Wednesday, March 22, 2017

Cost of Owning A Car - Revisited

Is the cost of owning a car really determined by cost per mile?   While a handy way of calculating costs, it is not an accurate indicia of overall cost of car ownership.


In a recent article by the American Automobile Association, they calculate the cost of operating a "small", "medium" and "large" car, and come up with some pretty scary numbers as shown the chart above.   Who knew that owning a car could cost you upwards of $8000 to $10,000 a year?

But it does.   And while the AAA article appears to be accurate and handy, it is kind of misleading, in that it gives everything in terms of cost per mile when car costs really aren't calculated that way - at least the overall costs.

I did an article of my own and analyzed car ownership costs and came to the same conclusions as AAA did - that a $20,000 car could shockingly cost you $8000 a year to own.  Most folks assume that the cost of owning a car is equal to the monthly car payment and how much gas you put in it, plus insurance.   Others assume that if the car is "paid for" it costs them nothing other than gas and insurance.  Both methods are far off base, as car costs are far more complex than that.

I tried to break it down to fixed costs and variable costs.   Fixed costs are what you pay even if the car just sits in the driveway - insurance, taxes, licensing, and depreciation.  Variable costs vary based on miles driven, and include gasoline, oil changes, tires, brakes - all things that are consumables and need to be replaced over time.   AAA tries to illustrate this concept by breaking down the cost-per-mile in terms of miles driven, and as you can see, the more you drive, the lower the cost-per-mile, as the fixed costs are divided by a larger number.

This does not mean, however, that driving more will save you money, but rather the opposite - it will cost you a tremendous amount in terms of cash outlay, depreciation, as well as the wasting of your time and energy.   But a lot of people don't see it that way, and drive all over the place, proud of their two-hour commutes.  It is nonsense and doesn't "save money" to live far away from where you work.

But getting back to the AAA article, I think it validates the numbers I came up with my my report.   I also note the following:

1.  While the "cost per mile" calculation is helpful, it assumes you are driving the average number of miles a year (e.g., 15,000 miles or so).   As I noted in my more detailed analysis, a car has costs that are fixed, regardless of mileage.   Insurance, taxes, registration, and depreciation all cost money even if the car just sits in the garage.  And no, low mileage cars don't depreciate appreciably less than higher mileage ones.

2.  Depreciation is one of the largest single expenses in owning a car, and the more expensive the car, the more expensive this is.   If you have a $20,000 car, it depreciates about $2000 a year for the first five years.  A $40,000 car depreciates twice as much, a $10,000 car half as much.   Buying luxury or expensive cars can easily double or triple your depreciation costs, with no apparent real benefit to you.

3.   Owning fewer cars can cut costs appreciably.   When you are retired, you really only need one car, since you and the spouse are no longer commuting to work.   This halves your car costs, literally.   Again, while the AAA calculation above is in terms of "cost per mile" it does not mean that zero miles means zero costs.   So if you have two cars and put 5,000 miles on each car each year, the cost is far higher than having one car and driving it 10,000 miles a year.   The fixed costs are double when you own two cars.

4.  Not owning a car at all can save a lot of money, provided your commuting costs (bus, subway, train, etc.) are less than $8000 a year and your cost of car rental or other transportation (used in lieu of owning a car) also is less.  In the US, however, outside of large cities, not owning a car is often not very practical, or indeed is impossible.

5.  Cars cost far more than we think they do.   We tend to look at the cost of car ownership in terms of monthly payment, when in fact, there are a number of factors at work.  The road to middle-class poverty is paved with car payments.   A lot of folks have a number of cars parked in their driveway, and yet struggle to pay the bills and live "paycheck to paycheck".  The source of their difficulties may in fact be parked right outside their door.   I know it was, in part, for me.

Many news media outlets like to publish articles about car ownership that say idiotic things like, "Next to your house, your car is your second-biggest investment!"   This is idiotic as a car is not an "investment" but rather an expense.   It is just a money hole, just as a boat is a "hole in the water you put money into" - except this hole is in your driveway or garage.

And also, your house should be your second-biggest investment.  Your biggest investment should be your retirement savings in your 401(k) and/or IRA - at least eventually it will be.

Sadly, many folks look at cars like they are capital equipment - something durable and lasting that you "invest" into and use for many years.   In reality, they are like a roll of toilet paper - something you use up over a period of time, even if that period is a decade or more.   And they are something that costs you money to own, even if it just sits there (unlike a roll of toilet paper).

I look forward to the day when we have just one car.   Not only will it be less hassle, it will save us thousands of dollars a year in expenses.   And we'll have a lot more room in the garage as well!

Tuesday, March 21, 2017

The Problem With Feeling Sorry For People - And Ourselves!

Getting all weepy about other people's situations isn't helping anything, and in some cases, people are just manipulating you into feeling sorry for them because they want something.  Of course, saying this out loud will get you into trouble!


In a previous posting, I was musing about how many people, when caught doing bad things, will allege that they themselves were victims in the past, and thus try to excuse their own behavior.   There are a number of problems with this narrative, as we shall see.

But I think one reason why liberalism is so under attack today in America is that maybe this narrative has been taken a bit too far.   People are tired of living in the "Untied States of Feeling Sorry For Ourselves" where everyone on Death Row is the real victim, and all criminals are innocent and the Police are evil.   People are tired, I think, of this narrative of victimhood and being told we need to feel sorry for people who are often victims of their own folly.

And I think people are tired of being told you can't even discuss this, period, as it is not up for debate, and oh-by-the-way how dare you, you heartless bastard.

This is how we ended up with President Trump, and how we will end up with eight years of President Trump because, as I predicted earlier, the far-left is not challenging Republicans in the polls, but instead trying to throw out incumbent Democrats, much as the Tea Party did to incumbent Republicans.   This will drive more middle-of-the-road Democrats into the arms of the Republican Party.   Far-Left politics is what has lost elections - and why the Democrats are in the minority in at the State and Federal levels.  America is not ready for Socialism or Communism, sorry!

But getting back to topic, should we feel sorry for people because of their background experiences?  Back in the day - 40-50 years ago or so, when a criminal committed a heinous act, we didn't really delve into his childhood upbringing or war experience as being relevant to the crime he committed.   Today, this is the norm for any smart defense attorney, and usually at the sentencing phase, they will bring up his mental state, his abusive parents, or his shattering war experience as mitigating circumstances after he killed his wife and children.

Clarence Darrow arguably started this trend with the Leopold and Loeb trial, but it took many years before this became a mainstream thing.   Today we have "affluenza" as a result.

And more and more today, these issues are being brought up at the trial stage, often as part of an insanity defense.   The goal is to make the perpetrator the victim at trial, and to make the entire trial about the horrific things that happened to the perpetrator and not about the horrific things the perpetrator did to the victim.   If you can put the victim on trial at the same time, so much the better.

Crime is down in America - way down.   It is hard to explain to someone born after 1980, but in my day, when you went to New York City, you could expect to be mugged.   Riding the graffiti-covered subways was to take your life in your hands.  Central Park was a dangerous place in the daylight and basically instant death at night.  Other cities were not much better.  Even if you weren't assaulted, having your shit stolen was pretty much a regular thing back then.

Today, New York City is the new Disney World.   Times Square is a place where you take your children - not a place where they sell children (as was common in the 1970's - you did watch Taxi Driver, right?).    The world has changed for the better.

But at the same time, perception of crime has increased, and people perceive that crime is on the rise and that criminals are getting away with murder, quite literally.   This perception is what drove Trump into office.   And the perception is, the Democratic party seems to be more interested in the rights of prisoners and criminals than in the rights of hard-working citizens.   You can argue this is untrue or slanted, but it is the actual perception that a majority of Americans have, which is why the Democrats keep losing elections.

We are told, time and time again, that some guy on Death Row is getting a raw deal, even though he shot a toddler in the head, in front of his parents.    But hey, the lethal injection drugs might cause him some momentary discomfort while he's dying.    Get me a tissue, I'm crying here.

We are told that folks who steal your crap and are habitual criminals are getting a raw deal in life because they violated the "three times and you're out" law, which has been on the books since, well, that crime-ridden time of the 1970's.   Funny thing, they enact laws like that and crime goes down.

You see, the "three strikes" law was designed to "put away" people who just would never agree to abide by society's rules.   Back then, someone would steal shit or hold up a liquor store and you'd toss them in jail.   A few years later, they get out and do the same thing again, withing weeks or months.  You toss them in jail again.   And this could continue for decades, with more and more people being victimized, until the awful day when the liquor store robbery goes wrong and someone ends up getting shot.  Only then is anything done, if they catch the guy.

And that is the other problem.  For any given criminal, only about 1 in 5 of their crimes are detected and is the criminal caught.  For "mere property crimes" the number could be 1 in 20 or even 1 in 100.   Your bicycle gets stolen?   Odds are the thief will never, ever be caught.   Ever.   So when you hear about some guy who is getting life for "three times and you're out" odds are, he has committed dozens, if not over 100 crimes in his career - maybe far more.  I feel little sympathy.  He made shitty life choices, again and again.

Criminals seem to have a special place in our national consciousness.  We glorify criminals on television.  We celebrate prison with tee-vee shows.   We are more interested in the perpetrators of a crime that the unfortunate victims.   We basically root for the criminals, most of the time.  Maybe this is the root cause of the problem.

We also spend a lot of time weeping for other people as well - often people who don't need our sympathy, but want it and know how to get it.  People posit they are victims of circumstance or outrageous fortune, but usually tell only one side or part of the story, because if we knew the full deal, we might not be so sympathetic.

The problem with victimhood is that once we go down this road, everyone wants to be a victim.  When you reward victim behavior, you encourage it.   Today, every criminal claims to be a victim of a bad childhood because they know this will reduce their sentence - or at least hope it will.  The people with shitty childhoods who don't murder their spouses are basically ignored.  Or, maybe, by going down this road, we are encouraging people to see themselves as victims which may encourage them to do bad things.   "Hey, I had a bad childhood - criminality is expected of me!"   You laugh, it could happen, and in a way, I am sure it already has.  People live up to the expectations you set for them.

The same problem occurs with folks who are poor, homeless, or otherwise disadvantaged.   The Left posits we should feel sorry for such folks, regardless of how they ended up in the situation they are in, and of course the blanket proscription for a cure of their condition is more money, preferably that of someone else, who was "lucky" to work hard and not have a crack habit. 

And of course, there are poor people who are indeed victims of circumstance or are just not qualified to work any job other than minimum wage.   These are, of course, the people least likely to play the victim, but rather struggle to improve their lot in life.  These are not the folks with the cardboard signs trying to elicit funds based on sympathy.  These are not the folks "working the system" with a sketchy disability claim.
Drug users are another class of people that the Left likes to posit as victims and not victims of their own folly.   We are told by the Left that drug abuse is a health issue not a criminal issue and that we should "treat it as a disease" and of course, fund more drug treatment centers.   The reason more people are on drugs, of course, is lack of re-hab, which of course is posited as the only way to quit drugs, period.   Anyone who dares to question this logic is a heartless bastard of course, and is shouted down.

Drug abuse costs a lot of money, but the best way to put a stop to it is to prevent it in the first place.  And this is a personal decision that people have to make.  Opiate addicts often end up having heart problems.   One recent article online documents how one addict went in for heart surgery three times before he finally decided that maybe opiates were going to kill him.  Bodies of young people are piling up in morgues.

And it is not like people aren't aware that this stuff kills you - as does Meth and crack.   But instead of taking a hard line on this, we are supposed to feel sorry for addicts because being an addict wasn't their fault.  It just "happened" to them somehow.   So they go through a cycle of re-hab (getting attention) and then falling back off the wagon (getting more attention and getting high).  Wash.  Rinse.  Repeat.

People are not heartless - they are sympathetic to the ills of addicts.  But when it seems that people who make shitty life choices get all the attention and sympathy, a lot of people who do play by the rules, keep their noses clean, and work hard all day long, well, they get a little pissed off.

I am not saying this is necessarily the way I feel about it - at least not all the time.  But I can understand where this sentiment is coming from.  Our country seems to be more concerned about the plight of bums than the future of the working - and I mean working - class.

Democrats like to toss around this quote about how a society will be judged by "how it treats its least members" and attribute this quote to Nelson Mandela, Hubert Humphrey, the Dali Lama, and Mother Theresa, to name just a few.   That it is attributed to so many makes me believe that none of them actually said it.  And if you think about it, it is a nonsense quote.

But many on the Left love it, and they will argue all day long that the money "wasted" on the Moon Landing, or the Large Hadron Collider, or whatever other great project mankind has undertaken, could be better spend feeding X number of homeless people.   Their logic is that the greatest achievement of mankind is overweight bums.   And if that is our goal, the United States has achieved moon-landing status in that regard - we have the fattest poor people on the planet.

Of course, they have an answer for that - "well, they can't afford to eat properly!" as if obesity was something not caused by over-eating.   Sorry, but that is bullshit as well.  If you want to lose weight, eat less.   It is a struggle I am familiar with and the only thing that works, no matter what the fad diet people try to sell you, is to count calories (eat less) and exercise more, period.

I think a lot of Americans are tired of this nonsense - making excuses for people as to why they can't work, why they can't do things, and why they should get free money from the government.   And by "from the government" I mean from you and me.

The "Make America Great Again" crowd doesn't want to return to the era of racism and segregation and misogyny (OK, well SOME of them do, for sure!).   But I think what most want to return to is the era when America had grand plans - New Frontiers, a man on the moon before the decade was out, the shining city on the hill, and so on and so forth.
Again, I am not sure what they are pining for is possible, but I think there is a nugget of truth to what they are saying - that we should be a country of big ideas, not a country of how to feed the bums better.  We are not Sweden or Norway or Finland or whatever other Nordic country the Left wants to posit has it "better" than we do.   Small countries with monolithic populations (all white, all blond, all blue-eyed) have a much easier time setting social policies (as does Japan, which is also a monolithic culture) particularly when a huge part of their defense budget is paid for by someone else.
And that is a burden that we willingly bear.   But increasingly, I think many Americans perceive the rest of the world not appreciative, but resentful of it.   And again, I may not agree with this perception, but that is what the Right see and perceives.
Americans don't want to be Sweden.   So let's stop trying to make it like that and stop comparing ourselves to others and decrying how awful we are.   This is not a way to get votes or win elections.
We need to stop feeling sorry for ourselves and the Democratic party needs to present a vision for the future that is something great and wonderful, not just social programs to divide up the pie.   When a country goes down that latter route, it is the beginning of the end - the bread and circuses to appease the masses while the powers-that-be loot the treasury and the economy.
It was a Democrat - John Kennedy - who gave the "New Frontiers" speech and said we should put a man on the moon.   It was he who said, "Ask not what your country can do for you...."   A Democrat who told us we were great and could be great and lead the world to greatness.   And it would take sacrifice and courage and hard work.
Do you think he could sell that message today?
Today, the Democratic party is all about "ask what benefits the government can give to you!"   And yes, it is nice to get health care paid for, but as I have said all along, it makes me uneasy that someone else is paying for it and I wonder where all the money is coming from.   Quite frankly, I would prefer to see the cost of health care drop, rather than keep throwing money into the health care fire, which seems only to feed the flames of overpriced and unnecessary tests as well as overpriced drugs.   We throw money at healthcare and then wonder why it costs so much.
It is like student loan money fanning the flames of the high cost of higher education.  The answer isn't free college or forgiving student loans - that would just give colleges carte blanche to raise prices even higher.   The answer has to be cutting the cost of education - figuring out where all this money is going and why.  Because there has to be an answer as to why college costs have outstripped inflation for decades now.  And the answer is, because they can, with the funny money of student loans.
As incredibly imperfect as Trump is, he of all the candidates resonated with middle America, not because of his odious behavior but in spite of it - telling them they were great and he was going to make them greater.   Rather than living with shitty roads and bridges, we should have he best in the world.  Gee, the largest economy and wealthiest country should have decent roads, right?  This is  a message that should have come from the Democratic Party, but didn't.   Instead, we got pandering and "what can we give you today in exchange for your vote?  Food stamps?  Health care?   Obamaphone?"
What exactly was Hillary's message during the last campaign?  And did it resonate with anybody?
And sadly, this doesn't look likely to change anytime soon.  Americans are hooked on government handouts.   It is a harder habit to break than opiates - and there is no re-hab clinic for it!
We have to stop feeling sorry for ourselves!

Take Over Payments? Not Bloody Likely!


Can you sell your car to someone by having them "Take Over the Payments?"  Not likely!

When I was a kid, you'd see cars and trucks advertised all the time with the notation, "take over payments!"   Maybe back then when credit scores were still years away and credit agencies were less picky about who was footing the bill, this was possible.   But today?  Not likely.

Consider this missive on Craigslist - one of 79 hits with the words "take over payments" in it:

Looking to sale [sic] my 2014 chevy Silverado. Nothing wrong with it, just looking for something smaller. Its in good condition, and has a tool box attached to the back. Has less than 60,000 miles on it. Also has bluetooth hookup, and Pandora.

Either looking for someone to buy, or take over payments with loan and tittle [sic] being transfered [sic] into your name.

Very interesting gambit.  Could it work?  As this article in Credit.com illustrates, not very likely today, as lenders don't just transfer loans on a whim.   Most car loans require the loan balance be paid off when the car is sold.   And a new car loan interest rate is different than a used car rate.  Thus, if you wanted to buy the "take over payments" car, you'd have to buy it the ordinary way - getting a new loan, probably at a higher interest rate, and make payments on that new loan, not "take over" someone else's.

Why would someone advertise a car as "take over payments" to begin with?   Well, as you might imagine, they are likely upside-down on the loan.

The truck appears to be a crew-cab work truck, which is pretty stripped.  According to NADA guides, which I think is kind of high, he is indeed upside-down  on the loan, in terms of trade-in or private party sale:

Values

Print
Rough
Trade-In
Average
Trade-In
Clean
Trade-In
Clean
Retail
Base Price $18,675 $20,325 $21,675 $23,800
Mileage (60,000) -$875 -$875 -$875 -$875
Total Base Price $17,800 $19,450 $20,800 $22,925
Options: (add)
Price with Options $17,800 $19,450 $20,800 $22,925

Edmunds is a little more realistic, I think
  • Trade-In $18,559
  • Private Party $20,484
  • Dealer Retail $22,191

I suspect if you look at other vehicles, you'd see the same pattern.  The seller owes more on the vehicle than it is worth, sometimes far more.   So the appeal of "taking over payments" makes it easier to swallow a higher price, and folks with bad credit may fall for this gambit. 

But that isn't stopping people from trying.  This website, for example, appears to offer a service where you can sell your car using a contract, and retain title (as you are required to do to keep the loan in force) while the new owner makes the payments.  The company "guarantees" the payments will be made so your credit rating won't be affected.   Of course, they will want a fee for this service, and the kinds of buyers you get this way may be, well sketchy at best.   How they can "guarantee" the payments being made is also questionable, unless they are willing to pay off the loan and/or repossess the car if the "buyer" doesn't pay.

There are a number of other sites which seem to suggest the same thing.  The way they are marketed speaks volumes.  Other sites (with misleading names) offer bland advice about "asking the bank" and "filling out forms" and "make sure you do it right!"  Other sites are little better, instructing you to first figure out whether you leased or bought your car - which again speaks volumes of the type of people they are targeting.  Again, we are exhorted to "ask the finance company".

The harsh reality is, of course, that few finance companies allow for buyers to assume loans, any more than banks allow for assumable mortgages.   Why is this?   Well, it just is not profitable for the banks, that's why.   If I apply for a new loan, they make loan origination fees, and in the case of mortgages, interest points.   They also can charge prevailing rates, rather than a lower rate locked in by an earlier loan.   In the case of cars, usually a new car loan will have a lower rate than a used car loan, as the risk of default on a new car loan is far less (and the rates are subsidized by the car companies).   No lender in his right mind would lend on a used car at new car rates!

The big stickler is, of course, that the sort of folks who want to do this are the least fiscally responsible.  The seller is trying to unload an "upside-down" vehicle.  The buyer is likely someone with bad credit.   No bank is going to go along with just transferring what is a personal agreement to some third party.

Some sites are a little more realistic about this, although they suggest the sort of "Hillbilly Financing" that some folks engage in to get out from under a car loan.  The seller above is realistic enough to know he should get his name off the title when he sells the truck.  Others work out deals where a notarized "sales contract" is drawn up, and the "buyer" makes payments to the seller, who in turn makes payments to the bank.   The seller has to make sure he gets his payments and that the buyer doesn't just skip town with the car, never to be seen again.   Repossessing the car could get sticky, as your legal status as a "lender" is someone nebulous.   And if you show up to just drive the car away, well, you can expect a fist in your face, if not a gun.

Then there is insurance.  Since it is titled in your name, you have to have insurance in your name.  You can add the "buyer" as a driver and have him pay the premiums, but if he wrecks the car, it is your insurance rates that will skyrocket, and you that will have to pay off the balance on the loan (which hopefully the insurance will cover).

Like co-signing loans, you are basically entrusting someone with a shitty financial record with your own financial credit rating and creditworthiness - along with your insurance record.   If they screw it up, which they likely will, you will end up paying for years on end.

Just leave hillbilly financing to hillbillies.

It is interesting that some folks advertise cars for sale that want money up front plus take over payments.  This is harder to parse, as if they want money up front then the car should be worth more than the balance on the loan, right?

For example this car is oddly listed:
White Hyundai Elantra For Sale !!! GREAT condition , nothing at all wrong under the hood!! Car runs great!!! Need 3,000 up front and you can take over the payments !!! Monthly payment is $307 !!
That's great - how many payments are left on the loan?  That is sort of critical information, ain't it?

NADA doesn't think much of the car:
Rough
Trade-In
Average
Trade-In
Clean
Trade-In
Clean
Retail
Base Price $7,025 $8,025 $8,825 $10,850
Mileage (75,000) -$600 -$600 -$600 -$600
Total Base Price $6,425 $7,425 $8,225 $10,250
Options: (add)
Price with Options $6,425 $7,425 $8,225 $10,250

One would have to hope the balance on the loan was less than $4000 in order to make this car even close to a reasonable price.   But maybe that is what the seller is hoping - that the buyer is so unsophsticated they will overpay for the car.

UPDATE:  I e-mailed the owner of the Hyundai and he told me that it has 70,000 miles on it, and we could go to the dealer and "sign over the paperwork" and it was no problem.   When I asked him TWICE how many payments were remaining, he said "I don't know" which sort of speaks volumes about the seller.

Assuming this is not some outright con game (a foreign scammer wanting me to wire money to Nigeria) it illustrates how this is Hillbilly financing.   He expects me to fork over $3000 in cash for a $7000 car, and then pay $307 a month for an unknown period of time.  If there are over 12 months in payments left, well, it ain't much of a deal.   But it also illustrates how some folks believe that a monthly payment is just inevitable and how much the payment is, is some aspect of the car, like its gas mileage or 0-60 time.

Again, hillbilly financing - best left to hillbillies.   I suspect the seller is just some dreamer who thinks he has positive equity in the car, when in fact he has none.

The prevalence of this trend illustrates how many people end up "upside down" on cars, trucks, motorhomes, boats, and whatnot, and struggle to find ways out from under it.   And the number of people "upside down" on things is far greater than you might think!  But that is a subject for another posting....


Median Income versus Average Income in US


There is a difference between median and average, of course!


I have bandied about the number of $50,000 as being the "median income in the US" for some time now in my blog.  This is an outdated number and also somewhat misleading.    According to Wikipedia, quoting the Federal Reserve, the median income in America is $56,516 as of 2015, presumably higher today.  So my $50,000 number is far outdated.

As in any discussion, break down the premise of what is being said to understand what it actually means.  And the term "Median household income" can be somewhat misleading.

Median, of course, is a mathematical term which means the value in a group of numbers of which half are higher and half are lower.   It is far different than average.   If I have a group of  nine numbers, say {100, 99, 80, 75, 25, 15, 10, 3, 1} you could say the median was 25, as half the numbers are higher and half are lower.  It is more in the domain of set theory than arithmetic.   If these numbers in my set represented income, well, you'd have a distorted view of what the typical person's income was.

"Household" also bears mention, as it is more nebulous how this is calculated.   A "household" may be a single person, a couple, or a family of four, or a family of 12.  The census bureau tallies up all the money earned in a house (or apartment or condo or trailer or yurt) and comes up with a household income.   This is far different from individual income, to be sure.

Does this make a difference?  Well, sure.  A single person making $50,000 a year is doing far better than a family of four making $50,000 a year who in turn is doing better than a family of 12 making $50,000 a year - the latter being considered below the poverty line, for purposes of calculating Federal entitlement programs.

Average income is a different beast, of course.   Average is calculated mathematically, by adding up all the income of everyone in the United States and then dividing by the number of households (to come up with average household income).  According to Motley Fool, quoting the Census bureau, the average household income in 2015 was $72,398 which is a lot higher than the median, to be sure - by nearly 50%.

So what do these numbers mean, if anything?   Well, you can glean a lot of information from them, if you think about this data.   The first thing that jumps out at me is that Americans have much higher incomes that in the past, but this is largely due to inflation over the years.

Back in 1980, the "Yuppies" were a thing, and the slogan from the hippie era of "Don't trust anyone over 30!" was morphed to "Don't trust anyone under $30,000" which was a joke back then.   $30,000 back then was considered a "huge" salary and meant you were making enough to afford a 1980 BMW 318i, which in retrospect was one of the worst BMWs made (but they sold a lot of them to those aforementioned Yuppies).

By the 1990's the "dream salary" had gone up.   Now you were "getting rich" if you were making $100,000 a year or more - the vaunted "six figure salary".   And I started out the 1990's making $53,000 a year and ended the decade making over $150,000 - which probably was my peak income during my life.

Already today, the "six figure salary" is no longer a big deal, as  it is probably within one standard deviation of the mean, or at least within two.   Making a hundred grand a year ain't no big thing any more  - a successful plumber or welder can do it, with overtime, working in a hot market.  Of course hanging on to that money is another trick, and was the reason I started this blog.

But another observation I take away from this is that most Americans' income is fairly uniform in nature.   Our tax code illustrates this - we have tax brackets that have break-points at or near the mean and average incomes in the USA.  The very highest brackets top out in the mere hundreds of thousands of dollars.

Rate Taxable Income Bracket Tax Owed
10%
$0 to $18,650 10% of taxable income
15%
$18,650 to $75,900 $1,865 plus 15% of the excess over $18,650
25%
$75,900 to $153,100 $10,452.50 plus 25% of the excess over $75,900
28%
$153,100 to $233,350 $29,752.50 plus 28% of the excess over $153,100
33%
$233,350 to $416,700 $52,222.50 plus 33% of the excess over $233,350
35%
$416,700 to $470,700 $112,728 plus 35% of the excess over $416,700
39.60%
$470,700+ $131,628 plus 39.6% of the excess over $470,700

Note how these brackets (here illustrated for a married couple) are clumped along the lower income levels in America.   Make a half-million or a million, you are in the same bracket.  Make a Billion, you are in the same bracket.   Of course, the joke is, once you make a million or more, you can hire an accountant and lawyers and structure your life so you are paid in capital gains and thus pay no more than 15%, as Mitt Romney and Warren Buffet do.    Only little people pay taxes - Leona Helmsley was right!

And if you think this is going to change anytime soon, look at the electoral map carefully.   The sad story is, it doesn't take a lot of money to sway politicians, and the very rich can spend very little to control things.   But that's another story.

The main thing is, the bulk of us are clustered along this $0 to $100,000 income level.   While there is a great disparity between the billionaires and those on welfare, the bulk of Americans make under $100,000 a year.  In fact, half of them make less than $52,000 a year, which is what "median" actually means.

So, if you are making something within this range, odds are, you are a pretty average person in America.   Not unique and not necessarily disadvantaged compared to others.   If you are making more than this, you are doing pretty damn well - start banking it, as you have no excuse to be broke later on in life.

A reader recently took me to task for my recent posting on actual logged spending.  He argues that his Pa, who is living in the UK is spending far less.   It is hard to parse this, for a number of reasons.  First of all, I have to ask, Is your Da really spending that much or are you just guessing?  Because unless he logged every single damn purchase on Quickbooks or some other software, he's just guessing at his spending.    If you had asked me what I thought I was spending, well, I would have said far less.   That is the point of logging all purchases - you can't control that which is not measured.

Second, my spending is about average for an American, so comparing it to his pensioning Dad in a foreign country is sort of apples to oranges.   For example, I understand you don't have to pay $1100 to $1400 a month for Obamacare over there.   It sort of makes it hard to compare.   And while you can save a lot of money (about $8000 a year by my reckoning, including depreciation) by not owning a car, this is far easier to do on a small island that you can walk across in a few days - and that has robust public transit.   In America, well, it takes more than a few days to walk across, and a car is sort of necessary, which is why we have more cars than people in the United States.

What was interesting to me was that according to Fidelity, I am right on track for retirement living.   Last year, I still had income from my business (which I am winding down this year) so I did not have to dip into savings for all of my spending.   But even if I did, I would be on track to spend less than 5% of savings a year, which would take me to age 87, the average life expectancy in the US - for somene who has lived to be 60 (average overall life expectancy is closer to 78).

Thanks to a robust stock market, the balance of my investment accounts has actually increased over the last year, even as I withdrew money. I realize, of course, this will not always be the case. The secret is not to panic but the market goes down as many people did in 2009.

And as the Fidelity report noted, housing costs are the single largest expense.   And while I do plan on downsizing eventually, I doubt I could save too much by going to an apartment at the present time - at least one that is in a nice neighborhood.  $1800 a month doesn't buy much these days!

So, I am right on track with current spending levels.  But since the Obamacare tax credit will cover most of my health insurance this year, it will knock $13,000 right off the top from my expenses.  And since our summer vacation will be far shorter this year (less than two months, as opposed to three) our travel and lodging expenses will be far less (we also took some expensive trips last year that involved staying in hotels).

So, stay tuned for the 2017 expense report, coming soon in 2018.

Monday, March 20, 2017

Parents, Children, and the Crab-Bucket Mentality



Your parents may, ironically, be the biggest obstacle to your success in life. 

In my last posting, I mentioned off-hand that in many cases, a "smart" kid in the ghetto or the trailer park will get beaten down by his peers and even his own parents if he tries to assert his intelligence by studying hard and getting good grades.   And it struck me that this offhand comment needed deeper analysis.

The crab-bucket mentality is a shorthand for the notion that people try to pull down others who try to succeed, to their own level.  It is a human thing and we all do it to some extent, particularly minority groups.  "He's getting above himself," people say, "thinking he is all that!"  - and folks will actually conspire to destroy one of their own, just to make themselves feel better by comparison.

Parent will often say things like, "I want my children to succeed even further than I have!" or "I want my kids to have all the things I never had!" as these are noble sentiments and saying them is in fact a form of status-seeking.   Often, however, these sentiments are not really meant, or if they are, can actually destroy a child's life.

I recalled in an earlier posting, a lawyer I once worked for who said the latter phrase - that his children would never know want in life.  And he gave them everything they wanted - a college education for free (most chose worthless degrees, of course), free housing, free cars, spending money - well into their 20's and even 30's, and for all I know, even today.   He basically ruined their lives as he taught them to be dependent on his checkbook and made them all indolent and lazy and maybe a little crazy as a result.  Parents sometimes smother their own children.

And while parents, Dads especially, say they want Junior to advance further than they did, in reality they often want the opposite.   Many parents love to lord over the ruined lives of their children, as it allows them to dole out money and advice and control well into their 30's, 40's, and 50's.   The wounded child is a perverse status-symbol among the older middle-class.   I cannot recount how many times an oldster here on Jekyll Island has recounted to me how their children are flawed and unsuccessful - and seeming to be proud of it.

Of course, some parents, particularly in poorer families, are far less subtle about this - beating the kid with a belt, if they feel he is "getting ahead of himself" which is a euphemism for getting ahead of Dad.  And it is funny, but children are essentially property in this country and have no legal rights of their own - or damn few, anyway.   Abraham Lincoln had to work for a living and hand over all his wages to his Father until he reached the age of majority.  That was the law back then.   Today, it has not much changed.   Many a child actor has discovered the hard way that when Mom and Dad decide to spend the millions the child made in that blockbuster movie, the child has little recourse when they reach the age of majority, other than to sue their parents.  Even after they passed laws to the contrary, parents stole their children's money.

There is this inherent tension in the parent-child relationship.   And the tension is this:  The parent conceives, births, and raises the child, in what is arguably the most intimate relationship outside of marriage (and perhaps even moreso).  But at some point, the child has to leave home and start a life of their own.   The baby bird may be weaned on his parents' vomit, but at some point has to leave the nest, usually never to return.    If you think about it, there is little benefit to the parent in this deal, and much to the child.

But the child that never leaves the nest never learns how to live on their own and have their own life, and I think, based on my observations, that the "Greatest Generation Ever" has, more than in the past, kept their children around as an audience for their lives.   Many people of my generation, it seems, were never able to break free of the Parent Trap, and form meaningful lives of their own.   Some are relegated to living in their parents' basement, others merely live in perpetual fear of parental disapproval, or fruitlessly spend their short lives seeking parental approval or closure.

Growing up in fairly affluent areas, I can think of at least a dozen or more of my peers whose lives ended up as "damaged goods" and their parents seemed to take a perverse pleasure in this.   And perhaps it was this "Greatest Generation" nonsense that fueled this.   After all, they beat Hitler and landed on the Moon, and what did these little shits accomplish?  Woodstock?  Give me a freaking break, right?

So what's the point in all of this?   Well, your parents and peers can be the biggest obstacle to your success in life.   Maybe you are one of the lucky few who have this great relationship with your parents, and they don't continually run down your choice of career and spouse.   Good for you.  Increasingly, I am beginning to suspect that such people simply don't exist, or maybe the all-white upper-middle-class enclaves I have lived in most of my life have such folks in short supply.  I live with people in their 70's who are still terrified of their parents in their 90's.   The parents are weak as kittens and living on life support, but a simple raised eyebrow can put the children into a deep funk for a month.   Sad, ain't it? 

But we are not statistics, even as statistics, if they are not specious, can tell us a lot about general trends and patterns.   Individual choices trump statistics every time, and just because you grow up in certain circumstances does not mean you have to perpetuate them.

And maybe this is off-topic, but it does irk me when someone accused of a horrendous crime, will try to get a reduced sentence or even avoid jail entirely, by arguing that some traumatic event in their childhood forced them to murder people.   It is a bit sick on two counts.   First, it is all-too-easy to allege horrific things from 30-40 years ago when there is no one around to corroborate or dispute your story.  Every criminal, it seems, alleges they had a shitty childhood chock full of abuse.   None came from a good home - or at least the smart ones will never say they did!

Second, while people do have abusive childhoods, not everyone who endures abuse becomes a criminal.   To allow someone leniency based on an abusive childhood is to negate that fact that so many others who faced similar circumstances did not commit horrendous crimes.   We tend to want to feel sorry for people and look for reasons to excuse their behaviors.   But maybe that is the subject for another posting.

Cheating On Exams


Poorer students do poorly in school.   This is news?


In a recent article on the BBC, they act all shocked when it is revealed that poorer students do poorly in school.   I was unable to fathom where the Beeb was going with this.  The article documents how in Romania, they put an end to widespread cheating on exams, and as a result, the poorest students (in the economic sense) had their grades fall the furthest.

I am hoping that the BBC is not implying that we should let poor students cheat on tests as a way of evening up social outcomes.   But it appears to be what they are implying.   Freaking sad.

But what the BBC decries as unusual an unexpected, is, of course, what most people who have lived for more than ten minutes on this planet could tell you.   And the reasons for this are many, but in general they can be summarized by the poor are stupid which is why they are poor.   Once again, of course, to even say this is to be accused of "attacking the poor" instead of just stating the obvious.   Poverty doesn't "just happen" to people like some random event, just as homelessness doesn't "just happen" to people, but is caused mostly by mental illness and drug addiction.  But to hear the media tell it, these are random events that happen to people who are "unlucky" which really isn't a very helpful attitude in determining the causes of poverty and homelessness, or indeed even in solving them.

Oh, and taking that holier than thou attitude is just another form of sick shaming behavior which is designed to shut down all discussion, not enable it.  And no, the poor are not noble, more spiritual than you and, nor do they have magickal powers.   In fact, they are quite likely to beat the shit out of you and steal your stuff.  Stop romanticizing poverty!
 
 But let's look at these factors one by one and see how they create this cycle of poverty and stupidity:
1.  The poor do not value education, hence they are poor:   You see this all the time in poor neighborhoods, whether it is an inner-city ghetto or the redneck trailer park in the country.   Folks like that don't need no book learnin' that's for sure!   They don't need to speak English without some thick accent - inner city or rural country, either.  They don't need to know how to spell or do math - right?  The "smart" poor person who tries to study and get good grades is literally beaten down in school and after school and even at home by his parents.   The message is clear - don't get above your level in life, or the crab-bucket mentality.  Kids learn early on not to try to be "smart" - as a survival skill.

2.  The poor do not value literature and reading:  When my Mother worked with head start to try to help poor families teach their children to read, she was appalled to visit some of the rural homes in our area.   Trailer homes with several cars, snowmobiles, and pickup trucks parked in front of them would have a monster satellite dish, but nary a single book in the house, or even magazine, except perhaps TV Guide or the National Enquirer.  She would give them a copy of Richard Scarry's Busy, Busy World, which was a great children's book.   It would be the only book they had in the house.   It was charming, though, how the adults found it interesting and would read it, word by word, with their kids.  Never too late to learn!

3.  Lack of education perpetuates the cycle of poverty:   You can argue all day long whether it is just native stupidity or lack of education, the net result is the same - the poor don't think a lot about their economic situation, how to improve it, or where their money is going.  The middle-class person buys a house and a car, the poor person buys a trailer and five broken-down cars and two snowmobiles.   Poor economic choices caused by either native stupidity or lack of education - it doesn't matter which.   Emphasis is on status or perceived status, and not on long-term gains.   (Sadly, the middle-class has fallen down this same rabbit-hole in recent years).
Take this all together and you have a perfect storm.   You can argue which is cart and which is horse.  Are poor people dumb and thus destined to be poor?   Or do the poor merely make themselves dumb by not valuing education and thus perpetuating the cycle of poverty?   It goes both ways, but there are very few smart poor people, other than those who either choose poverty as a lifestyle (and often, they are not actually poor) or people who are too-smart-for-their-own-good and fall down the economic ladder into poverty due to drug use, mental illness, or a combination of the two.

But to act shocked at the results of the study in Romania is just plain, well, stupid.   If you spent any time in public schools (real public schools, not the private schools that the British call public schools - they also drive on the wrong side of the road and spell "color" wrong) you realize pretty quickly there is a hierarchy among students, with the highest-scoring students generally correlating to the wealthier students - not always, but generally.

Wealthier families are more likely to value education, more likely to have a lot of books around the house, more likely to reward their children when they get good grades and punish them when they fail (as opposed to vice-versa).   Wealthier families are more likely to have more intellectual discussions and also have higher expectations for their children.   In my family, the house was loaded with books, it was just assumed we would go to college, and we were chastised if our report card was not all "A's".

But right there might explain why the middle class in America is disappearing.   What I described above was a middle-class family in the 1950's and 1960's, when you bought a bookcase to hold books, and not merely decorative items as so many people do today.   The television was not the centerpiece of the home, and the children didn't spend all day playing video games, causing trouble online, and watching endless hours of bad television shows.

In other words, our middle class have turned into idiots.   I don't know how many middle-class people I meet today who gush over their "favorite show" which sadly is usually some idiotic "reality" television show, which of course is not real, but they believe it is.

And maybe that explains not only why the poor are poor but why our middle class is sliding down the economic ladder.   We are turning into a nation of morons - a world of morons, if you will.

Because if the BBC can't see the connection between poverty and academic achievement, well, they are staffed by morons as well.

How very, very sad.

NOTE that this is not to say that you have no choices in life or that statistics and trends dictate outcomes.  There are people born into poverty and stupidity who escape from their circumstances by applying themselves, often having to fight their peers and even their parents to make different choices in life.    Choices trump statistics, every time.

But on the other hand it is idiotic to act shocked that most people don't make these hard choices.


Sunday, March 19, 2017

Review of Spending, 2016 - Scary Stuff!


Logging all expenses allows you to produce a chart of where your spending went, which can be a bit disappointing but illuminating.

Where does all the money go?   That is the question everyone asks.  Until you log your purchases, you'll never know.

I just reviewed my 2016 spending.  Since my logging isn't perfect, I had to go through and re-categorize some entries.  For example, some car repairs and gasoline charges were under "auto- misc" instead of the subcategories.  This logging doesn't include cash purchases, but we try to use as little cash as possible, taking out an average of $150 a month from the ATM (again, this is logged).

Some things are not accurately logged in the correct category.  For example, I have a separate category for "Liquor" and "Pets" - but liquor (including beer and wine) bought at the grocery store, as well as pet food, is logged under "groceries."   Nevertheless, these two entries were rather enlightening!

What was really scary was that the largest category was in home repairs and upgrades.    If you add in all housing costs, including insurance, taxes, utilities and repairs, it is the single largest category of spending.   Indeed, even home repairs was larger than any other category - although we did do a lot of upgrades last year, including a new split system A/C unit for the garage/laundry room and a new sidewalk and driveway repair, as well as some plumbing issues.   Housing is expensive - even when it is paid for entirely!  Big box home improvement stores are evil.

So.... where DID all the money go?  Let's take a look.   My situation may be unique (indeed, everyone's is).   Some folks spend a lot more on housing, others on medical expenses.  Still others on cars (as I used to do).   But it does show me where I can trim the budget a bit.


1.  HOUSING:

Maintenance and Repairs: $12,284.69
Taxes: $3342.67
Utilities: $3117.23
Insurance: $2692.56 
Lot Rent:  $290.00
Umbrella Insurance:  $191.00

TOTAL:  $21,918.15  ($1800 a month with no mortgage!)

NOTES: Utilities includes electric, water, sewer, and trash fees.   Taxes includes fire fee.  Maintenance and repairs is the big item here, as we made several major improvements to the house this year and hope to do a few more next year.   All those little trips to Lowes and Home Depot also add up as well.  A plant here, some edging there, you end up spending a lot of money.  Renters take note, owning a home is not cheap!

The replacement windows, however, are paying for themselves in terms of lower utilities, saving an average of $100 a month in electricity.


2.  FOOD & BEVERAGE:

1.  Groceries: $7836.40
2.  Liquor: $4519.19
3.  Meals (Restaurant): $6990.39

TOTAL: $19,345.98

NOTES:  Now you know why I am skeptical that you can "live" on $7000 a year as some online "financial gurus" claim.   That doesn't even cover a food budget for two people!   If you cut out all restaurant meals, all beer, wine, and liquor, all pet food, you could get this down to under $5000 for a couple, I expect, but it is pretty hard to get it down less than that, unless you want to eat nothing but raman noodles and huge bags of rice (BTDT!).  We want to live, not live like monks.  The point of this blog is how to live better on less.  Living on less is easy to do - just starve.

This is still an area for potential savings.   Less beer, less wine.  Since we are no longer buying pet food, there should be savings there as well.  Those Mormons and Baptists obviously save a lot of money in the liquor department, but then again, tithing and that funny underwear probably offsets this cost.  Better to tithe to the liquor store - less hypocrisy.


3.  MEDICAL:

Health Insurance:  $13,206.00 (Thank you President Obama!)
Prescriptions:  42.00
Other: $1,337.90

TOTAL:  $14,585.90

NOTES:  Last year, we were not on Obamacare, so this is a one-year anomaly.  This year, on Obamacare, our medical insurance will cost about $250, so our costs here will drop dramatically to under $2000 a year.  Since we are fairly healthy, our medical costs are lower than average.  Under Trumpcare, costs will likely rise back up to $6000 a year or more, perhaps even more than Obamacare!

Thank you President Trump!  For nothing!


4.  TRAVEL & ENTERTAINMENT:

Lodging: $8966.36
Entertainment:  $1289.04
Travel:  197.14

TOTAL:  $10,452.54

NOTES:  We do travel by RV several months of the year.  It can be expensive in terms of gasoline (which is not listed under this category) and RV park fees, which can be $50 to $100 a night.  State parks are far cheaper, and we need to spend more time there or at cheaper places to stay (e.g., truck stop parking lot, if just for the night).

In 2017, we plan on a shorter summer holiday, but in 2018 we plan on going to Alaska, which will cost a lot more.  We also would like to take a transitioning cruise, maybe in 2019 and spending a month in Europe, if they are still letting Americans in at that point.   The entire point of retiring early was to travel while we are still young and ambulatory.   However, there are ways to travel cheaply, and considering how many months we travel, this is pretty reasonable.


5.  AUTOMOBILE:

Gasoline:  $2499.54
Repairs:  $2953.11
Tolls, Registration, Parking:  $228.64
Car Insurance: $833.80

TOTAL: $6515.09

NOTE:  This does not include the largest "expense" of car ownership, depreciation.  Combined, both cars depreciated a total of about $5000 this year, assuming a 50% depreciation every five years.

The Repairs section also includes about $1500 for the golf cart "buggy".   We put new tires and battery and serpentine belt on the truck this year, and also had the transmission fluid changed.  The remainder of repairs is just oil changes.   Down the road, the repair cost will indeed increase.

Gasoline includes gas for travel on vacation. Total miles driven, annually, for both cars, is only about 15,000 total.  Our insurance is also very low (Thank you, GEICO!) so our expenses are far below average.

We could save money by going to one car, which someday maybe we will do.

6.  OTHER: 

Clothing:  $1304.82
Pets: $543 (vet bills)
Miscellaneous: $1299.22
Dues and Subscriptions:  $728.84 
Telephone:  $938.62
ATM Cash: $1800.00

TOTAL: $6,614.50

NOTES:   The clothing amount was more than we expected.   We buy souvenir t-shirts, the occasional jacket, and Mark's No. 1 vice - HATS.   A good hat can cost more than $100, sometimes much more! At this point in our lives, we have too much clothing and are giving away large amounts to charity.  We could spend less here, particularly in the hat department.

Old Joke:

SHE: "Whenever I'm down in the dumps, I get a new hat!"
HE:  So that's where you get them!

No more $100 hats!

Dues and subscriptions should drop for 2017 as well, as we dropped our Pandora subscription (didn't use it enough to warrant $4.99 a month) and our subscription to the New York Times (you can read that for free on MSN half the time anyway).

* * * 

So, what to make of all of this?   The amount we spend is scary.  Overall, we spent $79,432.16 which is far more than I intended to spend - nearly 5% of my net worth!  At this rate, we will run out of money in 30 years or so, although eventually we will qualify for social security which will help, and some expenses will no doubt drop, as we downsize our housing, cars, and travel expenses as we age.  A part-time job might also offset spending, and that is an option.

And that is part of the game, I guess.  You do want to spend it all before you die.  Because if you become infirm with a million dollars in the bank, Medicaid will say "thank you" and empty that bank account if you have to go into assisted living.

The home repair thing really shocked me, quite frankly.   All those little "home improvement" projects add up, and now I understand why old people let their homes fall down around them.   They don't want to spend the money and who cares if it is out-of-date?   By the time they sell, they don't really give a damn, and the new owner will renovate anyway.

We were planning on replacing the contractor-grade carpeting in the bedrooms with engineered hardwood, doing the work ourselves.   We'll see - it would be cheaper than hiring a carpeting company.  We could delay the project for another year, though, and just live with crappy carpeting.  The house needs to be painted (inside) after nearly a decade - the colors are outdated and there are scuff marks in places.

We will have to budget for a new air conditioner, new hot water heater, new washer and dryer and new stove, dishwasher, and refrigerator, as all of them are over 10 years old and will start to fail in the next 5-10 years.   That could keep the old home repair category topping the list for years to come.

NOW you see why I am against $1500 washing machines and $2000 refrigerators.   Houses are expensive enough as it is, without spending extra to make them look fancy.

To all you renters out there, whose housing expense has one line, "Rent", consider how lucky you are.   When something breaks, the landlord pays for it!   Owning a home is no special treat.

If we take away the Obamacare cost ($13,000) the cost of PETS (vet bills and food, about $1000), trim back the hat spending and HOME REPAIRS, as well as restaurant meals and liquor, we should be able to cut back our spending to about $50,000 a year, which is the median income in the United States.

That will be our goal for next year.  Let's see if we can reach it.

UPDATE:   According to this Fidelity "Retiree Test" we are actually on track and my unexpected results are in fact, expected.   The test says you should spend no more than 5% per year in retirement (check) have enough money to live to age 87 (check), you should have saved ten times your highest salary (check) and that housing costs will be your greatest expense (check, check, check!).

Nevertheless, we will look for ways to trim the budget in the coming year.