to leave the person with little to nothing.
The cryptic intro aside, there is a new phenomenon that I am paying close attention to, which is the rise of the college-educated and the fall of wages and achieving success. The so-called Millennial Generation appears to be flopping around like a bunch of beached sardines, with no ability to save or achieve secure housing. And I think I know why.
I now live in the 39th most expensive city on Planet Earth to live. The city of about 160,000 people now rents a 1-bedroom apartment for around $1,100 per month. If we follow the financial breadcrumb trail of what that means, the picture isn't pretty for even the most educated, who are just starting off and are "independent" (non-trust-funded, non-parentally-supported, and paying their own bills with money earned on their clock).
Following financial literacy standards, base rent or mortgage should never exceed 30% of one's income. To live a more comfortable existence, rent should never exceed 25%. Given $1,100 per month base rent costs, a person's net (post-tax) income needs to be around $3,300 per month, or $39,000 per year. If we count an approximately 20% payroll deduction for tax and medical benefits, this person needs to make $50,000 per year.
$50,000 per year is easy for some. Engineers, doctors, architects, and business professionals find these wages pretty easily. If you're a nurse, a teacher, or some kind of general professional, wages are almost never this high until years into a career. Given these ballpark wages, there is another problem brewing in the numbers above.
In a town where a dumpy 1-bedroom apartment away from city amenities is now $1,100 per month, a $50,000 per year income is needed. Given the rising rarity of $50,000 per year incomes for anyone but those in the more specialized and in-demand disciplines, yet the rise in $1,100 per month apartments, we now have a situation where even educated professionals cannot afford quality, personal, or non-cohabitated spaces to live in.
If the above isn't believable or not understandable, let's break down the finances of a person making, say, $32,000 per year (the average wage of a college graduate after school).
Snapshot of an Annual Salary
+ $32,000 - Gross Income
- $5,440 - 17% income tax/payroll deduction
- $960 - 3% medical benefit cost
- $13,200 - $1,100/mo rent cost
- $1,200 - $100/mo utility costs (water, sewer, trash, electricity, and heating/cooling)
- $1,200 - $100/mo insurance costs (renters and car insurance)
- $1,680 - $140/mo communication cost (cell phone + internet only)
------------------------------------------
$8,320 for vehicle, food, fun, and recreation leftover = $690 per month leftover for everything else
"$690?! That's plenty!!!" you say? Subtract a payment on a used car. Then subtract gasoline. Then subtract the occasional annual repairs needed on a car. THEN... subtract a student loan payment.
The average college student is leaving school with around $50,000 in debt. We asked colleges to start behaving more like businesses and they obliged. This amount leads to a $420 per month payment every month for ten years.
So, let's take that $690 luxury money leftover and get a more realistic look.
Accounting for the Real Expenses
+ $690 per month leftover after core expenses
- $420 per month for a $50,000 student loan payment
- $250 per month for a car payment on a used car
- $120 per month for gasoline (1,000 miles @ 25 MPG and $3/gallon)
- $200 per month for food (assuming $6.66 per day for all meals)
------------------------------------------
-$300 per month... uh.... in debt.
So, Houston... we have a problem. On a $32,000 per year gross income, in a town where a 600 square foot, junk-ass one-bedroom apartment is $1,100 per month, the person making $32,000 per year is now $300 per month (plus or minus) over-budget. They are not making enough to save money, go out, or really... even have what they think they have. This person's finances do not allow for the purchase of new clothes, vehicle repairs, recreation, or fun -- it's all work and a highly-disciplined core existence.
The answer could be that these people in these places can no longer afford a car. It may mean they need to change their phone over to a pay-as-you-go plan. Or maybe all of the above. Even when we cut out the $250 per month car payment, the cost of gasoline, and the $90 per month smart-phone plan, the person making $32,000 per year is still only left with $720 per month after student loans are deducted.
Are we really to a point where we expect college graduates to not own cars, have the luxuries that are almost a necessity in today's world for connectivity for professional and personal lives, and to live on $200 per month for food? Are we really at a place where the college graduate of my generation can't make enough money to save for a house, or move out of co-habitation with peers? Are we really living in an economy where our most educated are now living entirely in-debt for a lifestyle that was once considered the poster-child of a mediocre and failed existence?
The numbers here can be adjusted to look better. I do all of my own car maintenance, so don't endure many unnecessary expenses. I live in an RV for less than half the price of a 1-bedroom apartment. I live on an oatmeal, bran, beans, and potatoes diet. I rarely buy alcohol and don't go on dates.
Given that I have cut out meat, women, and all of the other expensive domestic luxuries that are unnecessary, I live pretty well in this environment. But by most people's definition, I also live in a third-world country; I live in a vehicle.
The educated poor is part of my idea of "The Education Bubble." We are entering a new economic system where the non-educated are even poorer because the educated are now the poor. At the point where a college graduate, exempting the valued disciplines, cannot afford to own a car or live on their own, is a bad place to be. It is no longer true that if you get a good education, you get a good job. It now appears that you have to get a good education... just to survive.
Tuesday, July 21, 2015
Thursday, July 16, 2015
Extreme Budgeting
I am coining a new form of financial thought: "Extreme Budgeting." For many years, I have made models of my finances to guide my financial decisions. My models have told me how much things will cost in the long-term, how much money I will have at the end of each month, and what my debt:income ratios are. I am now trying to change my financial position rapidly with minimal income. And the scene isn't pretty.
I'm finally making more per hour than I was before grad school. That's a huge feat, but there are two significant problems. First, my net salary is tiny after taxes and insurance are deducted. And, second, I now have more debt than I have ever had thanks to the terrible decision to go to grad school.
The predicament I am in is this: In my current situation, I can only save about $1,800 per year after taxes, rent, utilities, insurance, food, debt payments, and such. If I get rid of my trusty old Nissan Sentra, I will only be able to save $700 per year. The thought of shedding a car and losing money is almost preposterous, but the car is so fuel efficient and reliable, it's a fundamental truth.
I don't know about everybody else, but it's pretty pitiful when someone with such a high hourly wage can only save $700 per year. Thanks to student loans from almost a decade's worth of classes and degrees, that's my reality. What it means is that, in my current location, if I wasn't living in an RV, I would not actually be able to afford a single-bedroom apartment.
Enter "Extreme Budgeting." My parent's generation won't understand this. Most don't understand the predicament that my generation is in. My generation can't save money, we can't get jobs that pay well enough to own homes, and education no longer means what it used to on the job market. Sure, there are engineers, computer programmers, and other highly-valued vocations that are doing well. But I'm not an engineer -- I'm an idiot that studied things that are worthless.
Given that I'm an idiot, but a tough idiot, I am going to have to find a way around this predicament. And I have to do it with skills I have that set me apart from others. The economy we live in is built very similarly to the natural world; Those who can find a niche and exploit it win.
My niche is the ability to live very minimally in very harsh conditions. And the difference it could make in my finances is almost too fantastic to be real.
In my financial model, I accounted for all the core living expenses; rent, utilities, phone, etc. But I also accounted for gasoline consumption, groceries, and fun money. On a yearly basis, given all of my expenses, including student loans and a storage unit, I will... never... be able to buy a house. Or even rent an apartment in the city I work in.
My answer is to eliminate everything I possibly can from my budget, including rent. As soon as my student loans start coming due, I will have so little money each month, I will not even be able to afford doctor visits.
The next item I want to eliminate from my finances includes the following: Rent and utilities. Hold onto your butts.
The way I plan to do this is to move into my truck. Full time. And it's the only way. I have the numbers in front of me. There is no other way to get ahead. Without a miraculous promotion, my financial progress is frozen and my freedom completely garnished. I am the only person I have ever met who can pull this off and pull it off well.
The RV will be sold. The car sent to the scrap yard. And the truck improved. I am ready for it and it is the only way to achieve my goals. Patience? Yeah. Because at 32 with a dual-masters degree and 10 years of professional experience, I should be patient to the tune of being able to save $700 per year. Nope. Sorry. No thanks. Life is too expensive. The rent is too damn high. And there are too many mouths to feed.
The difference in the model shows that I can save $1,700 per year by keeping the car up and running. Or I can save $8,300 per year by living in the truck. How is that even possible? Here's the equation:
Savings = (Income - (Rent + Utilities + Phone + Insurance + Student Loans + Food + Gas + Fun))*12
It's a painful equation because it accounts for everything (except car repairs). And when I add the approximately $7,500 I will retrieve from the sale of the RV, I can either have $9,200 or $15,800 in the bank by the end of the year.
My only goal is to buy another property by February. Selling the RV and living in my truck is the only way to that goal. Welcome to a new era of extreme budgeting. Only the extreme will survive.
I'm finally making more per hour than I was before grad school. That's a huge feat, but there are two significant problems. First, my net salary is tiny after taxes and insurance are deducted. And, second, I now have more debt than I have ever had thanks to the terrible decision to go to grad school.
The predicament I am in is this: In my current situation, I can only save about $1,800 per year after taxes, rent, utilities, insurance, food, debt payments, and such. If I get rid of my trusty old Nissan Sentra, I will only be able to save $700 per year. The thought of shedding a car and losing money is almost preposterous, but the car is so fuel efficient and reliable, it's a fundamental truth.
I don't know about everybody else, but it's pretty pitiful when someone with such a high hourly wage can only save $700 per year. Thanks to student loans from almost a decade's worth of classes and degrees, that's my reality. What it means is that, in my current location, if I wasn't living in an RV, I would not actually be able to afford a single-bedroom apartment.
Enter "Extreme Budgeting." My parent's generation won't understand this. Most don't understand the predicament that my generation is in. My generation can't save money, we can't get jobs that pay well enough to own homes, and education no longer means what it used to on the job market. Sure, there are engineers, computer programmers, and other highly-valued vocations that are doing well. But I'm not an engineer -- I'm an idiot that studied things that are worthless.
Given that I'm an idiot, but a tough idiot, I am going to have to find a way around this predicament. And I have to do it with skills I have that set me apart from others. The economy we live in is built very similarly to the natural world; Those who can find a niche and exploit it win.
My niche is the ability to live very minimally in very harsh conditions. And the difference it could make in my finances is almost too fantastic to be real.
In my financial model, I accounted for all the core living expenses; rent, utilities, phone, etc. But I also accounted for gasoline consumption, groceries, and fun money. On a yearly basis, given all of my expenses, including student loans and a storage unit, I will... never... be able to buy a house. Or even rent an apartment in the city I work in.
My answer is to eliminate everything I possibly can from my budget, including rent. As soon as my student loans start coming due, I will have so little money each month, I will not even be able to afford doctor visits.
The next item I want to eliminate from my finances includes the following: Rent and utilities. Hold onto your butts.
The way I plan to do this is to move into my truck. Full time. And it's the only way. I have the numbers in front of me. There is no other way to get ahead. Without a miraculous promotion, my financial progress is frozen and my freedom completely garnished. I am the only person I have ever met who can pull this off and pull it off well.
The RV will be sold. The car sent to the scrap yard. And the truck improved. I am ready for it and it is the only way to achieve my goals. Patience? Yeah. Because at 32 with a dual-masters degree and 10 years of professional experience, I should be patient to the tune of being able to save $700 per year. Nope. Sorry. No thanks. Life is too expensive. The rent is too damn high. And there are too many mouths to feed.
The difference in the model shows that I can save $1,700 per year by keeping the car up and running. Or I can save $8,300 per year by living in the truck. How is that even possible? Here's the equation:
Savings = (Income - (Rent + Utilities + Phone + Insurance + Student Loans + Food + Gas + Fun))*12
It's a painful equation because it accounts for everything (except car repairs). And when I add the approximately $7,500 I will retrieve from the sale of the RV, I can either have $9,200 or $15,800 in the bank by the end of the year.
My only goal is to buy another property by February. Selling the RV and living in my truck is the only way to that goal. Welcome to a new era of extreme budgeting. Only the extreme will survive.
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