Really? All I see is someone who lacks good judgement when I read that article.
I had a Mercedes once and sold it when things got tight. Holding onto an asset like that when you're impoverished is just foolish. I can't imagine being unemployed that long either. I'd be raking leaves for money after two months.
A 2003 C230K, which is what it sounds like the author was driving, could be worth in the low single-digit thousands, depending on the miles. You might find a similar vintage Subaru for hundreds of dollars less, but the risk of swapping an old car you know for one you don't to extract a few hundred dollars makes no sense. One repair could wipe that out several times over. Moreover, this car is probably paid for. They might have to finance a replacement at very unfavorable rates.
In the article she says the Mercedes was paid off; and anyone who has ever owned one knows that their resale value as a percentage of the original purchase price is among the worst of all car makes.
Honestly, this is the correct thing. Cars, once they're about 2-3 years old, have no real value. They all drop below $10k around here no matter the make or model (Maine winters are hard on vehicles, though, again, no one drives Mercedes around here either).
Buying a car is a sunk cost. Once you own it, getting rid of it before it cannot be driven anymore is wasting money. Once she bought that Mercedes, once it got too old, swapping it for a newer used vehicle would just give her a worse vehicle that would cost her more money in the long run.
I am poor. I've never been rich. I have a few nice things because I force myself to do the math on things. Other poor people hate me and threaten to report me to "the authorities" for owning nice things because somehow I cheated to get them.
I may not own many things, but the things I own do what I need them to do, and will do so for a very very long time. What this woman did, in my opinion, was the right thing.
Selling only makes sense if you can actually profit from it.
A car is not only something that costs money to buy, it also costs money to maintain and run. That cost can be cut and if you are in trouble financially the first thing to go should be a vehicle that you can no longer afford to own and operate. It's a luxury item.
Regardless of how much trouble you're in, reliable transportation is needed. Cars are an expense, but in the situation described, the Mercedes was fully paid off. The cost of maintaining it (gas, repairs, insurance) is no greater than any other car.
Repairs on an older Mercedes are actually quite expensive. I should know because I own one and if hard times would hit - unlikely, but you never know - it would be the first thing to go (and I'd replace it with an old VW Golf/Rabbit diesel).
From '09 to '11 and it had more than 300K km on it by the time I was done with it (and it still brought me back more than I paid for it...).
You have to be pretty sharp when you're buying them to make sure you don't buy one that has been maintained poorly.
Fuel pump and turbo are the most important things to check.
That car cost about $750 to buy and another $200 for fixes required right after buying it to get it through the 'MOT', after that it ran without a hitch for two years.
And I put $1500 - $3000 into my VW diesel 3 times over a 7 year period. Every car is different, even if well maintained. They said their Mercedes is reliable.
An American car is probably better for a poor person than any German car. Sure, you may have to repair it more often, but parts and labour are a lot cheaper. Even if it costs more in total, for poor people a large number of small bills are often easier to deal with than a single large bill.
I'd go for a (gasoline) Toyota if I was in the states and reliability and operating costs were my main concern. $1000 / year on average for maintenance is definitely on the high side, but of course it needs a bit more info before I could state that one way or the other with certainty (mileage driven during that time, overall mileage on the car, state of maintenance when you bought it, whether you bought it new or not).
The newer diesels have insanely high injection pressures, I have a campervan that has one of these engines (the 2.5L) and I really hope that there will never be a problem with that because it will make your $3000 look like pocket change if it fails in a serious way.
In a pinch I think I'd rely on the older and much simpler models rather than to go for one of these hyper efficient versions. They seem to trade efficiency in fuel for a much shorter life-span and a higher repair bill.
The government here puts an insane premium on fuel consumption without taking into account the effect of all those fuel saving measures on the total-costs over the lifetime of the car.
At a rough guess it is a toss-up, what you gain in fuel efficiency you lose in expensive repairs.
A car a luxury item? In suburban America? Wish it were so, so I could get rid of the polluting money-sink!
Near where I live, the advertisements on the bus stops say "USD 500 and you ride!" because a functional car means access to work opportunities, i.e. money.
Let me tell you a little story: One fine winter in the late 90's I got a job for a company in Minot, North Dakota. I flew there by way of a bunch of flights from Amsterdam, checked in to the hotel and reported to the front desk of the company that hired me the next morning at 8:30 am. Huge flap, they'd apparently called the police to do a manhunt because I had started walking to work and everybody knows that you can't possibly walk to work in weather like that (at the time: about 15 celsius below zero). I really didn't get what the big deal was until I realized that absolutely nobody walked, and that this was why the sidewalks were just about non-existent.
Suburban America is a design error with grave repercussions down the line, but since it was designed by and for the affluent assuming multiple vehicles per family and things like bicycle paths and public transport are either not present or just about un-usable you're going to have a problem if you don't have access to a vehicle.
But quite a few people do not have access to vehicles today (for instance: children, quite a few elderly people, everybody too poor to own cars) so maybe it's time to start fixing this problem?
Two cars for every family is long term un-sustainable, and two cars for a family without income to me sounds like it is an impossibility.
Even so, there are ways to use only one vehicle, even in a family where two people are working, figure out who keeps the car with them during the day, either drop off the other at work or at the nearest public transport hub (assuming that one exists).
That should take care of the bigger problem. Having two cars when you can't afford your food is really not good.
For those that don't want to do the math, -15c is 5f. I grew up in Maine (moved here when I was 6), I've walked to school in the morning in that, while it was snowing, I consider 40f warm enough to walk a mile without a jacket and maybe just a tshirt if its sunny out, long sleeve shirt if not.
I find their reaction a bit strange without further context.
With the exception of cities like New York, a car is not a luxury item in the US; it is a necessity. We might quibble about the kind of car but, without learning more about hers I'm not sure we could come to a consensus.
It's their second vehicle. You can do a lot of fixing on a Honda for the cash value of that Mercedes, alternatively, trade both for a reliable one that is a lot cheaper to own and operate.
A Mercedes is a reliable car if it is maintained well and if you're living on food-stamps and are unemployed that value will drop very rapidly because you can no longer afford to maintain it. Once it stops running its resale value is nil, so better sell it before then.
You have to keep an eye on the long term. You can be in financial trouble now, but next month you can find a job and you need a car. Then what? Buying a less reliable car, paying for a new registration and taking an unfavourable loan to finance it? Selling all your assets at once is almost never the best way to manage debt.
They have a reliable $5000 car. Given they have two babies, they need reliable transportation. What could they buy for significantly less than $5000 for reliable transportation? A bicycle would work for an adult, but they had two babies...
That's pretty much a knee jerk reaction. The car in question is over a decade old, but is fully paid off and in good repair. It was also the couple's only car at the time, as her Honda has broken down. Reliable transportation is a key component to escaping poverty. The author isn't perfect, she and her husband did make some poor choices, but keeping the Mercedes is not one of them.
> The author isn't perfect, she and her husband did make some poor choices
Unless I missed something, I don't see where the author and her husband made any poor choices. Keeping the paid-off vehicle is prudent[0]. They were making a combined income of $120k, according to her, when they chose to have a child. Only after the pregnancy was her husband laid off and they couldn't have easily foreseen that the babies would have health problems. They bought a house but the timing wasn't their fault and it's almost impossible for a layperson to predict. In short, they discovered the true meaning of "shit happens."
0 - That's one thing people might want to keep in mind when they see someone talking on an iPhone while paying with food stamps. It's far easier to keep what you have than to sell it--usually at "fire sale" prices for quick cash--and try to replace it with something cheaper. If I ever lost my job, two of the last things to go would be my paid-off vehicle and my dirt-cheap unlimited data mobile plan with smartphone.
You guys know you can walk into a dealership with one car and walk out with another car and a check in your hand right? I'm not sure where this "paid off" straw-man argument comes from.
I've driven perfectly reliable cars that cost less than $5K. A 10 year old Mercedes in great shape is probably worth about 15-20K. Why not trade that in and get another "paid off" car worth 5K and a check for 10K?
I guess it depends on how you were brought up. I'd rather sell all my possessions at pennies on the dollar, live in a honda civic, and do odd jobs than take government assistance.
there are those who were raised to do all for themselves and others rather than take a handout. This includes working multiple jobs and the like instead of accepting assistance.
you cannot under estimate the value you place in things in your everyday life when you know you worked to obtain them.
I cannot imagine being unemployed and simply collecting money and assistance. I would take entry level jobs putting up groceries to bide my time, or be at the local donation center sorting stuff for free. idle time leads to an idle mind and that does more damage than about anything else I know of
The problem with this mindset is that it conveniently ignores the fact that these people pay into this handout programs every pay check.
It's akin to paying for health insurance every 2 weeks and then paying all costs out of pocket because you don't want to rely on others.
Because we're Americans, and we've been subjected to a several decade long PR campaign so that instead of thinking the obvious, which is that the government assistance program is precisely for this kind of situation, and the author of the story, having paid into the system for years, should of course use the temporary help to get back on her feet, we are trained to believe that those benefits are for "bad" people or "other" people and we don't want to be one of them and they are so shameful and vile that even being associated with that group temporarily will rub off and taint you.
I'm not American, I just prefer that people that really need it get it rather than that I'd get it as long as I can find some other way to make ends meet. That would include selling off my assets and working crap jobs if that's what it took. It's nothing to do with shame or finding people that do need assistance vile, I just don't consider myself (for now, this may change) to be one of them.
But then again, I've always been the 'help yourself' type of person, my main reason for that is that I like to have some control over my life and government hand-outs rarely come without strings and can be withdrawn at a moments notice.
But for those that really need them it's very good they exist.
> You guys know you can walk into a dealership with one car and walk out with another car and a check in your hand right? A 10 year old Mercedes in great shape is probably worth about 15-20K.
The trade-in, dealer value for my paid off car is approximately $2,100. According to Kelly Blue Book, the dealer value for a well-equipped 2005 Mercedes-Benz CLK with 150,000 miles on the odometer and in "very good" condition is $5,124.
> I guess it depends on how you were brought up. I'd rather sell all my possessions at pennies on the dollar, live in a honda civic, and do odd jobs than take government assistance.
I strongly object to the insinuation that my, or anyone else's, rearing was any less moral or righteous than yours simply because I wouldn't conduct a fire sale of my assets, make my family homeless, and forgo the social services that my tax dollars have paid for. Not once in my adult life have I had the misfortune of being unemployed, gravely ill, or some other tragedy, and for that I am both very lucky and truly grateful. My childhood was the exact opposite for my family and I'm thrilled that my parents didn't pack us into the Suburban and say "welp, that's it, kids, we're on the streets now!"
>A 10 year old Mercedes in great shape is probably worth about 15-20K.
Not even close. The three Kompressor models in '03 were the C230, C32 AMG and SLK32 AMG. KBB trade-in values for those cars are about $3k, $5k, and $10k respectively and it is likely they had the C230 otherwise the author would have called it their Mercedes AMG.
Luxury cars are terrible at retaining their value. If you want that, buy a Honda Accord or Toyota Corolla.
Inability to adjust your spending and lifestyle when things get tough is one of the reasons plenty of people end up in real trouble, sometimes more trouble than they can solve by themselves.
The Mercedes was far above their means. A fully paid off, expensive, imported luxury vehicle.
They made a choice: Sell the Mercedes (likely for $8,000 - $12,000 in cash) and support their family by supplementing their income for six month to a year on that, less after buying a $3000-$4000 daily driver. When you're in food-stamp-hyper-frugal-mode, $8,000 cash can keep your family alive for some time!
They chose to get food stamps and keep the luxury car instead.
It was their choice, but when you're driving around your "emergency fund" and your bank account is hovering at zero while Uncle Sam puts food on your table, some would suggest your priorities and means are a bit confusing.
So a $30,000 car (or less if bought used) when you make $120k is living outside your means? If you have no debt and you have the ability to buy the car cash or pay it off within 1-2 years, how exactly is this bad- especially since you'd enjoy it? Sure, the boring thing to do would be to put all the money in savings... but if you think a 30k is outside your means, then you're probably so cheap you don't take vacations
> So a $30,000 car (or less if bought used) when you make $120k is living outside your means?
Yes!
> If you have no debt and you have the ability to buy the car cash or pay it off within 1-2 years, how exactly is this bad- especially since you'd enjoy it?
Enjoyment does not enter into whether or not it is rational to put a substantial portion of your wealth in a depreciating asset such as a car.
> Sure, the boring thing to do would be to put all the money in savings...
But then you wouldn't be buying foodstamps five years down the line.
> but if you think a 30k is outside your means, then you're probably so cheap you don't take vacations
Being cheap and being smart with money are not the same thing, and using words like 'cheap' to target a person indicate that you are not approaching the subject rationally but would rather attack a person that has an opinion different from yours using a negative term than to bring a solid counterargument. Pity.
The real pity is the lady in the article having the 1st world problem mindset of treating WIC like it's something she gets as punishment
I'm with you- as long as you make more than you spend and you can squirrel away 6 months of savings (to avoid situations where you need assistance), you're doing great.
But enjoyment does count for something, which is what I was getting at. On paper, vacations are a complete waste of money, there is no rationalizing them; they're purely for enjoyment and you have nothing tangible at the end.
The real mistake for these folks was not the $30k car purchase (that they paid off)... but the $200k of debt they introduced themselves to buy purchasing a house in a questionable market and being legally tied to it (unable to sell because it's underwater).
And to buy an expensive car when they could have gotten a cheaper one instead and use the difference to reduce the principal (which is exactly what I did when I bought the house I live in). For years I drove in ugly but reliable sub $1000 cars to pay down the debt as fast as I could.
>So a $30,000 car (or less if bought used) when you make $120k is living outside your means?
You realize that their means change when they lose their job and apply for government benefits right? That we should reevaluate our priorities and budgets when our means change (we lose our job and become unemployed for a long period of time!)
If you make 120k/yr and you receive government benefits like food stamps, I have some harsh words regarding your clear abuse of our safety nets.
>then you're probably so cheap you don't take vacations
Some offense intended: Just how young are you? Too "cheap" to take vacations? We're talking about losing jobs in a dual income family situation. How boring am I? Boring enough to budget and successfully raise a child.
How immature are you? Because it clearly sounds like you are WAY WAY WAY too immature to raise a child. "Too cheap to take vacations"!! The audacity of an entitled young twenty-something! You sound like someone who is too immature to successfully put food on the table for your child because you're too busy spending your money validating your entitled luxury lifestyle to save your money and prepare your family for the unknowns of life.
So now being able to take vacations (even if you're in financially good shape) is off limits? I'm not justifying anything that the lady in question did... but I think a 30k car and one vacation a year is reasonable on a 120k salary. Sounds like two people, yourself included, have said no- that is not acceptable (and that makes you entitled for thinking so). I know some extremely thrifty (or smart if you will) people that don't place any value on emotional experiences that might "recharge your batteries" that would argue it's a waste (even if you have more than enough money). Looks like you're one of them.
When you lose your job, you're right- the "means" change and you need to re-evaluate things. I'm not questioning that. I was questioning how is a 30k car out of the means of $120k/year person, especially if they can buy it in cash.
I think, given the context (accepting food stamps), it's somewhat reasonable to expect the family to cutback on luxuries until they get their finances in order. No one is saying they can't buy a car or take a vacation, but if they don't have any savings and are taking tax payer's money to support themselves, it's perfectly reasonable to claim that's irresponsible.
"So now being able to take vacations (even if you're in financially good shape) is off limits?
Of course not. This is outside the context of the thread where a family LOSES JOBS and starts accepting food stamps because they cannot afford food.
Yes -- IF YOU CANNOT AFFORD FOOD, you are too poor to take luxury vacations. I apologize if that is offensive.
Otherwise: PLEASE learn to follow basic context. This isn't a generalized conversation of yuppie finances.
It's a specific conversation of a specific case where a dual income family becomes a no-income family, but keeps luxury vehicles while accepting government money.
I find it irresponsible to store value in a depreciating luxury vehicle while asking your neighbors for food, but there are other opinions on the subject.
I think we're going to have to disagree about that. To me living above your means is when the equation (monthly expenses > monthly income) is true. As soon as that happens you're on the skids and the longer you take to recognize that the longer it will take you to get back out of it (if you'll manage at all). I've been both fairly wealthy and (for western standards, I hasten to say) fairly poor and the only reason I never went bankrupt or needed assistance in the form of social security or loans is a ruthless cutting of costs when that was a necessity.
To me having two vehicles when you have no income and two children with health issues is absolutely way above your means.
Of course that situation sucks and it sucks even more that this happened in a country where healthcare is anything but free and getting around without a car is difficult but that does not change the cold hard facts. Feel free to shoot the messenger but better heed these words if your life situation ever should change for the worse in a short time, your future depends on your ability to adjust rapidly in situations like that, ignoring it or trying to postpone the inevitable will not help at all.
And I would have to say that keeping things you purchased and paid off before having lowered means is not living above your current means. "Living above your means", to me, is making purchases and going into debt to maintain a standard of living that you can't afford. Buying that car would have been above their means, of course, but keeping it is not when it's completely paid off and in good working order. As many others have pointed out, the trade-in value of any ten year old vehicle with high mileage will not net you enough to justify the hassle or the risk of getting a car with hidden problems.
You can probably buy a Rolls Royce (they're cheap second hand), but you can't afford to own one if all you need is transportation. That's the problem here. So what you have versus what can afford are not necessarily the same thing.
Fuel economy, maintenance costs, taxes, insurance that's where the problem lies and those are all cheaper for a simple Toyota than for a Mercedes.
>The weeks flew by. My boyfriend proposed, and we bought a house. Then, just three weeks after we closed, the market crashed. The house we’d paid $240,000 for was suddenly worth $150,000. It was okay, though — we were still making enough money to cover the exorbitant mortgage payments. Then we weren’t.
I don't understand how a mortgage payment can go from (presumably) reasonable to exorbitant with just an adjustment of the perceived value of the home. My impression is that in the past people put less stock in the financial value of their home and just continued to pay their mortgage regardless of the underlying market. Now it is more common to walk away if you're under-water or refinance if you're in the money or want to take out some equity.
The quoted lines do not state that the mortgage became exorbitant because the value of the price dropped -- you're reading that into it.
On the other hand, a lot of people bought houses on 3-5 year fixed interest mortgages during the housing bubble, on the grounds they expected to be able to resell or refinance when the fixed interest rate expired and the mortgage suddenly got a lot more expensive and -- because their properties were now underwater -- they could not sell or refinance.
Back in the days when people just paid their mortgages, real estate was seen as a safe but boring investment, and interest rates were at 5-6% (2-3% above inflation).
It's a bit rich when a mortgage lender lends money to a high risk customer and takes out insurance on their defaulting or the property losing value (PMI) and charges the customer for that insurance and then gets annoyed if the customer walks away from the wreckage.
The mortgage was 240k. Even with 0% down payment, a 3.92% rate would result in mortgage payments of ~$1,100 a month. The couple was making 120k a year combined. I think this is more than reasonable.
I couldn't understand the gut negative reaction I had to this story. I understand why these programs exist and am not necessarily opposed to them. But I feel that people (within their means) should structure their financial affairs to not have to rely on these programs and not use them unless they have to. Unemployment for college educated workers barely crossed 5% at its worst so the two should not have been unemployed for years.[0]
I would be hard pressed to accept food stamps even if I qualified but I would likely accept unemployment insurance. In that sense, it's funny that food stamps are faux pas, unemployment insurance is acceptable and tax minimization is applauded. Even knowing that, I can't help but hold those same biases though.
You're assuming the mortgage was for $240k (e.g. they may have paid $240k then pulled out equity on an inflated valuation -- a lot of people did this, although it was a silly thing to do) and that the interest rate was _very_ low (interest rates on 5/1 ARM loans pre-bubble were fixed at 5-6% and suddenly went up to 7-8% when the fixed period expired.
If they paid 0% down then they may also have been paying PMI of around 1% on the loan (high risk borrowers effectively get punished twice on interest rates).
I am not sure where you get the rates for ARM loans that suddenly went up. Most ARM loans define the rate after fixed period as "An Index" + "Margin"(2%-3%). The rates for pre-bubble 5/1 ARM mortgages after five years of fixed APR either remained the same or went down.
Just look at the LIBOR Index (most popular index for ARM mortgages) in 2008 and 2013.
Where do I get these rates? Personal experience. I bought a house in 2006 and already had a house purchased in 2004.
Also your figures seem wrong to me:
http://www.hsh.com/natmo2007.html -- in 2007 a 1 year ARM was over 6% for most of the year, longer ARM loans would have been higher. Most people in 2008 didn't have loans taken out in 2008, but more likely in 2004-2006 when the market was hot and rates were higher.
Incidentally, while the real interest LIBOR rates right now are close to zero, actual mortgage rates are considerably higher, especially on 30y fixed (we got a 15y fixed mortgage because with the difference in interest rates our mortgage payment was only about 40% higher than the 30y option).
Ok, so in your personal experience, what was the "margin" portion of the adjustable rate mortgage that you had?
My numbers look wrong to you because you are comparing them to your APR. You shouldn't. As I've mentioned before APR = Index + Margin. If index goes down, and margin is fixed, what happens to the APR?
You are correct, most people did not get their mortgages in 2008. But the family we are discussing here did. And for anyone with 5/1 ARM taken out in 2004-2008 the rate would have gone down after the fixed period.
The couple lost their jobs -- that's why they weren't able to pay.
I had a friend buying a house in 2004-2005. She was getting first-time homebuyer's assistance from some semi-governmental agency: they assign you a person who walks you through the paperwork and gives advice on mortgages, presumably to prevent fraud and rip-offs. The guy was heavily pushing an adjustable-rate mortgage, though: "Look at these low rates for the first two years! And after that I'm sure they'll be reasonable." My friend was outraged, as someone who'd gone into risk management in lieu of college. "How could this guy be trying to convince me to sign up for unknown rates that will rise and could change at any time, when I could just get a 30-year mortgage like anyone else?"
Think of all the people in 2008 who didn't know not to get an ARM, and who might have been pushed into it by some "advice" they thought was good.
"Think of all the people in 2008 who didn't know not to get an ARM, and who might have been pushed into it by some "advice" they thought was good."
They'd likely have really low interest rates [1] right now due to the federal reserve keeping the rates low, and presumably refinancing soon now that house prices have risen quite a bit (depending on your market, and loan details, of course).
The 6-month libor, which a few ARM's are pinned to is currently at 0.4%, in 2008 it was around 3%, so your ARM could potentially have a lower interest rate of around 2.6%.
If you didn't lose your job, and had a 3-5 year interest only ARM in 2008, it's possible you could have benefited from it (again, depending on your local housing market). This obviously didn't work out well for everyone, but ARM's are a risk that can pay off as well.
That being said, once rates start rising (possibly soon, according to the fed[2]), there could be another foreclosure bubble of people sitting on ARM's watching their rates climb up.
Yes -- you have to have the money to roll with the risk, though. My friend was buying this house as a single person with small cash reserves, which the advisor knew; for her it would have been very risky given her relatively low income. If you have two incomes and some larger savings, the interest rate game might be one you can responsibly play.
It always frustrated me - it wasn't like people were oblivious to the fact we were in a bubble, they were just trying to enjoy the benefits of it and avoid the risk.
I mean, this was the beginning of home renovation shows that said things like "Your house was worth $200K. We did $50K of renovation. It's now worth $350K." While there is definite value to improvement, some numbers people were seeing on property were ridiculous. Like seriously, even without the above example, for people to seriously believe that the house they bought one year ago for $x should now be worth 1.5 to 2x with little or nothing being done doesn't pass the straight face test.
Is it strange that when paying $1k in mortgage payments to 'buy-back' 240k of value, that paying $1k to 'buy-back' $150k in value can be called unreasonably high?
Especially when suddenly you can buy equivalent property for much lower prices, and lower mortgage rates. And suddenly rent starts to look cheap in comparison to paying mortgage + the cost of $90k devaluation in a 2 year span.
I can easily see how that can turn exorbitant. However, even that it turned exorbitant you're assuming. They may have felt it was unreasonably expensive in the first place, despite it being a good move compared to renting. e.g. if you live in a place like NY, some may consider everything and anything exorbitant, just a matter of perspective. It certainly seems true that the cost of housing as a portion of income and disposable income has been one of those things (like healthcare or education) that got cheaper over time, while other things (like most technology) got cheaper.
My father in law just scrapped 20 years old reliable Mercedes. There was new tax which charged 2.5x of its value every year. Instead we got small Fiat which breaks all the time.
Small reliable car about the size of that fiat: Toyota Aygo, Citroen C1 or Peugeot 107. All the same care under different hood. Fiat: looks nice, unreliable, resale value terrible.
After I got separated I drove around in a 93 Civic with 200K+ miles on it. Only scheduled services. This thing started first time, every time, even in the winter. It ran smooth. It's KBB value was $800.
My wife is disabled. While at the annual group meetup/picnic one of the other disabled people mentioned how she got the dent fixed in her Z4 using her disability money. It's hard but I try not to judge. You never know the circumstances.
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[ 3.0 ms ] story [ 34.5 ms ] threadReally? All I see is someone who lacks good judgement when I read that article.
I had a Mercedes once and sold it when things got tight. Holding onto an asset like that when you're impoverished is just foolish. I can't imagine being unemployed that long either. I'd be raking leaves for money after two months.
Buying a car is a sunk cost. Once you own it, getting rid of it before it cannot be driven anymore is wasting money. Once she bought that Mercedes, once it got too old, swapping it for a newer used vehicle would just give her a worse vehicle that would cost her more money in the long run.
I am poor. I've never been rich. I have a few nice things because I force myself to do the math on things. Other poor people hate me and threaten to report me to "the authorities" for owning nice things because somehow I cheated to get them.
I may not own many things, but the things I own do what I need them to do, and will do so for a very very long time. What this woman did, in my opinion, was the right thing.
Selling only makes sense if you can actually profit from it.
I've run this beast:
http://pics.camarades.com/v/jacques/cars/golf/
From '09 to '11 and it had more than 300K km on it by the time I was done with it (and it still brought me back more than I paid for it...).
You have to be pretty sharp when you're buying them to make sure you don't buy one that has been maintained poorly.
Fuel pump and turbo are the most important things to check.
That car cost about $750 to buy and another $200 for fixes required right after buying it to get it through the 'MOT', after that it ran without a hitch for two years.
An American car is probably better for a poor person than any German car. Sure, you may have to repair it more often, but parts and labour are a lot cheaper. Even if it costs more in total, for poor people a large number of small bills are often easier to deal with than a single large bill.
The newer diesels have insanely high injection pressures, I have a campervan that has one of these engines (the 2.5L) and I really hope that there will never be a problem with that because it will make your $3000 look like pocket change if it fails in a serious way.
In a pinch I think I'd rely on the older and much simpler models rather than to go for one of these hyper efficient versions. They seem to trade efficiency in fuel for a much shorter life-span and a higher repair bill.
The government here puts an insane premium on fuel consumption without taking into account the effect of all those fuel saving measures on the total-costs over the lifetime of the car.
At a rough guess it is a toss-up, what you gain in fuel efficiency you lose in expensive repairs.
Near where I live, the advertisements on the bus stops say "USD 500 and you ride!" because a functional car means access to work opportunities, i.e. money.
Suburban America is a design error with grave repercussions down the line, but since it was designed by and for the affluent assuming multiple vehicles per family and things like bicycle paths and public transport are either not present or just about un-usable you're going to have a problem if you don't have access to a vehicle.
But quite a few people do not have access to vehicles today (for instance: children, quite a few elderly people, everybody too poor to own cars) so maybe it's time to start fixing this problem?
Two cars for every family is long term un-sustainable, and two cars for a family without income to me sounds like it is an impossibility.
Even so, there are ways to use only one vehicle, even in a family where two people are working, figure out who keeps the car with them during the day, either drop off the other at work or at the nearest public transport hub (assuming that one exists).
That should take care of the bigger problem. Having two cars when you can't afford your food is really not good.
I find their reaction a bit strange without further context.
A Mercedes is a reliable car if it is maintained well and if you're living on food-stamps and are unemployed that value will drop very rapidly because you can no longer afford to maintain it. Once it stops running its resale value is nil, so better sell it before then.
See: http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-sm...
Unless I missed something, I don't see where the author and her husband made any poor choices. Keeping the paid-off vehicle is prudent[0]. They were making a combined income of $120k, according to her, when they chose to have a child. Only after the pregnancy was her husband laid off and they couldn't have easily foreseen that the babies would have health problems. They bought a house but the timing wasn't their fault and it's almost impossible for a layperson to predict. In short, they discovered the true meaning of "shit happens."
0 - That's one thing people might want to keep in mind when they see someone talking on an iPhone while paying with food stamps. It's far easier to keep what you have than to sell it--usually at "fire sale" prices for quick cash--and try to replace it with something cheaper. If I ever lost my job, two of the last things to go would be my paid-off vehicle and my dirt-cheap unlimited data mobile plan with smartphone.
I've driven perfectly reliable cars that cost less than $5K. A 10 year old Mercedes in great shape is probably worth about 15-20K. Why not trade that in and get another "paid off" car worth 5K and a check for 10K?
I guess it depends on how you were brought up. I'd rather sell all my possessions at pennies on the dollar, live in a honda civic, and do odd jobs than take government assistance.
you cannot under estimate the value you place in things in your everyday life when you know you worked to obtain them.
I cannot imagine being unemployed and simply collecting money and assistance. I would take entry level jobs putting up groceries to bide my time, or be at the local donation center sorting stuff for free. idle time leads to an idle mind and that does more damage than about anything else I know of
But then again, I've always been the 'help yourself' type of person, my main reason for that is that I like to have some control over my life and government hand-outs rarely come without strings and can be withdrawn at a moments notice.
But for those that really need them it's very good they exist.
The trade-in, dealer value for my paid off car is approximately $2,100. According to Kelly Blue Book, the dealer value for a well-equipped 2005 Mercedes-Benz CLK with 150,000 miles on the odometer and in "very good" condition is $5,124.
> I guess it depends on how you were brought up. I'd rather sell all my possessions at pennies on the dollar, live in a honda civic, and do odd jobs than take government assistance.
I strongly object to the insinuation that my, or anyone else's, rearing was any less moral or righteous than yours simply because I wouldn't conduct a fire sale of my assets, make my family homeless, and forgo the social services that my tax dollars have paid for. Not once in my adult life have I had the misfortune of being unemployed, gravely ill, or some other tragedy, and for that I am both very lucky and truly grateful. My childhood was the exact opposite for my family and I'm thrilled that my parents didn't pack us into the Suburban and say "welp, that's it, kids, we're on the streets now!"
Not a 10 year old C-class, especially not a C230.
It's called a safety net because it saves people.
Not even close. The three Kompressor models in '03 were the C230, C32 AMG and SLK32 AMG. KBB trade-in values for those cars are about $3k, $5k, and $10k respectively and it is likely they had the C230 otherwise the author would have called it their Mercedes AMG.
Luxury cars are terrible at retaining their value. If you want that, buy a Honda Accord or Toyota Corolla.
They made a choice: Sell the Mercedes (likely for $8,000 - $12,000 in cash) and support their family by supplementing their income for six month to a year on that, less after buying a $3000-$4000 daily driver. When you're in food-stamp-hyper-frugal-mode, $8,000 cash can keep your family alive for some time!
They chose to get food stamps and keep the luxury car instead.
It was their choice, but when you're driving around your "emergency fund" and your bank account is hovering at zero while Uncle Sam puts food on your table, some would suggest your priorities and means are a bit confusing.
Yes!
> If you have no debt and you have the ability to buy the car cash or pay it off within 1-2 years, how exactly is this bad- especially since you'd enjoy it?
Enjoyment does not enter into whether or not it is rational to put a substantial portion of your wealth in a depreciating asset such as a car.
> Sure, the boring thing to do would be to put all the money in savings...
But then you wouldn't be buying foodstamps five years down the line.
> but if you think a 30k is outside your means, then you're probably so cheap you don't take vacations
Being cheap and being smart with money are not the same thing, and using words like 'cheap' to target a person indicate that you are not approaching the subject rationally but would rather attack a person that has an opinion different from yours using a negative term than to bring a solid counterargument. Pity.
I'm with you- as long as you make more than you spend and you can squirrel away 6 months of savings (to avoid situations where you need assistance), you're doing great.
But enjoyment does count for something, which is what I was getting at. On paper, vacations are a complete waste of money, there is no rationalizing them; they're purely for enjoyment and you have nothing tangible at the end.
The real mistake for these folks was not the $30k car purchase (that they paid off)... but the $200k of debt they introduced themselves to buy purchasing a house in a questionable market and being legally tied to it (unable to sell because it's underwater).
You realize that their means change when they lose their job and apply for government benefits right? That we should reevaluate our priorities and budgets when our means change (we lose our job and become unemployed for a long period of time!)
If you make 120k/yr and you receive government benefits like food stamps, I have some harsh words regarding your clear abuse of our safety nets.
>then you're probably so cheap you don't take vacations
Some offense intended: Just how young are you? Too "cheap" to take vacations? We're talking about losing jobs in a dual income family situation. How boring am I? Boring enough to budget and successfully raise a child.
How immature are you? Because it clearly sounds like you are WAY WAY WAY too immature to raise a child. "Too cheap to take vacations"!! The audacity of an entitled young twenty-something! You sound like someone who is too immature to successfully put food on the table for your child because you're too busy spending your money validating your entitled luxury lifestyle to save your money and prepare your family for the unknowns of life.
So now being able to take vacations (even if you're in financially good shape) is off limits? I'm not justifying anything that the lady in question did... but I think a 30k car and one vacation a year is reasonable on a 120k salary. Sounds like two people, yourself included, have said no- that is not acceptable (and that makes you entitled for thinking so). I know some extremely thrifty (or smart if you will) people that don't place any value on emotional experiences that might "recharge your batteries" that would argue it's a waste (even if you have more than enough money). Looks like you're one of them.
When you lose your job, you're right- the "means" change and you need to re-evaluate things. I'm not questioning that. I was questioning how is a 30k car out of the means of $120k/year person, especially if they can buy it in cash.
Yes, you should absolutely do whatever it takes to support the family, including selling the Benz.
I misread that original comment as "Benzes are only for rich people, not for peons that make $120k or below" and made a Jackie Chan face
Of course not. This is outside the context of the thread where a family LOSES JOBS and starts accepting food stamps because they cannot afford food.
Yes -- IF YOU CANNOT AFFORD FOOD, you are too poor to take luxury vacations. I apologize if that is offensive.
Otherwise: PLEASE learn to follow basic context. This isn't a generalized conversation of yuppie finances.
It's a specific conversation of a specific case where a dual income family becomes a no-income family, but keeps luxury vehicles while accepting government money.
I find it irresponsible to store value in a depreciating luxury vehicle while asking your neighbors for food, but there are other opinions on the subject.
To me having two vehicles when you have no income and two children with health issues is absolutely way above your means.
Of course that situation sucks and it sucks even more that this happened in a country where healthcare is anything but free and getting around without a car is difficult but that does not change the cold hard facts. Feel free to shoot the messenger but better heed these words if your life situation ever should change for the worse in a short time, your future depends on your ability to adjust rapidly in situations like that, ignoring it or trying to postpone the inevitable will not help at all.
Fuel economy, maintenance costs, taxes, insurance that's where the problem lies and those are all cheaper for a simple Toyota than for a Mercedes.
I don't understand how a mortgage payment can go from (presumably) reasonable to exorbitant with just an adjustment of the perceived value of the home. My impression is that in the past people put less stock in the financial value of their home and just continued to pay their mortgage regardless of the underlying market. Now it is more common to walk away if you're under-water or refinance if you're in the money or want to take out some equity.
On the other hand, a lot of people bought houses on 3-5 year fixed interest mortgages during the housing bubble, on the grounds they expected to be able to resell or refinance when the fixed interest rate expired and the mortgage suddenly got a lot more expensive and -- because their properties were now underwater -- they could not sell or refinance.
Back in the days when people just paid their mortgages, real estate was seen as a safe but boring investment, and interest rates were at 5-6% (2-3% above inflation).
It's a bit rich when a mortgage lender lends money to a high risk customer and takes out insurance on their defaulting or the property losing value (PMI) and charges the customer for that insurance and then gets annoyed if the customer walks away from the wreckage.
I couldn't understand the gut negative reaction I had to this story. I understand why these programs exist and am not necessarily opposed to them. But I feel that people (within their means) should structure their financial affairs to not have to rely on these programs and not use them unless they have to. Unemployment for college educated workers barely crossed 5% at its worst so the two should not have been unemployed for years.[0]
I would be hard pressed to accept food stamps even if I qualified but I would likely accept unemployment insurance. In that sense, it's funny that food stamps are faux pas, unemployment insurance is acceptable and tax minimization is applauded. Even knowing that, I can't help but hold those same biases though.
[0] http://www.economicpopulist.org/content/what-happens-when-pr...
If they paid 0% down then they may also have been paying PMI of around 1% on the loan (high risk borrowers effectively get punished twice on interest rates).
Just look at the LIBOR Index (most popular index for ARM mortgages) in 2008 and 2013.
Jan 2008 - 4.18750%
Jan 2013 - 0.84250%
Also your figures seem wrong to me:
http://www.hsh.com/natmo2007.html -- in 2007 a 1 year ARM was over 6% for most of the year, longer ARM loans would have been higher. Most people in 2008 didn't have loans taken out in 2008, but more likely in 2004-2006 when the market was hot and rates were higher.
Incidentally, while the real interest LIBOR rates right now are close to zero, actual mortgage rates are considerably higher, especially on 30y fixed (we got a 15y fixed mortgage because with the difference in interest rates our mortgage payment was only about 40% higher than the 30y option).
My numbers look wrong to you because you are comparing them to your APR. You shouldn't. As I've mentioned before APR = Index + Margin. If index goes down, and margin is fixed, what happens to the APR?
You are correct, most people did not get their mortgages in 2008. But the family we are discussing here did. And for anyone with 5/1 ARM taken out in 2004-2008 the rate would have gone down after the fixed period.
I had a friend buying a house in 2004-2005. She was getting first-time homebuyer's assistance from some semi-governmental agency: they assign you a person who walks you through the paperwork and gives advice on mortgages, presumably to prevent fraud and rip-offs. The guy was heavily pushing an adjustable-rate mortgage, though: "Look at these low rates for the first two years! And after that I'm sure they'll be reasonable." My friend was outraged, as someone who'd gone into risk management in lieu of college. "How could this guy be trying to convince me to sign up for unknown rates that will rise and could change at any time, when I could just get a 30-year mortgage like anyone else?"
Think of all the people in 2008 who didn't know not to get an ARM, and who might have been pushed into it by some "advice" they thought was good.
They'd likely have really low interest rates [1] right now due to the federal reserve keeping the rates low, and presumably refinancing soon now that house prices have risen quite a bit (depending on your market, and loan details, of course).
The 6-month libor, which a few ARM's are pinned to is currently at 0.4%, in 2008 it was around 3%, so your ARM could potentially have a lower interest rate of around 2.6%.
If you didn't lose your job, and had a 3-5 year interest only ARM in 2008, it's possible you could have benefited from it (again, depending on your local housing market). This obviously didn't work out well for everyone, but ARM's are a risk that can pay off as well.
That being said, once rates start rising (possibly soon, according to the fed[2]), there could be another foreclosure bubble of people sitting on ARM's watching their rates climb up.
[1] http://www.erate.com/six_month_libor_index.6-months-libor.ht... [2] http://www.nytimes.com/2015/03/28/business/yellen-says-fed-w...
I mean, this was the beginning of home renovation shows that said things like "Your house was worth $200K. We did $50K of renovation. It's now worth $350K." While there is definite value to improvement, some numbers people were seeing on property were ridiculous. Like seriously, even without the above example, for people to seriously believe that the house they bought one year ago for $x should now be worth 1.5 to 2x with little or nothing being done doesn't pass the straight face test.
Is it strange that when paying $1k in mortgage payments to 'buy-back' 240k of value, that paying $1k to 'buy-back' $150k in value can be called unreasonably high?
Especially when suddenly you can buy equivalent property for much lower prices, and lower mortgage rates. And suddenly rent starts to look cheap in comparison to paying mortgage + the cost of $90k devaluation in a 2 year span.
I can easily see how that can turn exorbitant. However, even that it turned exorbitant you're assuming. They may have felt it was unreasonably expensive in the first place, despite it being a good move compared to renting. e.g. if you live in a place like NY, some may consider everything and anything exorbitant, just a matter of perspective. It certainly seems true that the cost of housing as a portion of income and disposable income has been one of those things (like healthcare or education) that got cheaper over time, while other things (like most technology) got cheaper.
My father in law just scrapped 20 years old reliable Mercedes. There was new tax which charged 2.5x of its value every year. Instead we got small Fiat which breaks all the time.