What Is Middle Class?

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I love election season. It’s the time of year that the middle class gets the most attention. We finally get to be the belles of the ball! The rest of the time, billionaires are being pampered with corporate subsidies and the poor are trying to access government resources to close the financial gaps preventing them from getting basics necessities. We, on the other hand, get the typical middle child treatment of abandonment. But at election time? Oh-wee! Everyone is talking about us.

So it wasn’t surprising to me when I saw a New York Times article telling Hillary that she was wrong about the middle class. “$250k a year is not middle class”, the article said. So I decided to do some googling.

A Pew research website shows that people (or households) in that income bracket are in the top 21% of earners in this country. That’s 5 times the median income. But before we take the Pew’s statistics as irrefutable evidence that the Ed Op piece is correct, we need to go beneath the surface.

As someone who encourages people to be frugal and ains to maximize her own wealth by shifting towards a more efficient lifestyle, I would never consider someone (or a family) in a $250k income bracket “struggling”. However, stating they’re a “top income earner” is misleading and doesn’t account for some very important factors.

Being richER than someone else doesn’t actually make you rich. If you’re on food stamps and are living with a family of 4 in a 700 square foot studio on one income, are you rich? The homeless guy down the street might think so because you have a place to live at all, but that doesn’t make it true. But it might seem that way if we categorize rich and poor by splitting them into 2 groups of “homeless vs. a roof over your head.”

That’s one of the flaws of the Pew’s tiered system of assessing class based on income levels. Saying that I’m in the “upper 21% of earners” puts me in the same category as Donald Trump despite the fact that I do not have the same access to the all (or even most of) luxuries and benefits that being in that class offers. For example, I can afford an Über, but not a full time chauffeur. I can afford a gun, but not a body guard. I can afford a few meals out, but not a cook.

Furthermore, while 250k a year will give any sensible person a good quality of life, we all know that $250k in NYC is not the same as $250k in OKC. Someone earning $250k a year in Oklahoma might be one of the wealthier residents in the neighborhood. But how far would that money take you in D.C.? Or even in Boston? In a nice part of town in my state, anything less than a million won’t get you a mansion. An 1,800 square foot house in Wellesley (a desirable suburb of Boston) went on the market for over $800k, with property taxes being over $8k a year. A 2-bedroom apartment with access to the city (not IN the city, meaning a 20 minute train ride) and close to public transportation, averages out to $2,000 a month. That’s just my state, which is pretty moderate. Because, who knows what’s going on out in San Francisco.

These factors are why I think we should formally get away from the three-tier system of upper, middle and lower classes. I’ve been lower class, but I’ve never been hungry or homeless. And I think people who have would resent me saying that I “identify with the struggle”, just like I resent being lumped with 7-figure earners who charter private jets to Vegas. While I don’t expect the Pew to adjust their stratification by adjusting for local economic factors, they should consider revamping their calculations to split the three major groups into subcategories.

Don’t get me wrong, I could live on $250,000 anywhere. I would live, and I would live well. But, my location would be the determining factor of which income class I consider myself to be a member.

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Your Friend’s Reality

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This is a story about a girl* who travels with her husband, eats out, has parties, wears nice jewelry and gets her nails and hair done regularly. She is a college graduate, who works full time, owns 2 cars and has the 2.5 kids. Certainly, she’s living the American dream. She lives in a nice apartment. Who says the American Dream requires owning your own home? Well, as long as you don’t want to buy a home that is.

Would you think she is still living the dream if she was living in that apartment as a result of financial limitations? In that case, I’ll clarify things for you. That nice apartment is cramped. She doesn’t want to live there. But she can’t afford to move because the $30,000 in combined debt is too high relative to her income to qualify her for a mortgage. Did I mention can barely afford the apartment? Sure, she pays her rent regularly, but it’s financially taxing. I should also mention that she can’t afford to move. How do you downsize from a 2-bedroom apartment for a family of 4 and a pet?

If you find yourself envying the social media version of your friend’s life, stop. Until you see their net worth and their monthly cash flow, take what is presented with a grain of salt.

(*This person is not theoretical. She’s real. These issues she faces are things we discussed.)

Focus on what you have

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I don’t know if this its a symptom or a cause of a consumerist society, but in wealthy western countries, we spend a significant amount of time thinking about what we don’t have. We constantly compare ourselves to our peers to see if we’re meeting manufactured milestones that carry no weight in measuring our true success.

I was reading the comment section of an article yesterday when I stumbled into a young woman’s comment about how much of a loser she thinks she is. She said she felt worthless relative to her peers because of her perceived lack of success. Her primary reason cited for feeling like a loser is the fact that she still lived at home. At the ripe old age of, wait for it… 25. TWENTY-FIVE! That’s how old she is. And that’s why she feels like a loser. She went on to say that all her friends have nice apartments and she was the only one who lived with her parents.

Leaving the nest at a young age is a relatively recent American phenomenon. It is not uncommon for first generation immigrants to live at home until they are married. It also was not uncommon for it to be that way with American kids before going away for college became popular. In fact, if we go back even 100 years, I would say that multi-generational families were not uncommon either. So why is it that this thing that we started doing less than 50 years ago is now considered a deciding marker of success?

I’m not encouraging anyone to be 40 and still mooch off mom and dad. However, if you’re 3 years out of college, with no kids and no spouse, what’s wrong with going back home to get a temporary boost? 70% college student graduates with $29,000 in student loan debts and the average starting salary for new graduates is $45,000. I don’t think it makes anyone who wants to have food security and a roof over their head a “loser” when they’re in that financial situation. And we know what average means for the people in that group. It means that many new graduates have more debt and a lower starting salary than what’s listed here.

We spend so much time worrying about our perception of other people, at least the perception they want us to have, that we can’t see the forest for the trees. This young lady doesn’t know her friends’ financial situations. She sees the apartment she doesn’t have and assumes she’s a loser. Does she know how often her friend is left with $7 after paying rent? Does she know how much credit card debt that friend has? Does she know if that friend is able to save for retirement? When it comes to money, we see what they want us to see. We don’t see the reality. Often times, the reality is grim. Very grim. (More on that in a later post.)

Additionally, why isn’t she grateful that she even has parents who are able to give her a place to stay? Some people’s parents are so financially strapped that moving back home wouldn’t even be an option. She also didn’t complain about her relationships with her parents. Maybe that’s not what bothers her the most. Maybe she has a great relationship with them. We don’t know. But since she didn’t mention it, we’ll assume it’s fine. Why isn’t she grateful for that?

She didn’t say she was unemployed. What I gathered from her comment was that she was working but didn’t make enough; at least, not enough to move out. I empathize. But her fortunes are still greater than her problems.

She’s a college graduate (Bachelor’s Degree). That makes her more educated than 70% of the American population.

She has parents who can subsidize her.

She has a job.

She lives in the richest country in the world.

She’s not homeless and made no mention of food insecurity.

This is not intended to dismiss her problems. Rather, I am encouraging her and anyone who is in a similar situation to focus on their blessings rather than their misfortune. Your only focus on your problems should be how you’re going to solve them. Not how sad you are that you can’t live alone in an overpriced apartment filled with Ikea furniture.

Every Little Bit Counts

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If you had a $1,000,000 in cash, I bet you’d consider yourself a millionaire, correct? Well what if I swiped $5? Or even $1? Would you still be a millionaire? You’d still be pretty rich, but not quite the text book definition of a millionaire.

The point I’m trying to make with this illustration is that every penny counts. People often fall into the trap of thinking that “It’s just a dollar, it’s just $10, it’s just $20.” Meanwhile, the reality is that a million dollars or even a billion dollars is a collection of $10s, $20, $50s, etc. Before you can think big, you must learn to think small. You can’t reach $100,000, and are even less likely to reach $1,000,000 if you’re not keeping your eye on your $1s.

Mind Your Bucks

This is what I like to refer to as “minding my bucks”. I keep track of every dollar spent whether it’s a $3 coffee or a $10 lunch because I know it adds up over time. I have made some relatively small changes in the past 2 years that have not materially impacted my quality of life but have managed to save me a bundle. Some can be easily quantified, others, not so much, but they all make financial sense and my only regret is not getting around to them sooner.

  • My husband’s hair grows very fast. He used to go to Supercuts twice a month for $17 and would tip $3. I cut his hair now. Savings $480 a year.
  • We used to eat dinner out once a week, averaging $50 per bill. We’ve cut back to  once a month. Savings $1,800 a year. We get an additional 10% cash back by targeting the restaurants that gives us bonus rewards (I talk about those in this post). This can get us additional savings of up to $60 a year.
  • If we’re going anywhere together, we take my car (he drives an SUV), which gives us 14 miles more per gallon (34 mpg v. 20 mpg). Our local BJ’s gas station charges $1.89/gal which translates to $24 in savings on a 600-mile round trip to visit family in NYC. If we go 4 times a year, that’s $96.
  • We take advantage of my husband’s employee discount for our BJ’s membership. While the membership usually costs $50 a month for 12 months, his job allows him to get the membership for 16 months and paying only $40. If we annualize the cost, that saves us $20 a year.
  • We canceled our gym membership after we move to our new house. The previous owners were not able to move their full size gym in time before the closing, leaving us with a total body weight training system. We also now have a 1.5 acre lot which will be useful for cardio in warmer weather. Savings, $240 a year ($20/month Planet Fitness).

Total savings: $2,696.

We didn’t become hermits. We didn’t start dumpster diving. We aren’t depriving ourselves of anything we enjoy. In fact, some people might argue that we haven’t made enough cuts. We still have cable, unlimited data plans, etc. We just made some minor adjustments to save ourselves close to $3,000. Is there room for you to find a couple thousand dollars in your budget? What would you do with an extra $3,000 a year?

FinTech: Innovative Cents

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I got my first taste of the “future” this morning and I have to say I’m kind of impressed. Yesterday, I had a paid focus group where I received $125 for talking about my insurance company for an hour. But when I got my compensation, something was different. Instead of the thin envelope with a paper check, I got a Bank of America debit card, along with a packet of fee schedules (i.e. no fee for debit purchases, no fees for BoA ATM withdrawals, but fees for non-BoA ATMs, etc.).

Normally, the idea of receiving a gift card would be a cause for concern, because one could easily get stuck with a JC Penney card or a card that can only be used at a poit-of-sale terminal. But the ability to withdraw free of charge from BoA ATMs is as good as cash. BoA ATMs are like dog poop, they are everywhere so I knew there would be no issues with getting that money. So this morning, on my way to work, I stopped by my nearest branch (which by the way, I had several to choose from within a 1/2 mile radius) to collect my coins when I realized that this particular ATM only delivers in $20 denominations. Although most ATMs are like that, there are a few that I’ve used in different towns that have had $10 or even $5 denominations. Since the banking center was closed, I thought that it was an opportunity for me to give the remote teller a whirl.

I went through the log in process and this smiling, bubbly blonde lady rocking the stereotypical “call center headset” came on to greet me. She explained that, while $20s are the only available denominations at a self-serve ATM, the teller assisted ATMs can dispense any denomination you wish, even singles. Adding that since the actual teller line would not be open until 9 am, I made the right choice in using their Teller Assist feature, which is available from 7 am until 10 pm.

Keeping in mind that the level of customer service I received is a reflection of her as an employee who takes pride in her work, I have to admit that this technology, while still in its infancy, is a game changer. There’s a camera at eye level which allows her to see me. While the machine’s microphone allows her to hear me, there’s also a handset to help hearing impaired people or anyone who might want a bit of privacy in an overcrowded ATM lobby. The process was very smooth. I used the screen like I normally would, except, in the top left corner, she was there walking me through the entire process and providing me with a service that the regular ATM couldn’t: $5 bills.

Say what you will about BoA’s predatory lending practices or absurd fees, we have to admit that this is great news for customers, which will translate into more money for them. While I don’t see myself ever using an ATM at 10 pm in downtown Boston, they have managed to extend their customer services hours by 4 hours 5 of their 6 operating days. Customers will also likely get better service and treatment from these remote tellers, because, unlike banking centers where the branch managers are busy trying to meet their monthly quotas of getting people no open new accounts, they are probably more actively monitored by their call center managers.

It does spell bad news for the average big bank teller. However, it is not uncommon for lower skilled employees to be casualties of innovation. The only people who tend to benefit from technology breakthroughs are consumers who get access to improved services and big businesses who get to fatten their pockets. This also reinforces my belief that no job is safe. But we can’t stop innovation, so build multiple streams of income and strive for financial independence.

April 2016 Budget

It’s the end of the month and I’m doing one my favorite things: reviewing my budget. If you’ve read any of my previous posts, you’ve likely figured out by now that I enjoy being frugal and keeping a close eye on my finances. In no small part due to my desire to: 1) get out of debt 2) become financially independent. For someone with these goals in mind, there’s nothing more alarming than the red alert on Mint telling you that you’re over your budget.

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The Red Box of Doom

“I keep such a close eye on my finances! How could this have happened???” I lamented. Despair set in as I scrambled to dissect every transaction I had this month to see where I needed to cut back and tighten up for May. Turns out, things weren’t as bad as I thought. Here’s what really happened:

According to Mint, I was $1,687 over budget (over budget, not over income). That’s the high level overview. 

The details:

  • I paid $1,125 towards my student loans, $725 over my budgeted amount of $400. If paying extra towards my high interest debt considered “over budget”, you can call me big spender.
  • I was $74 over my grocery budget as a result of buying an absurd amount of items that were on sale, which will save me money in the future. i.e. I bought 12 cartons of orange juice @ $1.99 a piece, when they are normally $3.99. I also bought 21 packs of English muffins for $31.50 when they would normally cost me $94.50. I have 2 refrigerators and freeze all excess food items upon purchase. They do not go bad. Look for me on Extreme Couponners (or whatever it’s called) one of these days!
  • I reinvested some interest income adding up to $77, something I choose not to budget for.
  • We bought some printer ink for $90, but that’s not a monthly occurrence. Furthermore, the fact that we have a home office and I work as a real estate agent, makes it tax a deductible purchase.
  • A trip to CVS as a due to a stiff back pain which resulted from intense yard work set us back another $34.
  • The down payment check for the solar system was cashed, and cost us another $1,000.

When I look at the fact that $725 of that amount went towards paying my debt and increasing my overall net worth, I would say that I’m really $962 over budget. But when we drill down further, of that $962, $1,000 was a one-time expense, we’re really looking at $38 below budget. Not to mention, the rest of the expenses, while they will come up again, are not monthly recurring payments. We won’t need ink for 1.5 to 2 more years, which makes it more of a $5/month cost over the course of 18 months. I don’t always buy 12 cartons of OJ and probably won’t need to buy any for the next 2-3 months. I also won’t need to buy $30 worth of heating packs every month.

This budget also doesn’t account for the fact that made $125 from my focus group and got $265 back in rewards from the credit card company.

When it’s all said and done, I actually came out on top for the month of April. I netted a few hundred dollars in cash, which isn’t much. But I increased my net worth by several thousands through mortgage payments, student loan payments and increased investments.

How did you do?

What I Wish I Knew

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Is there anything you wish you knew before you graduated high school? Anything you wish the grown folks would have shared with you before they let you loose? If you’ve made countless mistakes that you followed up with an exasperated “Well, it’s not like anyone ever told me…”, I encourage you to add to this list and prevent some other naive teenager from falling prey to the harsh realities of our cold cruel world.

  1. There is life after high school. In 2012, the average life expectancy in the USA was 78 years old. The 4 years of high school do not even register on the scale of all the living you have to do. Don’t get overly consumed by high school happenings or do things in that short period that will negatively impact your future.
  2. Be nice to your teachers. You’ll need letters of recommendation.
  3. Most high school relationships don’t survive high school. Of those that do, most don’t survive past the first semester of college. So don’t sweat it if your crush doesn’t like you back.
  4. Have an idea of what you’re interested in. College is too expensive for you to explore and experiment.
  5. If you don’t know what you want to do, take some time off. You’ll be better of having a gap year that costs you very little rather than have a $35,000 10 month party freshman year.
  6. Hold on to your friends. The older you get, the harder it is to form long lasting meaningful relationships.
  7. Save while you’re young. Whether it’s student loans, paying for your own health insurance, weddings, having kids, friend’s bridal showers, getting older also gets more expensive, thus making it harder to save.
  8. Work as hard as you can. The older you get, the less energy you’ll have. You will also want to spend time with your significant other and your kids. If you want to be a workaholic, now is the time. Get a second job, go to grad school, put in the extra hours at the office to get a promotion. You’ll never have this much time on your hands again.
  9. Live at home as long as your parents will allow it. What you’re losing out in “freedom” (read, being out late, never cleaning your room and not having boys over), you’ll make up for in killer retirement savings, a nice down payment for a starter home, bonding with your parents at a different level and having a better quality of life (home cooked meals v. ramen).
  10. Don’t drink as much as your friends. Your liver and your wallet will thank you. You’ll also like having better skin than they do.
  11. 1 in 4 STD diagnoses are in people aged 15 to 24 (CDC). Think about that next time someone you don’t know gets a little too touchy feely at a party.
  12. Get internships; ideally, paid ones. The more people go to college, the hard it is to get a job without experience. Internships will give you a competitive edge.
  13. Work while you go to school. You will need money saved up in the event that you can’t get a paid internship. It will also give your parents a break from your constant nagging about not having any money.
  14. Understand your student loan package. Don’t let the word “aid” in term “financial aid” confuse you. Not every line item is free. Know what you have to pay back.
  15. Stay away from private loans if possible. You do not have the same protection as federal student loans.
  16. If you go to college, be vocal. It’s your last chance to express yourself in a safe environment without being punished for your opinion. Once you start your career, you’ll never be allowed an opinion again. You can, and will likely get fired for saying something someone didn’t like.
  17. College is school, not an experience. College may have been an experience 30 years ago when tuition was one-eighty-seventh of what it is today. You’re in school to learn and get a degree. If you want an experience, don’t waste your parents’ money or take on debt for that. Volunteer at your local  soup kitchen.
  18. Grades don’t matter. If you have 5 years of managerial experience and a track record of increasing company profitability and efficiency by at least 10% annually. Otherwise, prepare to excel.
  19. Exercise. Your metabolism will slow and bad habits die hard. By the time you realize you don’t fit in your favorite jeans, you’ll be be out of shape and will have to work twice as hard to lose the weight.
  20. Learn to cook. Eating out is ridiculously expensive and can be bad for you. Eliminate the temptation by learning to make some of your favorite, tastiest dishes.
  21. Financial ignorance is costly. Take a financial education class. There’s so much to learn.
  22. Take a self-defense class. Especially if you plan on living in the city. Even more so if you’re a woman.
  23. You don’t have the benefit of growing up without social media in the 90s. Be careful what you share. The internet unforgivably immortalizes everything.
  24. Visit a doctor regularly. The longer problems go undetected, the more harmful they become.
  25. Learn to let go of toxic people, even if you’re related to them. Your well-being is more important than people’s hurt feelings.

What do you think of the list? Do you have any advice of your own to add? That’s it for now, but I certainly will add to it as I run into more “I wish I knew” moments.