Before 2016, my financial situation was a hot mess, and when I say a hot mess, I mean a HOT A$$ mess!
It was like I was canoeing up $hit’s creek without a paddle or a plan, just floating along my merry way until I hit $hit rapids!
For instance, instead of tackling debt, I thought it would be a better idea to drop a couple thousand on a volunteer trip to Sri Lanka with a group of friends. For whatever reason, I was able to come up with the cash to fund a trip to the other side of the world but at home was barely making the minimum payments towards my debt. Better yet, I also thought not rolling over my 401k from my previous employer and getting taxed on the cash because I needed the money, was a genius idea. And by need, I mean, I needed cash to go out to bars in NYC, pay for cabs, and pretend like I had my $hit together in front of my friends.
Back then, my personal finance situation was the equivalent of a house of cards, always teetering on the brink of collapse at any given moment. Even an overdraft of $8.99 because my Netflix subscription came out before I got paid could throw my life into utter chaos. Something I didn’t “need,” something so small, so insignificant like Netflix, had the power to disrupt my whole life. The decisions I was making about money were as flimsy as a deck of cards, point. Blank. Period.
I was always one wrong move, one more slip-up, one more overdraft away from watching my MY WHOLE world come crashing down. If you’ve always been a saver at heart, that’s great, I applaud and admire you but if your mentality is anything like what mine was, then saving money is the last thing you think of, but always the first thing on your mind. Thoughts like “where am I going to get rent this month? Ugh, I just paid for some medical stuff, how am I going to pay for this? Really, this already went to collections?” were on repeat 24 hours a day, 7 days a week in my head.
The saying “House of Cards” (and no, I’m not talking about the show starring Kevin Spacey), as defined by Merriam-Webster, means a structure, situation, or institution that is insubstantial, shaky, or in constant danger of collapse. This definition, to me, seems pretty consistent with what has happened and is happening in America today.
With 78% of American full-time workers living paycheck to paycheck and student loan debt reaching $1.4 trillion, it’s no wonder why we see scenarios like 2008 play out time and time again. It’s a sad state of affairs when only 39% of American’s have at least $1000 saved for emergencies, but 223 million people in the US have smartphones with the average cost of $567.
According to a survey conducted by CareerBuilder in 2017, 71% of U.S. workers said they’re in debt, which was up 3% from 2016. But, we can change this—we as individuals don’t have to wait until the big banks make the whole world fail again to change our habits.
So why is it that we can’t break the cycle, get ahead, and stay ahead? Is it because we aren’t making enough to cover necessary living expenses? Well yeah, in some cases it actually is, and that’s just the reality of some people’s situations. Could it also be because we are a consumerism driven society motived more by wants, rather than needs? Possibly. Or is it because we’ve always bought what we’ve been sold?
I started to dig a little deeper, at a micro and macro level, to understand how each of us, individually and collectively, consciously build houses made of cards in our own lives.
At a very high micro level, we buy houses we can’t afford, take out loans for everything under the sun, and put more emphasis on convenience and luxuries than we do saving and investing.
At a high macro level, we are exposed to the greed of big banks and innovative mega companies like the Apples and Amazons of the world that have honed in on our “need to consume” addiction and exploit it to the highest extent that they can.
So let’s start with what is typically in our immediate control, all the nitty-gritty stuff a very micro level that contributes to the overall big picture. Household debt is generally comprised of 4 things—student loans, mortgages, credit card debt, and car loans.
One could conclude that debt is a “normal” and almost necessary part of our society because according to the Pew Charitable Trusts, 80 percent of Americans have some form of debt. Part of how society has been able to peddle this American (debt) dream to willing buyers (ourselves) is by failing to introduce the concept of money and money management early on in our education system.
In fact, we arm young adults with more information about how to apply for FASFA and apply for student loans than we do money management skills before they head out into the real world. The masses will do, what the masses are taught, and we are not taught money, we are taught concepts and theories. If I can recall correctly, the closest I actually got to money education in K-12 grade was math and economics.
Unfortunately, there has always been a big gap between theory and practice. Case in point, when 80 percent of Americans have some form of debt. A majority of us are all taught the same standardized curriculum across the broad, so to me, that percentage just means, we are learning/focusing on some of the wrong things.
Micro-The American Dream
Get good grades, go to a good school, get a good job, get married, buy a house, have kids, retire.
Sound familiar? Yeah duh, that’s because it’s the generic version of the same dream we’ve all been sold since birth. Unfortunately, it’s that very same dream that is keeping us in cycles that we can no longer afford to maintain or even entertain for that matter.
1.) A Home
According to nerdwallet.com, the average household has roughly $133,000 of debt (includes a mortgage). One way we manage to build a house of cards out of our finances is to bite off more than we can chew. Usually, a home is one of the most significant investments we can undertake in our lifetime. I guess that’s why we are given the option to borrow a bunch of money with the option to pay it all back over the course of 15-30 years.
Now, I know for most, buying a house in cash simply isn’t possible. It may take a person on minimum wage a lifetime to be able to afford a $100k house while trying to save for retirement and pay for, well, life in general. So what happens?
We get caught up in the narrative we’ve been sold and apply pressure to a situation we may not be entirely ready for- a house. We search for a place with all the bells and whistles, apply for a loan, and instead of figuring out what would be a good balance for our individual situations, we allow the banks to tell us how high we can go. Regardless of what our discretionary spending looks like after a hefty mortgage payment is taken out, we bite off more than we can chew.
Is there a way to change the “get a house after you get married” narrative/loop we are on?
Will renting ever become acceptable in society, especially with the rising cost of living and home prices?
2.) Student Loans
Kids these days are entering into an increasingly competitive workforce in droves. Where we only used to be required to have a high school diploma for certain jobs, we are now required to have advanced degrees and then some, just to get an interview!
According to a New York Times article released in July, America’s student loan problem has reached new a high, climbing to about $1.4 trillion. To add insult to injury, according to statistics published by Student Loan Hero, Student loan delinquency rate of 11.2% (90+ days delinquent or in default).
Yet, we take out loans, that surpass what we can expect to make in the market upon graduating. The lack of insight into this at the beginning of our college journey is what makes (not to cry woah is me) borrowing money so easy for an 18 year old fresh out of high school. It mainly looks like “free money” because students are so far removed from money and money management that $30,000 on paper means nothing.
I think; however this is shifting a little as more and more young adults are forging their own way as it relates to entrepreneurship and creating new paths that generations before them dared NOT to explore because of the dream.
How can we make sure that history doesn’t continue to repeat itself? Is there a way for schools to introduce a loan class or required 2-hour session on what repayment looks like given their respective degree choice before a child takes out such a large sum in their name?
3.) Credit Cards
According to creditcard.com, the Federal Reserve reported that Americans’ revolving debt, the bulk of which is credit card balances, hit $1.027 trillion in March 2018. creditcard.com also noted that revolving debt has grown to $1 trillion for the first time since the Great Recession last September. They also mentioned credit card delinquency rates are trending up again.
But why? (insert cry emoji face)
It’s one thing if a card is being paid off in full each month and I don’t know, being used to get rewards points, it’s another if its just carrying a balance month after month.
An interesting statistic reported by sparefoot.com on the the storage industry here in the U.S.-
Revenue in the U.S. self-storage industry will climb past $30 billion in 2018 and will approach $33 billion two years later!
That statistic should make you say WTF!
Why? Because apparently, Americans are drowning in stuff, junk, whatever you want to call it, for the STORAGE industry to make almost $30 billion in 1 year. We are buying a like of $hit we don’t need to impress others, and putting ourselves into debt while we do it.
How do we change this part of the narrative? How do we stop building a house of cards in our own lives? The simple answer, stop buying $hit but the more politically correct answer would be to stop equating success and proof of success with “things.”
4.) Car Loans
I have a 20 mcg Misoprostol recent post on this, so I’m not going to dive into too much detail here, but I will say that this kind of goes hand and hand with how we define success in society- things equal success.
Now, there is nothing wrong with liking nice cars because I, in fact, love an ascetically pleasing car. However, the average cost of a new car is now just north of $36,000. Throw in car maintenance, registration, and car turnover, a vehicle can end up eating away at so much of our hard earned money and for what?
The instant gratification we feel when we drive it off the lot only to not even notice our car 2 months later.
How do we shift this? Similar to credit cards, we have to stop placing such emphasis on things. We think that all this stuff will fulfill us until we are buried under a ton of “stuff” and debt.
Macro- The American Dream
The house of cards, based on the things we do behind closed doors, is what made the crash of 2008 inevitable. With companies like Apple recently becoming the first US company to top a market valuation of $1 trillion, the distribution of wealth in the U.S., and the cyclical nature of economic cycles, the American dream we’ve been taught is shaky at best.
I say that because, while a lot of factors go into the macro level of the American dream, our foundation at a micro level is faulty for the reasons I outlined above. If we are willing to continue to buy into the narrative we’ve been presented with, all of the more significant level details will appear no different to us.
Even though my finances were a hot mess back in 2016, they aren’t now. I’ve stopped buying into the traditional narrative we’ve been taught and recreated one for myself.
What do you think?
Questions for you:
1.) What house of cards are you building in your own life?
2.) How do you think the dream could be improved?
3.) Have you had any interaction with any of the above types of debt?
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Damn Millennial says
Carmen!
The only house of cards I am building is a solid poker game every once in a while. Took down $900 bucks a couple months ago.
I think if most people could sacrifice early they could have some of those “things” they want so bad today. The trouble is that everyone wants what they can’t have and most are willing to finance their dreams.
I have stayed out of the majority of debt traps. We have a mortgage but if we were to move out of the home we would have a solid cash flowing unit and have built a bunch of equity so no regrets there!
DJ - PenniesToWealth.com says
Carmen,
I can definitely say “been there done that” to ALL of these things. That feeling of over drafting because of something stupid hits me right in the heart though.
It’s amazing how we can live SO close to the edge of financial ruin and still carry on as if things are peachy king. Definitely thankful to be in a better place now and glad to see you’re in the same boat!