Ways being broke makes cost of living higher than if you have money

Miscellaneous and Personal Stuff I Must Share
21

I had a guy come to my door once asking to pick scrap metal from an old bulldozed garage across the road. I told him it wasn’t my garage and offered him some work for cash helping me with fencing and weed eating my fence rows.

As we were talking, I found out that this guy had gotten a DUI about 10 years before. He was never able to scrape together enough cash to pay his fines, so he didn’t have a driver’s license. Without a DL, he couldn’t get a real job. So he drove around the back roads at the edges of the county (where there weren’t likely to be cops) looking for scrap metal.

Well, I had quite a bit of farm chores I could pay him to do, and before long he had enough money to get his license back. He got a real job (still working for me sometimes when I needed help). He married his long-term live-in girlfriend, got custody of his niece and nephew (whose parents were in jail), and bought a house. His life radically changed all because he could scrape together $1000 in cash to pay his fines.

StG

22

The one other time I hear about this is with affordable housing lotteries - if your income is one dollar over the threshold, you aren’t eligible. For some of them, there a weird gap where if your income is less than $X, you can get an apt and pay $Y rent. If your income is $X+ 2K, you can get an apartment and pay $Z rent. But if your income is $X + 1K, you’re out of luck. But I suspect the reason I hear about these complaints is not because of the people who are earning $35K (which is too high for the units with a max income of $34K and too low for those with a minimum income of $36K) but rather because of the people who earn too much for the units with a $108K maximum but too little for those with a $113K minimum*

  • yes, incomes for “affordable housing” can go that high - I think it’s a bit of a scam to get tax breaks and still get relatively high income people into the buildings. I’m looking at an announcement of a lottery right now and out of a total of 667 apartments available, 299 are for people with 165% of the area median income.(160 are set aside for those with 60% or less of the median income) A studio for that bracket goes for $2500 for a single person with an income between approx 90K and 123K - market rate studios go for less than that in many parts of the city.
23

I have mentioned this before, but I’ll try again.People who pay rent are subsidizing home owners.

How? If you are paying rent, your rent is paying for all the maintenance and all the property taxes, you can be sure of that. But you are paying it with after-tax dollars. But if you are an owner, your investment in your property is paying your equivalent of rent. But that income is untaxed. As an example, I just bought and moved into a condo. I paid a bit over a half million. I could have invested that money and rented an apartment. That investment would have earned enough income to pay my rent–maybe. Except that at my marginal rate (around 40% including provincial and federal income tax) I would not have gotten nearly enough. This is a huge subsidy for home owners.

Another way to illustrate the problem is to mention a friend who lives in MA. He had a sabbatical a couple decades ago and found someone in CO who wanted to spend his sabbatical in MA. They decided to exchange houses. No money changed hands, not one cent. Each one continued to pay the insurance premiums, real estate taxes, etc. on his own property. Several years later, my friend discovered that each of them should have declared the full rental value of their homes on their tax returns. Because for that year they were equivalent to renters. That no money changed hands was irrelevant.

24

I’m not sure that’s completely true, depending on where you live.

My coop apartment is currently worth $500,000.00. If I had just purchased it, putting 20% down, with a 30 year loan at 4.5% —- my monthly payments would be $2600.00 a month. The common charges, which are typical for the area, are around $650.00 a month. So my total fixed costs are $3250.00 a month. (One way a coop differs from a condo in that your property taxes are included in your monthly common charges.)

The going rental rate for an apartment like mine in my neighborhood is around $2200 a month. I am able to afford to sublet the property because I purchased it a long time ago when it was much cheaper.
I actually purchased the place from my landlord 15 years ago, changing from renter to homeowner without moving. And my monthly payments went up sharply, even then.

Your assumption that a landlord always covers his expenses via rent is flawed. I’m lucky if I can break even on my rental, the financial advantage lies in the fact the the apartment value has appreciated sharply and will probably continue to do so. I’m breaking even ( and possibly even taking a loss if I get hit with a special assessment) in order to benefit from the increased value at some time in the future.

And my costs are substantially less than they would’ve been if I’d purchased the place recently.

25

I suppose that for certain situations, renters might be said to be subsidizing homeowners - sure, if I was to rent my house out while I was living elsewhere for some reason, I could get enough to cover the real estate taxes, maintenance, insurance etc.( but not the mortgage if I had bought the house recently) But I only own one house - I wouldn’t call someone a “homeowner” if they were renting out 20 apartments in 5 buildings. And I don’t really see how a renter is subsidizing the landlord unless a person who can’t have a washer/dryer in their apartment is subsidizing the laundromat . Seems to me they are both customers of businesses they wouldn’t need to use if they owned the apartment or the washer and dryer.

26

Arguably, people who use laundromats are subsidizing those who own their own washer and dryer too, it’s just a pretty small subsidy because a very small amount of our income goes toward washing clothes.

The argument that renters subsidize homeowners is based on imputed rent, and you could make a similar argument for “imputed clothes-cleaning”.

Imagine two people who both work the same job and live in the same model house side by side. They make the same income from working. One of them owns the house, and the other rents it. The one who doesn’t own the house instead owns some other investments that provide an amount of money equal to their rent payments every year.

To throw some numbers at it, let’s say they make $50k a year working, the houses cost $100k, rent/other investment income is $1k a month.

From every vantage point except homeownership, these two people are the same. Same net worth, same W2 income, and the investment income balances out the rent.

But the owner gets taxed on $50k of income, while the renter gets taxed on $50k+$12k of income.

Sure, the owner pays for upkeep and property taxes. But the argument goes that those must be lower than the rent paid by the renter because otherwise the landlord wouldn’t keep renting the property. In the long term and on average, that’s almost always true.

As you point out, this applies to anything that can be owned or rented. And it mostly comes down to economic efficiency. In most cases, it’s more efficient to own an asset that provides some use that you need unless you need it infrequently enough to be worth the premium that you’ll pay to rent someone else’s. Since most people want to live in a house all the time and not just occasionally, owning a house is (usually) more efficient than renting it.

Which just circles us back to the point of the thread, which is that if you’re poor, you often can’t afford to own all the things that you’d use regularly because you don’t have the money, so you’re forced into the economically inefficient rental market where you pay higher taxes, higher transaction costs, and more of someone’s profit margin.

27

I understand the imputed rent argument and I wouldn’t disagree that to an extent renters are subsidizing homeowners through the tax code. But I understood **Hari Seldon ** to be referring to individual renters subsidizing individual homeowners - an argument I sometimes hear as “why should I pay someone else’s mortgage when I can pay my own”. I don’t really think that’s usually the case because many, maybe most people who rent are not renting from individual homeowners. People/organizations that own tens of apartments are not normally referred to as homeowners - they’re landlords. And the whole imputed rent thing doesn’t really apply to them - they’re renting out those apartments as a business and paying income tax on their profits.

In my neighborhood , the very few houses available to rent were not purchased with the intention of being rental properties. They are generally paid-off houses that are being rented because the owner died/went into a nursing home/moved in with a child and the rent will cover the expenses because there is no mortgage. Like **Ann Hedonia** said, if the house had been purchased recently, the market rent wouldn't cover the expenses and the mortgage. I'm looking at a listing for a house across the street from me- the estimated monthly cost is $2800 and the estimated rental value is $1900.Buying that house as a rental will cost the owner at least $900/mo out of pocket. Most of the rentals in my neighborhood are in 2-3 family owner occupied homes because the finances work differently - a two family house does not cost twice as much as a one family house on the same size lot.* Looking at another listing a few blocks away , the estimated monthly cost for a two family is $3700 and the estimated rent for an apartment is $2500.That rent still doesn't cover the monthly costs if the owner lives there , but if only one apartment is rented the owner is putting out $1200 a month and has a place to live. If both apartments are rented, the costs are more than covered.
  • This is because land is expensive here- there’s a 2000 sq foot empty lot a few minutes away listed at $369K. A single family house a block or so away from that lot is listed at $599K , also on a 2000 sq ft lot. I think the land accounting for more than half the price of a house is unusual - and it’s also the reason why where the zoning permits it, single family houses are being torn down and replaced with 3-4 unit buildings.
28

The 2k asset rule will a one of the dumbest I’ve ever seen, especially considering that barely any car under 2k is worth driving.

Plus child care, health care and rent can be so expensive that even if you have more than 2k in assets you can still barely afford these things.

29

I own my own washer & dryer; only my clothes are washed in it; not yours. Whether you own your own too or use the laundromat you don’t use mine so how are you subsidizing mine?

30

Not so much people who are low-income in itself, but who have some degree of mental impairment or life inexperience and in addition to being low-income as a result, cannot comprehend that they’re being ripped off.

31

I’ve heard of disabled children losing benefits because their surviving parent didn’t know that according to their state, the cemetery plot they purchased so they could all be buried together was considered an asset.

My grandmother had a pre-paid funeral, and that was not counted against her when my dad found out she was eligible for Medicaid, before she went to a nursing home. Some places do count it.

32

A few things

  1. The 2k limit was set decades ago when 2k went a lot further

  2. There are folks who think if you squeeze the poor harder and make them more miserable it will give them “incentive” to get a job/better job/improve. Which could is not going to work with the disabled at all who simply can’t “do better”.

  3. It ignores that gathering resources/reserves is vital to a stable life long term, even if the policy-setters routinely do this for their own lives

  4. Often, it assumes things like rent are obtainable at much lower prices than is currently the case - again, I think this was put in place decades ago. When I rented my first apartment 35 years ago $240/month paid for a safe studio apartment with all utilities included. Now? Ha! I looked up the same building awhile back and my old apartment is now $1200/month. WTF? Well, that’s why I can’t afford to live in Chicago. Even so, when my late spouse and I were on food stamps our rental “allowance” used to calculate our monthly benefit was laughably low - something stupid like $490/month which is NOT obtainable in our area. We were paying more than that even with getting a deal by being the maintenance people for our five-unit building.

  5. It prevents people from moving. If your rent is $800/month (which is typical around here for a one bedroom place) then first month’s rent + security deposit is $1600, which typically needs to be paid up front. If you have a two-bedroom place (which would be necessary for a family) that can swallow up your allowed “savings” and still not be sufficient to cover just that, let alone any other costs of moving. So, folks, those of you wondering why poor people don’t just move to where there are jobs there’s yet another reason: they haven’t the money to put down a security deposit on a new place, much less the cost of moving there.

  6. It impairs peoples’ ability to own/maintain a reliable vehicle, which can be essential to steady employment. I sunk about $2k into one of mine this year ('cause stuff wears out in an older car), something I was only able to do because I have reserves greater than $2k. Well, OK, I could have worked out a payment plan, but that costs money in the form of interest. You can’t get a running car in this area for $2k anymore.

  7. Low reserves means borrowing money which is costly - I don’t have to borrow money because I have a savings account. That means I don’t pay interest. Sure, sometimes a bite is taken out of those savings, but instead of paying out interest I can put the “interest” back into savings, thereby building up my reserves again. But if you have multiple payments - for car repairs, dental work, that couple hundred you needed to drop because of school uniforms and supplies your kid had to have - then you aren’t saving, you’re paying interest, and because you’re not allowed more than $2k even if you DID save money you’d be forced to spend it. And people wonder why the poor have such maladaptive fiscal habits? It’s because they are forced into it. Or else stuffing cash into a mattress which is VERY common and frankly smart on their part even if it’s against the rules. If the rules are hurting you then why follow them?

8 ) Low reserves means you can’t bulk-buy. As noted upthread, if you pay your car insurance in one lump sum at the start of your policy you can get a better deal. I buy a year’s supply of paper goods like toilet paper, facial tissue, and paper towels which requires more money up front but saves me a LOT over the course of year… but that’s possible only because I have that up front sum and a place to store the stuff. This is even more important for families, but with low/no reserves you haven’t the means to take advantage this.

  1. Sam Vines and boots. By extension, a lot of other stuff.

  2. High deductible health insurance. Of course, a lot of people on the lower end just don’t have health coverage period, or just for the minor children in the household, but for those that do, having a policy with, say, a $2.5k deductible is laughable when you aren’t allowed more than $2k in savings.

Personally, I’d argue for raising that $2k reserve limit. Just off the top of my head, up to $5k maybe, with an additional allowed for every member of the household. So… maybe $5k + $2k for every additional adult and + $1k for every minor. Family of four could then have up to $9k in reserves, which would go a long way towards maintaining a vehicle, paying for minor emergencies or seasonal requirements (like school costs), or for moving if that’s needed/a good thing. Of course, a lot of these folks wouldn’t actually acquire that much in a savings account, but that’s not the point. The point is that having a minor windfall won’t leave them worse off than before, and they won’t have to borrow as much, and have a reason to accumulate resources, because they won’t immediately be taken away.

33

Around ten years ago I had an electrical problem in my heart requiring a pacemaker to correct. After insurance my end of the hospital bill came to several thousand dollars. A few days after the surgery the hospital called to tell me that if I paid in full before thirty days had passed they’d give me a 20% discount. So, because I could afford to reach into my pocket and pull out four grand I saved $800.

Broke people need to carry more insurance than people who aren’t. Insurance is designed to protect you from losses you can’t afford to absorb. I can carry inexpensive high deductible insurance on my home and automobiles because I can easily afford to pay for minor fender benders or storm damage.

34

I was thinking about poor people doing laundry as I took my own dirty clothes to the laundromat this morning. If you have a washer/dryer, you can just do your laundry any time. However, going to the laundromat makes it a production. You have to allow for the time at the laundromat, you have to get there and back, you have to pay to use the machines and wait around doing nothing while they are running, and you have to get back home. If the laundromat isn’t close by, you either get there by bus (bad idea) or a cab if you can afford it.

What should be a simple matter becomes a production.

35

Yeah, there is a massive time poverty to being poor too.

You may have to work two jobs. You take the bus or walk everywhere. You can’t do laundry in your own home.

Plus middle class or upper middle class people can hire help. They hire babysitters, landscapers, maintenance men, etc. to free up time. Those aren’t options when you’re poor.

36

Ages ago when I got my first job out of college I was shocked at what happened on the first Friday I was there. All the factory workers were issued checks on Friday and they immediately lined up in the parking lot where an armored car with a window would cash their weekly checks for a 15% fee. Apparently there were few banks in the area and the ones that did exist wanted a substantial amount to open an account (the immediate cash they could get from the truck meant that if they got off work at 4:00 they could be in the local bar by 4:30 but that’s another problem).

Just managing your finances is costly when you’re poor.

37

Nope, my sister has rented from places like that. She simply has no ability to comprehend deferred gratification, along with shitty credit. When she needed a new bed, it was the only way she could figure out how to get one. She “rented” one and skipped out on the first payment. Then they (Rent-a-Center) came after me for the money because she had given me as a credit reference. I told them they could kindly fuck themselves (more politely).

Of course she knows that on a monthly basis it’s cheaper to buy a mattress at a normal store; her IQ has tested at genius level. She just knows that she can’t make that happen because of the other life choices she has made.

38

If you have money and good life skills, you probably have a good credit history, which means you qualify for rewards credit cards that pay you a rebate of 2% to 5% at any business or utility that takes credit cards.

39

I’ve been the computer support person for HR & payroll for many years.

It’s surprising how many employees routinely have garnishments. They seem to see it as just another way to pay bills. Payroll will eventually terminate a employee with too many garnishments. Payroll isn’t their personal banker/money manager.

I’m not sure how much poverty factors into this. Seems more like bad money management skills. The bills are getting paid. They’re just dumping the responsibility onto their employer.

40

The rent vs. mortgage & equity thing has been mentioned, but what I see a lot of is people paying more than they would for an apartment on a motel room because they can’t scrape together first and last month’s rent plus security deposit (usually another month’s rent). There are programs to help with that, but they don’t go far enough or cover everyone who needs it.