What budget? Why worry? How do people do it?

[ilovemk76]

You are absolutely correct that most people don't understand finances but I don't think it is fair to blame that on government policies. Yes there is a mortgage interest deduction but if people mistakenly think that's a great thing and a reason to borrow more and stretch out the repayments, that isn't Uncle Sam's fault.

It is partially Uncle Sam's fault. The tax write-off allowed the home buyer to take on a larger mortgage, because some of the interest was paid by Uncle Sam.

If there was no mortgage tax write-off then the person who was paying $1000 in interest and got $250 back from Uncle Sam. It the write-off did not exist then the person could only take on a loan that paid $750 in interest.

 

[disneysteve]

It the write-off did not exist then the person could only take on a loan that paid $750 in interest.

I suppose that's true if a potential buyer sat down and figured things out that way. Personally, we didn't. We figured out what was a comfortable amount we could afford as our monthly payment. We didn't figure in the value of the tax deduction when arriving at that number.

 

[ilovemk76]

I suppose that's true if a potential buyer sat down and figured things out that way. Personally, we didn't. We figured out what was a comfortable amount we could afford as our monthly payment. We didn't figure in the value of the tax deduction when arriving at that number.

We decided on the payment before looking for our home. Most people do not do that. The realtor tells them how much they can afford and how the tax write-off will help. How many co-workers do you know that are a family of 4 that have a number like 10 on their W4 so they can recoup the tax benefit of the mortgage so they can afford to pay it? I hear people talk about that all the time.

 

[Gumbo4x4]

You are absolutely correct that most people don't understand finances but I don't think it is fair to blame that on government policies. Yes there is a mortgage interest deduction but if people mistakenly think that's a great thing and a reason to borrow more and stretch out the repayments, that isn't Uncle Sam's fault.

Yup. Funny when you hear this kind of stuff from folks who think they understand finance. Now granted, if you have to have debt, a mortgage is probably the best kind (or should I say, the least objectionable). That said, of all the people I know that I consider to be in excellent financial shape, not a one of them has a mortgage. And consequently, not a one of them has had to borrow for anything else since paying off their homes.

On another subject, I think a lot of folks who are clamoring for higher taxes on "the rich" again just don't understand math & finance. Okay, so the individual rate is at a historical low. But, what would we actually accomplish were we to tax the rich harder? What would another $300 billion in tax revenue REALLY accomplish when we have a $1.2 trillion annual budget deficit?

This is the question our current gov't doesn't want you to ask. They want you to believe that a simple tax hike will solve all our ills. But, it doesn't even cover 1/4 of the budget shortfall, and the "plan" is to use this tax hike to INCREASE spending even more than where it is today.

A lot of folks would be okay with a tax increase if there were ANY evidence that it would actually accomplish something. But so far, no such evidence exists. Claiming it is "right" or "fair" is a silly argument if NOBODY benefits.

 

[eliza61]

You are absolutely correct that most people don't understand finances but I don't think it is fair to blame that on government policies. Yes there is a mortgage interest deduction but if people mistakenly think that's a great thing and a reason to borrow more and stretch out the repayments, that isn't Uncle Sam's fault.

What's very interesting is that many leading economist feel that is totally the lack of regulations that lead to the banking meltdown that brought our economy to the brink.
It was the government allowed banks to go hog wild with derivatives, faulty mortgages and bundling with phoney bank sheets that caused the collapse.

PBS did two excellent documentarys in 2010.

http://www.pbs.org/wgbh/pages/frontline/warning/
About the warnings congress was given about the new "let the banks do what they want" policies and the ramifications.

http://www.pbs.org/wgbh/pages/frontline/creditcards/

about the dangers of basing our economy on an unstainable "consumption" basis.

 

[Gumbo4x4]

It was the government allowed banks to go hog wild with derivatives, faulty mortgages and bundling with phoney bank sheets that caused the collapse.

Allow it? Shoot, the gov't encouraged it & even forced banks to take some (not all) of these risks.

 

[DAD21]

Allow it? Shoot, the gov't encouraged it & even forced banks to take some (not all) of these risks.

Thats right, and the government also told everyone that Freddie and Fannie were in good shape. LOL

 

[Gumbo4x4]

Thats right, and the government also told everyone that Freddie and Fannie were in good shape. LOL

Is it any wonder folks object to more taxes? Do you feel like sending more money (yours, mine, or anyone else's) to DC is a good idea?

 

[punkin]

Allow it? Shoot, the gov't encouraged it & even forced banks to take some (not all) of these risks.

The government never encouraged anyone to purchase any derivative.

Thats right, and the government also told everyone that Freddie and Fannie were in good shape. LOL

When exactly?

 

[Muushka]

The government never encouraged anyone to purchase any derivative.



When exactly?

Barney Frank:

In 2003, he called Fannie and Freddie ‘fundamentally sound financially’ and accused the Bush Administration of trying to “exaggerate a threat of safety… [to] conjure up the possibility of serious financial losses to the Treasury, which I do not see. “A year later, he said talk of financial problems at Fannie and Freddie were ‘an artificial issue created by the administration...I don't think we are in any remote danger here.’ “In 2007, as Chairman of the House Financial Services Committee and just as Fannie and Freddie – overleveraged and stuffed to the gills with risky mortgages they’d encouraged and facilitated – were about to go over the cliff, Mr. Frank attacked President George W. Bush’s call for reform as ‘inane.

http://communities.washingtontimes.com/neighborhood/prudent-man/2011/nov/29/barney-frank-flees-scene-his-fiscal-crimes/

And this from the Boston Globe addresses both of your questions.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/

 

[Acklander]

On another subject, I think a lot of folks who are clamoring for higher taxes on "the rich" again just don't understand math & finance. Okay, so the individual rate is at a historical low. But, what would we actually accomplish were we to tax the rich harder? What would another $300 billion in tax revenue REALLY accomplish when we have a $1.2 trillion annual budget deficit?



A lot of folks would be okay with a tax increase if there were ANY evidence that it would actually accomplish something. But so far, no such evidence exists. Claiming it is "right" or "fair" is a silly argument if NOBODY benefits.

The evidence that a tax increase would help is in that with every tax cut it has gotten worse. Trickle down economics does not work. It never has, and after 30 plus years I think it's safe to say it never will.
As far as the deficit - it has to be tackled from both sides - cuts in spending AND increase in revenue.

 

[Gumbo4x4]

The government never encouraged anyone to purchase any derivative.

Derivatives? No. Bad loans? Yes.

 

[Gumbo4x4]

The evidence that a tax increase would help is in that with every tax cut it has gotten worse. Trickle down economics does not work. It never has, and after 30 plus years I think it's safe to say it never will.

Actually, most tax cuts (including the much maligned Bush cuts) have resulted in an INCREASE in revenue, not a decrease. And even if you're right on trickle down (and there's plenty of evidence that you're not), there have been ZERO instances where an increase in taxes has had a positive effect on the economy. Not one. Zip, zero, nada. Check your history

Even the leftist of the left at best are hoping for status quo. NOBODY in gov't or economics thinks higher taxes will actually stimulate the economy. Even the President makes no such claims despite pounding away for what he claims is a "fair" tax increase. Go back & listen to any of his speeches. "Fair" is the primary justification used to date for a tax increase, other than the ocassional faulty math.

As far as the deficit - it has to be tackled from both sides - cuts in spending AND increase in revenue.

And again, even if we were to all buy into that notion, it seems pretty clear that with spending being the biggest problem, it MUST be addressed FIRST. The current plan is to ATTEMPT to increase revenue by $300 billion in order to "fund" a new $457 billion stimulus, not to draw down the deficit.

Now, even my 6-year-old can quickly point out that those #'s are not mathematically sound. That will ADD to the deficit, not reduce it. The budget used to be 14-15% of GDP. And even at that, we were spending more than we were bringing in. Now, it's 20+% and inching up toward 25%. The gov't, just like American households, must learn to live with reduced revenue during times of economic hardship.

Bottom line, I am in no way, shape, or form 100% against the notion of a tax increase. But, I'm not about to *willingly* give those goofballs in DC (Dems & Reps alike) one more thin dime until they show they can make a real committment to fiscal restraint.

 

[Colleen27]

Does anyone think that the fact that someone who would need to swallow their pride to ask for help is a bad thing?

Does anyone think that with the government taking care of everything, makes people more likely to take advantage?

If you knew that you were depending on the kindness of friends to help you out, would you be more likely to try to not depend on anyone?

I believe that every penny donated to families in need without the government involved is very well spent.

I believe that every tax dollar we pay towards welfare is not wisely spent.

I think it can be a bad thing to force people to swallow their pride and ask for help personally. I've seen enough people just do without rather than take that step to have mixed feelings about it at best. And it isn't as though there's no ding to one's pride for accepting public assistance. It isn't easy to walk into a neighborhood grocery store and let your family and community see you using an EBT card for your groceries.

I think there will always be those who take advantage of any help that is offered, regardless of the source.

I think those who don't care about being dependent are a clear minority, and that most people do try to stand on their own feet.

And I think it is overly simplistic to say private charity = good/efficient and govt charity = bad/wasteful. Even at its best personal giving has clear limits in the mismatch between resources and need, so that getting needed help becomes little more than a question of who you know and working class families who live, work, and socialize with others of a similar demographic find themselves without anyone to turn to.

I live in an area where basic tract homes, on tiny lots, in solidly middle class neighborhoods, sold for well over a million dollars at the height of the frenzy and I guarantee most middle class families did not have the savings and/or incomes to justify those high purchase prices.


Maybe this is regional as well because I personally know 4 families just on my street who have gotten loan mods. In fact one of them is on their 2nd trial period because they re-defaulted after their 1st mod.

The GSE's alone have completed 1.1 million mods, so someone is getting them.

This reinforces my perception that the loan mods are going to people who had no business buying in the first place. Here the market for a 3/2 starter home peaked around 100-125K, well within financial reach of most of the people who were buying at the time. Those people, who bought a house they could afford when they were earning 50K/year but can't keep up with the payments now that they're making 30K or who missed a couple payments while out of work and need a modification to bring it current, don't qualify for mods.

The access of easy and ample credit to all came at a terrible time in our nation's history. It came along just as the "Great Risk Shift" was beginning. The Employers, in an ever increasing drive for shareholder profits, began shutting down their defined benefit plans (traditional pensions) in favor of 401K plans. And more and more of the cost of healthcare was on the employee, not the employer.

And I don't think that was coincidence. Easy credit eased in the era of declining wages, with a lot of people just not paying attention to the fact that the shift to 401ks and higher employee share of insurance premiums were just a different sort of pay cut, because those cuts didn't immediately impact their buying power.

My other concern DVCG is that as a society I do think we still have this unsustainable "expectations". For example my company did well over the recession in that we managed not to have any layoffs but every year I get this profit objectives of 20-30% we constantly shake our heads and wonder "who the heck is coming up with these numbers"

Also like you said, as a rule we like to spend. I'm in Southern NJ and even after the housing crash a supposedly "starter" home is considered 3000 square feet.

My big concern of course is for my generation, the tail end of baby boomers. My sons have a 1/2 chance because they have age on their side but those of my age are caught between a rock and a hard place even if we did do the right thing (which I can't claim totally). many of us have elderly parents to deal with, college kids to pay for and still have the mortgage.

I agree. Those unrealistic corporate/stockholder expectations have a lot to do with the downward compensation trend, because there comes a point where that's the only cost you can lower. Especially right now with people so sensitive to price increases the only way to hit those targets is to continue to shrink your workforce, pay less, and/or offer fewer benefits.

I think the boomers will do okay. Some have traditional pensions and SS will be there for most. I think it is my generation that is going to get hit the hardest - I'm 32 and can count on one hand the number of friends who are working in their field of study. Many, even those who went into "safe" fields like education and skilled trades, are working for little more than minimum wage in dead-end jobs. Every single one who has a 4 year degree also has student loan payments, and they're likely to be "left behind" even when the economy does start adding those jobs because there will be a new crop of younger graduates with fresher training competing with their decade-old degree and "McJob" experience. I'm not sure how many of my friends will ever be able to buy a home, save for retirement, or put their kids through college.

 

[Muushka]

I think it can be a bad thing to force people to swallow their pride and ask for help personally. I've seen enough people just do without rather than take that step to have mixed feelings about it at best. And it isn't as though there's no ding to one's pride for accepting public assistance. It isn't easy to walk into a neighborhood grocery store and let your family and community see you using an EBT card for your groceries.

I think there will always be those who take advantage of any help that is offered, regardless of the source.

I think those who don't care about being dependent are a clear minority, and that most people do try to stand on their own feet.

And I think it is overly simplistic to say private charity = good/efficient and govt charity = bad/wasteful. Even at its best personal giving has clear limits in the mismatch between resources and need, so that getting needed help becomes little more than a question of who you know and working class families who live, work, and socialize with others of a similar demographic find themselves without anyone to turn to.



This reinforces my perception that the loan mods are going to people who had no business buying in the first place. Here the market for a 3/2 starter home peaked around 100-125K, well within financial reach of most of the people who were buying at the time. Those people, who bought a house they could afford when they were earning 50K/year but can't keep up with the payments now that they're making 30K or who missed a couple payments while out of work and need a modification to bring it current, don't qualify for mods.



And I don't think that was coincidence. Easy credit eased in the era of declining wages, with a lot of people just not paying attention to the fact that the shift to 401ks and higher employee share of insurance premiums were just a different sort of pay cut, because those cuts didn't immediately impact their buying power.



I agree. Those unrealistic corporate/stockholder expectations have a lot to do with the downward compensation trend, because there comes a point where that's the only cost you can lower. Especially right now with people so sensitive to price increases the only way to hit those targets is to continue to shrink your workforce, pay less, and/or offer fewer benefits.

I think the boomers will do okay. Some have traditional pensions and SS will be there for most. I think it is my generation that is going to get hit the hardest - I'm 32 and can count on one hand the number of friends who are working in their field of study. Many, even those who went into "safe" fields like education and skilled trades, are working for little more than minimum wage in dead-end jobs. Every single one who has a 4 year degree also has student loan payments, and they're likely to be "left behind" even when the economy does start adding those jobs because there will be a new crop of younger graduates with fresher training competing with their decade-old degree and "McJob" experience. I'm not sure how many of my friends will ever be able to buy a home, save for retirement, or put their kids through college.

I've said it many times. My father was proud and would not ask for help. That was a great lesson for us to NOT be poor.

I know there is something in between what my dad did and what people abuse welfare do, but personally, I feel that my upbringing made me stronger and less dependent on society for anything.

 

[North of Mouse]

I've said it many times. My father was proud and would not ask for help. That was a great lesson for us to NOT be poor.

I know there is something in between what my dad did and what people abuse welfare do, but personally, I feel that my upbringing made me stronger and less dependent on society for anything.

I agree! We were brought up the same way. We didn't owe anyone, we worked hard, and bought only what we could afford. If we didn't have the money, we didn't buy it, plain and simple. We always had a garden and canned or froze our veggies. We definitely didn't use credit to go on vacations that we could not afford (I know several who do, think it's their right). I call it entitlement Then they wonder why they can't pay their house notes and other bills, but "we ARE going on vacation" I wouldn't be able to sleep at night if I lived above my means

 

[North of Mouse]

Honestly, it is HORRIBLE. We've been helping my brother in law for years. Right now for good reason, he has terminal cancer. He gets Social Security disability now, but the payments aren't really enough to make him comfortable through his final time (months? years? I sort of doubt more than two years)

I own a house I don't want to own so he can live there. My husband has to babysit the house...I can't because my brother in law treats every visit from me as a judgmental invasion of his privacy.

Some months, despite us having a really good income, money gets tight for us....ok, liquid cash gets tight for us. And if my brother in law decides to check something off his bucket list - a trip to see a friend before he dies - I have guilt, frustration, annoyance.

It wasn't at all good when he was healthy - it was FAR worse and I really had to temper myself - because if it came down to us or his brother, I wasn't sure who my husband would choose. My husband has never seen his brother as irresponsible - just a victim of bad luck. So I bit my tongue when I saw $3000 get spent on a guitar, when we'd just given him money for rent a few months before. And when he went to Mexico with his girlfriend when he still owed us money to cover moving expenses.

And it isn't just him...we help my mother in law as well. My parents are retired and fairly comfortable, but if we go to dinner with them, we pick up the check. We pick up the check going out with friends, too. I don't mind the picking up of checks, that's my treat anyway. Although sometimes the expectation that we've set up "crisi and DH will pick up the check, they always do" grates, even when everyone is grateful. But I'll admit its hard to give my mother in law $1000 to help out with her bills and groceries - then watch her spend $300 to rent studio space for her art, plus the art expenses. I just keep reminding myself "its good for my marriage......"

Another thing is that when you give a helping hand, you'll discover that your family is far more extensive than you thought, and you have way more friends than ever call you for happy hour. And I have no problem helping friends, I do have an issue being treated as an instant cash machine for second cousins and friends of friends who want new shoes and forget that rent is due.

It's great to "help" others, but just laying down and being a "doormat" is just being an enabler of others bad judgement. They learn that you'll always come through, so why should they act responsibly? Sometimes, just as we have to do with children, we have to learn to use "tough" love.

 

[crisi]

It's great to "help" others, but just laying down and being a "doormat" is just being an enabler of others bad judgement. They learn that you'll always come through, so why should they act responsibly? Sometimes, just as we have to do with children, we have to learn to use "tough" love.

And end my marriage? No thank you. Sometimes you make choices. Enable my husband to enable his brother....or end a marriage to a man that I adore who adores me. My brother in law is dying, we'd ended the gravy train before the diagnosis. But my husband cannot do nothing and watch him die without making him as comfortable as he can.

 

[mistysue]

I think the boomers will do okay. Some have traditional pensions and SS will be there for most. I think it is my generation that is going to get hit the hardest - I'm 32 and can count on one hand the number of friends who are working in their field of study. Many, even those who went into "safe" fields like education and skilled trades, are working for little more than minimum wage in dead-end jobs. Every single one who has a 4 year degree also has student loan payments, and they're likely to be "left behind" even when the economy does start adding those jobs because there will be a new crop of younger graduates with fresher training competing with their decade-old degree and "McJob" experience. I'm not sure how many of my friends will ever be able to buy a home, save for retirement, or put their kids through college.

This scares me too and I don't think other generations see it- they just think our peers are lazy. I know a number of people from my high school who have finished with their masters and still are at those crappy minimum wage jobs. I thought DH would be safer because he is highly skilled in an area everybody is STILL saying we need (PhD in math!) but even in his field the job offers are getting worse and worse. There are something like 10 people to apply for each job in his field. Universities want to pay by the course and by the time all the grading is done, he would do almost as well at a minimum wage job. If he was 10 years older he would have tenure already and the worst he would have to think about is if they renegotiated- but he would still at least have a reasonable job to show for his skills!

 

[Muushka]

And end my marriage? No thank you. Sometimes you make choices. Enable my husband to enable his brother....or end a marriage to a man that I adore who adores me. My brother in law is dying, we'd ended the gravy train before the diagnosis. But my husband cannot do nothing and watch him die without making him as comfortable as he can.

Oh Crisi, I would do the same thing. It is the right thing to do.

I agree! We were brought up the same way. We didn't owe anyone, we worked hard, and bought only what we could afford. If we didn't have the money, we didn't buy it, plain and simple. We always had a garden and canned or froze our veggies. We definitely didn't use credit to go on vacations that we could not afford (I know several who do, think it's their right). I call it entitlement Then they wonder why they can't pay their house notes and other bills, but "we ARE going on vacation" I wouldn't be able to sleep at night if I lived above my means

Thank you. Sometimes I think I am the crazy one!