An Interactive Definition Of Upper, Middle, and Lower Class


While doing a little weekend reading I ran across an interesting, interactive post from The New York Times (via The Simple Dollar).  The tool uses four “components of class” including occupation, education, income, and wealth.  Apparently, your classification in each of the four categories will determine your overall class (bottom fifth, lower middle, middle, upper middle, or top fifth).  The definitions provided for each class seem to be relatively in line with what one would expect, but in this economy things seem to be “ebbing and flowing” day to day.  I would expect someone who earns $60,000 a year in a stable career feels more secure than someone who earns $100,000 in a volatile one, so income may be more heavily weighted than it ought to be.

Occupation

My work is far from prestigious, but is also a step up from some of the jobs I’ve held over the years (being on the business end of a walk-behind Ditch Witch laying sprinkler pipe during a Georgia summer was some of the toughest work I’ve ever done).  My current job would be best described in the “Computer and Information Systems” area, barely landing us in the upper middle class category.

Education

Though it took a number of years, three schools and the accumulation of some debt, I did finally return to school and complete my bachelor’s degree.  This accomplishment landed me in the top fifth category, but I wonder if a basic bachelor’s degree will one day soon be the equivalent of a high school diploma with the push for more government subsidized post-secondary education.  That’s for another post.

Income

The combination of my full time job’s income, and my work here at Frugal Dad (and other freelance gigs), lands me in the top fifth class.  This is a good lesson. I should be living the high life, or at least a taller life, but thanks to debt we are living on far less than we earn.  The gazelle intensity is worth the sacrifice though as we are hammering down those debt balances.

Wealth

By far the most disappointing results of the group. Between our remaining school debt, and the fact that my retirement accounts have been obliterated in the last year, this drove our net worth into the lower middle class territory.  I am not overly despondent about it, but it is a great reminder that I have work to do.

Lessons Learned

My wife and I “treaded water,” financially, for most of our 20’s.  Well, that’s not entirely true because we did accumulate some debt. We got married young, decided to have kids young, and decided she would stay home with the kids rather than pursue a career. It was a personal decision that worked best for our little family, but it was one that did not come without sacrifices.

Until I finished my degree, and broadened my experience in my current career field, my earnings were in the lower middle class income range. We survived, but had little disposable income to save and invest.  In our late twenties things finally began to look up as my income increased, and we began to adopt a more frugal lifestyle.

Now that we are in our thirties we have some ground to make up on those who saved more diligently in their twenties. It’s a bitter pill, but one I wouldn’t trade for my beautiful children and the life we are blessed with now.  However, our primary mission is to make up lost ground on our retirement savings, clear the rest of our debt, and sock something away for our kids’ college education.  Easier said than done.

Which class do you belong, according to the survey/tool? Do you agree?

Can One Choose Not To Participate In A Recession?


Dave Ramsey thinks so. Let me preface this post by saying I’m a huge Dave Ramsey fan.  I’ve read nearly all his books, attended a Live Event, and listen to his show at least a couple times a week.  Every now and then he says something that tweaks me just a bit.

Over the last few months I’ve heard him (and others) toss around the idea that one can choose whether or not they participate in this recession. I know what he’s getting at, and depending on how your personal economy is going you might even find it inspirational.  However, if you just got laid off, and suffered some setbacks in the weeks and months leading up to it which melted your emergency fund, you may think differently.

A few months ago I wrote a post titled the Serenity Prayer For Finances.  Basically, it broke down the words of the serenity prayer and applied a financial spin.  Ramsey’s comments caused me to reflect on those words again, and wonder what things I have control over, and what I don’t.  Here’s what I thought a few months ago:

Stop and think for a moment about all the things that are currently causing stress in your financial life.  I bet there are quite a few you have control over, like overspending or expensive car payments.  But if you are like me there may be other things that are outside of your control, yet they continue to cause stress.

I still believe that’s true, and I’ve lived it for the last eight months.  My mom suffered an aneurysm and stroke at 53 years young last September.  She did things the right way – had a good job, good insurance, a little (very little) socked away for emergencies.  But nothing could fully prepare someone for 162 days in the hospital out of the last eight months, being reduced to disability pay, and watching her retirement savings be decimated in a bear market.  It was a perfect storm in her financial life, and it will probably affect her for the rest of her life.

The silver lining (and believe me, our family has had to long and hard to find one), is that watching her go through this has had a profound effect on us.  For the younger ones, it is a sobering reminder how quickly the carpet can be pulled out from under you – just when you thought you were hitting your stride.  It was a reminder that no matter how well you prepare, there is always that unknown lurking out there that can knock you off your feet – quite literally.

So I take exception to what Ramsey says.  Not everyone can choose not to participate in this recession.  The single mom working a part time job because her ex got laid off and no longer sends child support certainly is participating in the recession.  The husband and father of two delivering pizzas at night because the plant he works at reduced his hours is participating in the recession.  The kids feeling depressed and anxious because they overheard their parents fighting about money are participating in the recession.

I chose not to participate, too, until the recession found me and participated in my life.  Sometimes, that’s just the way it works.  Whether it is fate, or just bad luck, we’ll never know.  But to suggest our family, or any other family, chose this fate is naive.  Sometimes bad things happen to good people.  It doesn’t make them bad people.

Is Frugality The Anti-Stimulus Plan?


Last Friday, the government released statistics revealing Americans are saving money at a rate nearly triple that of the same period last year.  In the final quarter of 2008, Americans saved 2.9% of their net incomes, compared to less than 1% from the same time last year.  Apparently, frugality is to blame.  According to economists and a quote from a recent story appearing on FoxNews.com, this is known as the “paradox of thrift. What’s good for individuals – spending less, saving more – is bad for the economy when everyone does it.”

This all sets up to make us frugal types feel guilty over the current state of the economy.  As if it is our fault that people borrowed up to their eyeballs (and then some) for two decades while our government leaned on banks to be even more liberal with lending policies. Sorry, but I’m not buying it.  In fact, if frugality had been popular years ago perhaps we could have avoided the current crisis we are in.

How Did We Get Here?

We are all guilty of biting off a bit more than we could chew.  Often driven by the inflated lifestyles depicted in Hollywood, American consumers adopted a voracious appetite for all types of luxury items, and quickly became debtaholics to afford the lifestyle.  Borrowing against inflated home equity was “in.”  Creative financing was “in.”  Saving money and paying off debt was “out.”  The prevailing attitude was, “We’ll just save money and pay off our debt sometime in the future.”  Well, the future is now.

I wasn’t immune.  I spent much of the late 1990s and early 2000s trying to figure out a way to get rich quickly.  I even resorted to borrowing to invest because hours of watching CNBC made me feel like I was missing the boat.  I caught the boat, but the hope of sailing home free quickly became a ride on the Titanic.  I suspect many others went down with me.

How Do We Move Forward?

This period of reduced spending is likely to last.  Many baby boomers have seen their retirement funds decimated.  Many Generation X and Y workers have seen practically everything they’ve saved in a decade of work vanish in a few months. It is sobering to watch, and it will have long term effects on consumer psyche for some time.  But here is the $64 million question:  Is that really a bad thing?

Perhaps we all needed a little cold water thrown in our face.  Granted, we didn’t need to be hit by a fire hose that was the 2008 recession, but I think this might be a wake-up call that was long overdue.  We simply cannot continue to borrow our way to success – as individuals, nor as a country.  I know this is a politically touchy subject with the current debate on the much-maligned stimulus bill, but it really is the truth.  We are leveraging our entire futures in the hopes of a short-term gain, much like individual consumers did in the 1990s, and we’ve seen the consequences of those actions.

Should We Feel Ashamed By Our Frugality?

I’m far from the authority on frugal living, so I only speak for my family in saying no, we should not feel ashamed over being frugal.  What’s odd is how things have come full circle.  In the mid to late nineties when things were really clicking the idea of living frugal was a joke.  Frugal people were made fun of for their thrift, or dismissed as being cheapskates.  Then when things began to turn south suddenly frugality was cool again.  Now, some are beginning to resent those of us who choose not to boost the economy by buying a plasma television we can’t afford.

I suspect this article will be the first of many from the media, who will soon begin to blame frugality for lack of economic recovery.  I believe that blame is misplaced. They should be blaming themselves for perpetuating negative financial news for months on end.  They should be blaming Hollywood for selling us on the idea that borrowing and irrational spending is sexy, and saving money is boring.  They should be blaming politicians on both sides of the aisle for continuing to borrow and spend our hard-earned money on their own frivolous pursuits.  And we should blame ourselves for falling for it.

If our economy is going to turn around we must first turn around our own personal balance sheets.  Continue to build your emergency fund.  Continue to get out of credit card debt.  Continue to spend wisely.  Continue to look for new side hustles.  Once a thriving breed, the number of frugal followers may begin to shrink under the “patriotic” calls to spend beyond their means. Hold the line, my frugal friends, for this will be an epic struggle.

American Bailout: $1 Million A Day For 2,260 Years


My fellow Americans, details are emerging for the second economic stimulus plan endorsed by President Obama, and the majority of members of the United States Congress.  From the sounds of it, this economic stimulus plan will dwarf the costs of the first stimulus plan, and the first bailout, combined!

This time around the plan calls for massive government spending–to the tune of $825,000,000,000.  Yes, that is a lot of zeroes–almost one trillion dollars!  In fact, the figure has so many zeroes that it is hard for us to wrap our brains around just how much money that represents. Consider the following example.

If our government spent one million dollars a day, every single day, it would take 2,260 years to spend $825 billion.  That’s right; 2,260 years!  If the bailout reaches $1 trillion it will be more like 2,740 years.  So not only will our children and grandchildren be paying for this so-called stimulus bill, but our future generations will be paying for this bill for decades.  I don’t know about you, but I don’t think it is right to leave our children with the burden of cleaning up our own mess–even if that means our lives will get a little tougher in the near term.

To suggest this new stimulus plan should be scrapped altogether is politically unpopular.  After all, many out there believe we have already suffered enough.  And it is true that many really have suffered in the form of lay offs, foreclosures and other forms of financial hardships.  I get that.

However, at some point I think we need to ask ourselves what the objective is here.  Is it an attempt to spend ourselves out of a recession?  Is it an attempt to nationalize more industry and a good portion of the labor force?  Is it a short-term solution that will cause more long term harm?  Political parties will likely clash over the details of the American Recovery and Reinvestment Bill of 2009.

It is the details that many average citizens are unaware of, and should be more highly publicized.  Whether or not you agree with the cause, I think you will find the obligated amounts staggering.  Here are a few examples:

  • Job Corps Facilities: $300 million to upgrade job training facilities serving at-risk youth while improving energy efficiency.
  • Education for the 21st Century: $41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).
  • Transform our Economy with Science and Technology:  $6 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy.
  • National Treasures: $400 million, including $200 million to address the deterioration of the National Mall, such as repair of the Jefferson Memorial’s collapsing Tidal Basin walls; $150 million to address the repair backlog at the Smithsonian; and $50 million for the National Endowment for the Arts.
  • Smart Appliances: $300 million to provide consumers with rebates for buying energy efficient Energy Star products to replace old appliances, which will lower energy bills.
  • Clean, Efficient, American Energy: $6 billion to weatherize modest-income homes.
  • Pell Grants: $15.6 billion to increase the maximum Pell Grant by $500, from $4,850 to $5,350
  • College Work-Study: $490 million to support undergraduate and graduate students who work.

Source:  House.gov

Frightening.  They toss around amounts like “millions” and “billions” as if they are trivial expenditures.  Where will this money come from?  If we raise taxes, what will be the effect on new business and entrepreneurship in this country?  If we don’t raise taxes, and instead continue the trend of deficit spending, what will happen to value of our currency over the long term?  I recognize I am a simple guy, but I don’t get the feeling these things have been properly analyzed in the interest of quickly pushing through a massive spending bill.

I don’t pretend to have all the answers.  Just as none of us are solely responsible for the current recession, none of us could single-handedly solve the economic ills of today.  However, what we can do is demand more fiscal restraint from our elected officials.  If you and I spent money at this same rate when we were already in debt we would go bankrupt.  Unfortunately, those same rules don’t apply to government.  Or, maybe they do.  I guess time will tell.  The problem is, we won’t be the ones to suffer for our national spending spree, that will be left to the generations who come after us.

Lottery Numbers Higher Even In Down Economy


Seems strange to report that results from lottery sales were higher in 2008 than in year’s past. You would think people would be buying fewer lottery tickets while struggling to fill their gas tanks over the summer, and dealing with a recession that really took hold this fall and winter. Then again, isn’t that the American way? Don’t we all dream of striking it rich? Not me.

The Colorado Lottery saw record sales in 2008 of $499.4 million. The Florida Lottery recently joined the multi-state Powerball game in an effort to suck in even more players. What’s behind the success of these lottery programs in our society’s obsession with the rich and famous (thank you Robin Leach).

The Lottery Is A Tax On People That Can’t Do Math

For purposes of this discussion I am excluding people who play the lottery as a hobby, and can afford to do so. I’m referring to the guy with a wife and three kids at home with no money for groceries who is spending $20 a week on scratch off tickets. If that same guy would simply put the $80 per month in a good growth stock mutual fund for 30 years he’d “win” $100,000! That’s a pretty good payout, wouldn’t you say?

But you could never convince him. When advised to save $80 a month, his response would probably be, “We can’t invest $80 a month! We’re living paycheck to paycheck.” Frustrating, I know. That’s because most people can’t see beyond the next paycheck when planning their financial futures. They squander every single penny they have now and just keep hoping they next paycheck will last them another two weeks.

But What If I Win?

It should come as no surprise that people who win the lottery often wind up broke. People with poor money-management habits don’t suddenly get smarter if a whole bunch of money is given to them. About the best thing you could hope for is that they have the sense to hire someone to manage it for them. Even then, they often know so little about money that they can’t adequately over-see their financial guy, who proceeds to rip them off behind the scenes.

Winning the lottery is not all roses. Imagine the people in your past that would be looking up your number if they saw you on the cover of People magazine as the country’s latest $100 million Powerball winner. No thanks. While I would love to have $100 million, I prefer to accumulate it the right way by building wealth. If by some miracle I won the lottery (and it would really take a miracle since I don’t play it), I would give away the majority of the money, minus enough to pay off my debts and those of close loved ones. As the saying goes, “more money, more problems.” And I sure don’t need 100 million new ones!

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