How does this happen?

[LivingAlmostLarge]

So I have a friend that used to blog a long time ago about finances and fashion. We're old friends who have shared a lot and they've been trying to get out of debt. But then bad choices keeps leading down the wrong path.

He makes $115k/year, but they bought their current house with 0% down for $330k. They moved and rushed to buy before selling their old home which they had to pay money to sell it turns out. Anyway the costs of carrying it and expenses they somehow are back at $40k in CC debt and $10k in car loans.

They are 33 and 36 and have no retirement savings. Something I've mentioned for 5 years but she's always had the argument they needed to focus on CC debt and other debts. But now they are getting older and nothing is being saved.

And I noticed this trend among many people, and there was that thread by the 26/28 year old young couple. His response was "i don't know we can save if we star a family."

How do people get around the saving mindset? I wonder if people aren't stretching to afford that house, car, etc and put saving on the backburner? Then of course you can afford that nicer house, car, vacation because you aren't saving anything?

FWIW she told me that the plan is to pay off debt in 2 years and start to save. But I wonder will that really happen? I don't get how you make $115k and a house for $330k with a house payment of $2k and make almost $10k/month and still have so much debt?

No i didn't say that to her, but I did try to push her into thinking about saving for retirement.

[disneysteve]

I think it's a combination of denial, instant gratification, victim mentality, and some degree of societal/legal/governmental problems. Lax lending standards give people ample rope with which to hang themselves.

[97guns]

its also a case of: put your nose to the grinding wheel and go. most everyone in america lives for today, they wake up punch the clock and at the end of the day pay their bills, its not denial its their life and the only way they know how to live it, a million dollar job would net the same results

[97guns]

stay on the hampster wheel, if they fall off they have no idea what to do, they would only eat and poop, hampster wheel gives them a purpose

[Fishindude77]

This is pretty much a case study in poor personal financial management:

1. Take home $80K per year (after tax), borrow $330 for a house = dumb.
2. No down payment, borrow it all = dumb.
3. Buy new house with no solid plan for selling existing = dumb.
4. No savings or emergency funds to carry through tough time forced use of credit card = dumb.
5. Taking on credit card debt that can't be paid off each month = dumb.
6. No retirement savings = dumb.

This is just some real basic, Dave Ramsey, barnyard economics stuff. I hope they get their act together, but something tells me they will get beyond this problem right back into the next because they feel they are entitled to a fine home, nice automobiles, upper middle class lifestyle, etc.

[Nika]

Yes, I always had concern how can we possibly save and start a family (childcare prices in NYC are crazy), and even when kids start going to public school, and no longer need full time daycare, between camp and after school care it is about 15-20K for our son who goes to public school . Will be double now.

So my strategy was "I don't know if we will be able so save in the future, so must at least save this year". Than at least we will have something to cumulatively build on itself, even if we are unable to save as much later.

So my mindset has always been - we must save this year, we just have to finish off our goal for this year. And if we have to cut in the future, than we will, but it is a victory and an accomplishment every year we do it.

So far, I managed to do it every year since I started thinking like that. It became a habit, and we see the traction that comes of it.

[Jluke]

How do people get around the saving mindset?

I think there are people who are just bad at math.

there is also the mindset of "It will all work out; it always does"

Seems like people feel they are on easy street when they hit that 100k salary; but only really see 60-75% of it in net income (appx?)

I'm sure there's people who max the 401k and the ROTH, may even have a pension coming, plus social security and are still worried about having enough for retirement.

[disneysteve]

Seems like people feel they are on easy street when they hit that 100k salary; but only really see 60-75% of it in net income (appx?)

A lot of people make the mistake of budgeting based on their gross whether it's 100K or 75K or 50K or 250K. It doesn't matter how much you earn. That's why pro athletes and movie stars go broke.

[disneysteve]

The lending issue is really a big part of the problem. The fact that these people could buy a 330K house with no money down is insane. If there was a law requiring a 20% down payment, the housing debacle never would have happened. If there was a law limiting mortgages to 28% of income, the housing debacle never would have happened. If credit cards required a 50% minimum payment instead of a 4% minimum, credit card debt would be nearly non-existent. We need to stop handing people guns and then getting upset when they unintentionally shoot themselves.

[Nutria]

The lending issue is really a big part of the problem. The fact that these people could buy a 330K house with no money down is insane. If there was a law requiring a 20% down payment, the housing debacle never would have happened. If there was a law limiting mortgages to 28% of income, the housing debacle never would have happened. If credit cards required a 50% minimum payment instead of a 4% minimum, credit card debt would be nearly non-existent. We need to stop handing people guns and then getting upset when they unintentionally shoot themselves.

Talk about Nanny State!!!

[disneysteve]

Talk about Nanny State!!!

Yes and no. There needs to be some type of banking regulations in place to prevent chaos. We as a nation don't seem to have learned a damned thing from the financial meltdown in 2008. I agree that you can't legislate away stupidity but you can at least put reasonable guidelines in place to limit the damage people can do.

I've said plenty of times that the amount of credit my wife and I have is insane. On all of our credit cards, we have a combined credit limit that meets or exceeds our annual income. If we lost our minds, we could go out tomorrow and rack up debt that we couldn't possibly pay. Why is that allowed? Who benefits from that?

[Nutria]

Why is that allowed?

Because we live in the Land of the (allegedly) Free, and "Free" means that you can shoot yourself in the leg with your own gun.

[disneysteve]

Because we live in the Land of the (allegedly) Free, and "Free" means that you can shoot yourself in the leg with your own gun.

True. Sad, but true.

[LivingAlmostLarge]

I was curious because I asked her how were they borrowing with no money down. She said "oh just some PMI". I think they pay on the $330k over $2k/month for taxes and payment because the interest rate is so high.

But I have no idea how they got approved even with great credit scores. I mean it just snowballs. She said they try to stick to a budget of $800 groceries for 2 people and should have $2k/month leftover but somehow it just goes away.

I think the real problem is the spending but maybe borrowing without any money down was a worse idea. They were allowed to tie themselves into a very expensive house. I thought lending standards were supposed to be stricter now. Sure doesn't seem that way

[greenskeeper]

A lot of people make the mistake of budgeting based on their gross whether it's 100K or 75K or 50K or 250K. It doesn't matter how much you earn. That's why pro athletes and movie stars go broke.

Pro athletes go broke because they think the game checks will never stop coming. The average career in the NFL (not for long) is about 2.5 years.

I think that sports leagues should make it mandatory to allocate a certain percentage of an athletes salary to a 30 year annuity that pays only after they retire.