The Rent Is Too Damn High

One thing that does concern me about the PF blogosphere is that in some quarters there’s a lack of…sympathy? understanding? of the crunch that the realities of costs/income in the United States today create. For example, the infographic here makes it seem as if Americans’ money troubles can mostly be chalked up to buying expensive purses. While “living beyond our means” is definitely a problem for *some* — including me; the reason why I had the $19k of debt a year ago is primarily that I didn’t stick strictly to a budget and seek out the cheapest housing available as a grad student in a very, very expensive city; I could have found smaller, cheaper rooms in less desirable neighborhoods and probably avoided some or all of that debt — moral failure doesn’t really account for the bad ratio of spending to income that we see there.

For most Americans, the two biggest costs are health care and housing, followed in short order by commuting. Then there’s child care, and of course food. For decades, real wages have flatlined or declined in most sectors of the economy, while health care and housing (especially) have skyrocketed. In any one given case, the problem might be spending too much on vacations, drinking, or flat-screen TVs, but in the aggregate, the problem is much more structural; people working precarious jobs in a part-time, freelance, relentlessly anti-labor and cost-cutting economy are having a lot of trouble affording the basics.

This is “the decline of the middle class” in a nutshell. I’m 35 and single. I’m not talented in any of the areas where people still make a lot of money — computer programming, finance. I might get a job pretty much anywhere in the country, and that job will probably fall within a narrow salary range; at the low end, around $50K, at the high end, around $65K. In my current town, $65K for a single person buys a pretty nice life; housing’s not dirt cheap or anything, but it’s very affordable. Even on $50K it would be a pretty nice life! However, let’s say the job is in Philadelphia, Chicago, or Los Angeles — or, God forbid, New York or San Francisco or Washington DC (all places I would love to live, by the way.) Salary likely to be on the high end of that range, but in terms of housing? I can’t see how I’d avoid having to either have roommates, or find some kind of wacky S.R.O. arrangement with a hotplate (which, by the way, don’t really exist anymore), or live in a place that required a massive commute. Rent for a 1br in DC or NYC, in any kind of central location not requiring hours on public transportation, is running anywhere from $2500 to $5000 *a month*. So…not happening.

The point is that even people willing to “go where the jobs are” and to work very very hard and to live very very frugally (I don’t drink, rarely travel, use the public library, do virtually all my own cooking, hardly ever buy clothes) can *still* find themselves in a situation where the basic cost of housing is almost out of reach. And this is discounting medical emergencies, which are still the #1 cause of bankruptcy in the United States.

So, to sum up: I don’t discount the role of personal responsibility and the need to live frugally. People in debt *do* need to figure out some kind of personal solution. But I feel pretty strongly that we ought to acknowledge that rent, medical care, child care, and transportation can eat up a hell of a lot of a normal salary — and when you work at Wal-mart or McDonald’s? Well, forget about it.

[ETA: This very interesting post (and interesting comments) from Impersonal Finance gets at some of this.]

Interest

I learned about interest in sixth grade or so, like everyone else, and then more or less forgot about it. But I’m kind of obsessed with my student loan lender’s website right now — I’m waiting around for my April paycheck (end of the month) so I can pay off loan #1 entirely, as it’s down to an amount when I can do that. So I kind of like going over there and looking at the balance and thinking “soon! soon!”

Today I looked at the “level” vs. “graduated” numbers though, because they were there and I was bored. This refers to the two possible payment plans they offer. On the level plan, I would (if I weren’t going to pay the loan off entirely this month) pay $95 a month for the next 28 months (just over two years) and end up paying just under $200 more in interest. That actually doesn’t sound so bad; if the damn thing weren’t so annoying, I’d consider doing that, hardly noticing each payment, and bulking up my savings accounts instead. (It is annoying though, so I’m not going to.)

On the “graduated” plan, meant for people with lower incomes, I’d make payments of $25 a month now, rising to $34 over the course of 115 months (or not quite 10 years.) This would be even less noticeable from my monthly budget. But I’d end up paying $940 in interest, or over 1/3 of the current total value of the loan. (Let’s not even talk about what these numbers would look like if I hadn’t been aggressively paying the thing down for six months.)

The difference between these two might as well come with a big flashing sign saying “the lending industry punishes poor people.” The big difference — the ability to make either triple or quadruple the minimum payment — results in a payment time of around 75% less, and also an interest payment only 21% of the other. (I did actual math for that last number.)

And whose interest is that in?

Early ups and downs

One of the things that I’ve really liked about reading around the personal finance blogosphere is how committed people are to reaching their goals — and how open they are about how hard it is to keep it moving on a day to day basis. I’ve only been at this blog for a week, and only had my big “must have a retirement fund now” moment a couple weeks before that, and yet already I can see this pattern.

Objectively I’m not in a terrible spot right now; the guy in his late 50s whose retirement savings are wiped out after a year of unemployment (just featured in the NY Times) is way worse off, and so are, like, billions of poor people the world over. I am determined to wipe out my debt this summer and not get back into it unless I need a car loan (in case mine dies, not because I plan to upgrade) or a mortgage. I have a guaranteed income for the next 15 months. I have wonderful friends and family members that would back me up in a second if I needed it.

But despite these good things, I feel…wobbly. Maybe because none of my financials are going to budge for nearly a month now, until my next paycheck? That might have something to do with it. It’s exciting to see my net worth jump so much at a time, and to pay off a big chunk of loan, and to open a retirement account. Waiting around, doing my job, for a month, until the next one comes in…that’s a lot of days of “one foot in front of the other” where nothing is happening!

So, I guess I have to work on both moderating the spike in my mood when I something good with money, and also on moderating the low I feel on a day like today, when I’m convinced any effort I make is for nothing.

Just Do It

I think maybe the most important thing I’ve gotten out of the last few weeks of reading is the message on retirement savings: just start. Don’t pay attention to the series of objections I always had:

1) I don’t have any spare cash
2) My life is so unstable right now; if I do have spare cash, it should be in emergency savings where I can get to it fast
3) I don’t have enough spare cash; don’t you need thou$ands?
4) I don’t know how [ok, this was a big one]
5) There’s nobody pushing me to do it and no obvious beneficiary if I die before I can use the money [this is where singleness comes into play]
6) Shouldn’t all available money go towards the student loan instead? [This is why I didn’t open a 401(k) with my current job — although there would have been no match, which mitigates that choice a little. Still should’ve asked for $200 a month to be taken out or something.]

Instead: just start. Even if it’s small. Even if it’s $25 a month. Even if you have to take the initial deposit ($1000 at Vanguard) out of emergency savings. Whatever. Just start.

It seems sort of like having a kid (nb, I do not have a kid, so YMMV) in that you never quite feel “ready” to take the plunge. Instead you have to just…start.

(An article I found useful on this is at Investopedia, by the way.)

Fear and the Future

So, in an earlier post I mentioned the relatively well-paid but temporary nature of my job. This happens a lot to early-career academics; I know some people who’ve gotten a permanent job right out of school, but just as many, if not more, who’ve had several temporary stints first.

I’m fortunate in that my first temporary job has been excellent; great location near family, compensation generous enough to allow me to live pretty well while also aggressively attacking my debt. My second temporary job…well, it’ll be ok. It’ll start this summer, and involves another move (groan) which fortunately they’re paying for. It’ll be in a city where the cost of living is even lower than here, but which will be more expensive to leave; if I want to go anywhere it pretty much means flying, not driving. And worst of all, I’m taking a pretty huge pay cut for it.

The thing is, my current job is so well-paid by the standards of my field that almost anything was going to involve a pretty huge pay cut. That’s just the reality; I was enormously lucky this year, and can’t expect that luck to continue indefinitely. And along with the dip in compensation is coming a dip in teaching responsibilities, so I can focus much more on writing than I’ve been able to do this year.

But I still have concerns.

*It’ll be the second post-graduate year in a row where I’ve had access to a 401(k) or 403(b), but no employer match due to the temporary nature of the job, so there’s not much incentive to contribute. (As far as I can tell, without an employer match it’s better to do IRAs rather than a 40…plan.) I’m kind of annoyed about this, and also worried; what if I never get to the point where an employer is finally putting something in? I’m getting old, from the point of view of compound interest.

*Ugh did I mention the really big pay cut?! (Offset substantially by the projected retirement of my debt, but I’m still going to have to go to real budgeting and/or get a second, freelance job in order to keep up with my new retirement plan.)

*Since it’s another temporary job (albeit a full year guaranteed, with health insurance) it’s still very difficult to project a future path. I can budget for the next 12 months, but I have to simultaneously prepare for the very long term, while also prepping for the possibility that I’ll be moving AGAIN come next summer, or, worse, unemployed.

In short…I’m kind of afraid. What if I can’t make it work on the new salary? What if I can’t land something else next year? What if the “something else” I land has even worse pay, or security? (You’d be surprised at how many people have been laid off in higher ed in the last few years, as colleges have either closed due to financial problems, or cut the supposedly uncuttable faculty.) Lots of what ifs, and one very tiny retirement fund staring them in the face.

[Update on the very tiny retirement fund: it has grown by $20 in the last two days as the market went up again! I know, I know, day to day stuff is basically meaningless, and I don’t want to get as depressed if it loses $20 tomorrow, as I am happy today to see the $20 there…but still, it’s making me smile.]