Thursday, December 3, 2009

From Nothing to Less

A link from The Simple Dollar led me to this story. It's touted as being a good example of someone who is reduced to living paycheck-to-paycheck. I'm not sure that I agree that it is a very good example, though, because I think the author spends a lot of time blaming her partners for her financial decisions. While I don't disagree that one's partner plays a significant role in one's financial health, I don't think it's fair or prudent to blame our troubles on other people. We have to take responsibility for our actions.

In short, I don't think it's a typical living paycheck-to-paycheck type of story, and really, I don't think most people who are living paycheck-to-paycheck are doing so because of some catastrophic event in their lives (like a job loss or a medical emergency), but rather due to a series of bad choices and misunderstandings of how the system of offering credit really works.

So, here's what I think is a more typical living paycheck-to-paycheck story.

Back in the day, college freshmen and sophmores didn't have credit. Those first two years are, usually, pretty lean from a financial perspective, but living on campus and having a meal plan means that the basics are covered. Most college students have someone who's interested and willing to send the occasional care package with snack food and toiletries. So, really, there isn't much need for money.

For whatever reason, that changes during junior year when the credit card companies suddenly take an interest in the soon-to-be college graduate.

I got my first credit card at the beginning of the first semester of my junior year in college. I was preapproved, and I was so grateful that someone thought me worthy of such a risk that I gladly accepted the offer.

I promptly charged $500, which I thought was my limit, and when I reached the limit, I put the card away until I could pay down the balance. I thought I was being so responsible. I was preapproved for a $300 limit, but didn't read all of the fine print literature that came with my card. Oops!

What did I buy? Clothes, mostly. And stuff. Nothing of any significance, and mostly it was a couple dollars here and a couple of dollars there. But see? That's how it starts. It's only a couple of dollars, and it's easy to dismiss a $10 purchase, every few days, when it's on a credit card. It doesn't feel like "real" money ... until one has to start writing the check each month to pay down the balance.

I had trouble paying the minimum payment.

See, before I got the credit card, I was a poor college student with only the occasional spending cash. I worked work-study jobs and/or minimum wage jobs (back then minimum wage was $3.35/hour), and while at the time I got my first credit card I was working full-time, I was also not living in the dorms, and I had rent and other household expenses.

So ....

I did so well with my first Visa, that the oil companies started sending me their cards, and I gratefully accepted a Chevron gas card. It was awesome, because the card was not just for gas. If the Chevron station had a convenience store, too (which most of them do), I could get anything they sold there ... on my card. Gasoline, soda, milk, butter, ... hotdogs for dinner when the pantry was bare.

And then, American Express, which was a "charge" card, not a "credit" card back then, offered me one of their cards. A charge card is one where you can charge as much as you want, but the balance is due at the end of each thirty-day billing period. It's not a credit card, and they don't want you to carry a balance. It's a little like taking a cash advance. They give you the spending power now, but in thirty days, you have to pay it back - in full.

I didn't use that one much, at first.

As I started having access to all of this great "free" money, the desire for new and shiny started to build, and I decided that I needed some new furniture for my lovely apartment. I bought a gorgeous, glass-top, octagon shaped kitchen table with four chairs (from a discount department store which shall remain unnamed ;), and a very large entertainment center with a brand-new color television set on which to play the Nintendo games. The stereo with dual cassette and an AM/FM tuner was a very nice addition.

Those weren't the most expensive, though. The $400 (remember, back then, minimum wage was $3.35/hour) full-wave waterbed and the $600 contemporary plush couch were two rather pricey items, and rather than being credit card purchases, they were finance company purchases. I didn't think much about the 12% interest. What was a couple of extra dollars per month above the cost of the couch?

When I started college as a starry-eyed eighteen year old, I had $0 of accumulated debt. When I graduated as a financially immature twenty-two year old, I had accumulated $16,000 in student loans, $1200 in credit card debt, and $1000 in finance company debt.

Probably not bad, considering what some college grads leave college owing, but I didn't have any job prospects.

And I decided to move across the country. The bill for the moving van in which to transport all of my (not so) new and (no longer very) shiny furniture went on the American Express ...

... as did most of my living expenses for the next four months. I ended up taking a job working minimum wage at a convenience store/gas station, because even though I had a college degree, I was in a town with which I was unfamiliar, half my stuff was in storage, and I was staying with family members, who could only host me for a very short time (four weeks), I had to take the first job that came along. I had to find my own apartment, quick.

I made just enough to cover my rent and utilities. Groceries and gasoline were, mostly, paid for with the Chevron card, and the balance was not creeping up, but soaring, like an eagle on a santa ana wind.

I called my parents. "Please help me!"

They did. They came with a convoy of pick-up trucks to carry me and all my stuff back to their house. They paid off the American Express bill for me and helped me get my college transcripts (I'd graduated, but left the University owing a little money from my last semester) so that I could apply for a job doing something other than working at a convenience store.

They lived in a fairly depressed area of the country, and jobs for people with college degrees just weren't available. In fact, jobs for people without college degrees were few.

So, I did what any normal person would do. I went back to college to work on my Master's degree.

And I started to achieve some modicum of financial stability.

My college loans were deferred, because I was a full-time student. Financial aid paid for my tuition and books with a bit leftover to pay a couple of months' worth of rent, and I was lucky to secure a work-study job on campus as a Graduate Assistant, that actually paid about twice what I could have gotten working minimum wage.

The credit cards were gone and paid for. My parents gave me their old car, which was paid for (I only had to pay the insurance bill).

Things were looking up.

I bought some more furniture, and lots of other silly stuff.

Then, the school year ended. I was offered a job as an editor for a small-town newspaper in southeastern Kentucky, and I turned down a summer job on campus to take it. The job never happened, and so I was unemployed for the summer, I wasn't taking classes (and so no financial aid), and there was very little money for paying bills.

I got behind, again, and out of desparation, I ended up taking a job that I thought was exactly what I wanted, but ended up being nothing like I'd envisioned it would be. My income tax return for that year included about $3000 worth of "job related" expenses, and among the poor financial choices of that year included a $125 loan from my boss that was never repaid, a $75/month payroll deduction for some sort of insurance policy in case I ended up with cancer (there was also a regular insurance deduction), and about $200 worth of bad check charges. I lasted just under a year at that job before I had to find another job.

Moving twice in one year included moving expenses, like a U-Haul and apartment deposits and utilities deposits - none of which is cheap.

I landed a job as an assistant restaurant manager for about the same salary as I had been making at that other job, without all of the extra deductions, and I thought things would be great.

I had a nice apartment in a decent complex (with a pool and a "community room").

I hooked-up my phone ($50/month) and cable ($60/month). I bought a "new" car from a buy here/pay here lot, because my credit was still pretty shaky and I couldn't get a regular car loan ($150/week). There was the electric bill ($60/month) and rent ($450/month). Plus, the student loans (which were mostly deferred during this time, but I did make a couple of payments), a finance company bill ($177/month), and things like food (varies) and childcare expenses ($50/week).

The household income was about $2000/month. The monthly expenses (not including student loans or food) was over $1600/month.

When people talk about living paycheck-to-paycheck, that's the kind of lifestyle they have. It's not any different from what other people have. There were no extravagant purchases - just furniture and clothes and electronics and cars - regular stuff we all have and all want. None of it was top of the line, either, and most of it was bought at the not-to-be-named discount department stores on credit cards. I didn't have diamond rings or fur coats. I never had a tropical vacation. I was living the average, every day, American life - paycheck-to-paycheck, and sometimes I had to decide which bill would remain unpaid that month, and if I made the wrong choice, I would have to answer to the always really big and really intimidating repo man.

It's easy, too easy, to get into that sort of situation, especially when credit is so easy to come by. I was a college student with three dependents, earning $4000 per year at my minimum wage job, and when I applied for credit cards, car loans, and personal loans through finance companies, no one turned me down. I was naive and immature in my understanding of how credit works. I figured if they thought I could afford it, then it must be true.

It took me many years to understand that those companies don't really care if I can afford it, or not. They'll get their money - one way or another.

I think it's true that people who've never been in that sort of financial situation just don't understand how easy it is to get there.

I've been there. I don't forget.

I know, now, the key is to adopt that old fashioned idea of saving, and the antiquated notion if one doesn't have cash, one doesn't buy it.

How very simple.

How very wise.

How very much I wish I had known these things, back when I knew it all.


  1. I've raised one who's in debt up to her eyeballs and one who called me the other day concerned about his debt before he gets married in a few months... I asked "what debt?" bracing for the worst. "I owe $125 on my credit card for the changeover to snow tires."... um, yeah, that's the kind of debt I like.

    In the end though... it's a crapshoot. Who knows which one will either pull their head out or forget what they know???

    Peace to you this holiday season.

  2. "How very much I wish I had known these things, back when I knew it all.

    Oh how those words ring true in my ears. Been there and done that.