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March 17, 2014

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Based on the looks on the faces of my white-collar, middle class colleagues the time a payroll snafu resulted in me being paid only overtime (<$50) and no salary, I would say plenty. You could see in their eyes that hearing it happened to someone else, then realizing it could have been them, put fear in their hearts.

Of course, the company immediately offered to cut me a manual check, but like most who are reading this, that was not necessary for me and I asked that they just straighten it out with the direct deposit in two weeks.

I know some of my friends are still living paycheck to paycheck. Recently, I just read on their posts on social media, especially on Facebook, that they are really living paycheck to paycheck. For me, maybe it's because of their lifestyle and not having a goal.

My guess is also that it is 50% or more as some people would be too embarrassed to admit have little to no money in savings, making the statistic under reported.

When I was still working, often times if payday fell on an employee's day off, some of them would actually come in to the workplace to pick up their check. They couldn't wait until the next day. Thankfully, I never was at that point.

As with the other comments, I often noticed how amazingly big a deal it was for a paycheck to need to be fixed or when it was a day late. People often reacted to this the way I would if my employer said they'd decided not to pay me for last month at all.

Even though its not directly re:cash flow, I think the census net worth figures sum it up pretty well. "Median household net worth was $66,740 in 2010, according to the Census Bureau, but falls to just $15,000 if home equity is excluded." So even INCLUDING non-liquid auto equity (which it looks like is half of that $15K) AND retirement accounts which you could always raid in a real pinch, there is just very little there.

I work at a company that pays generously. I don't know the exact number, but I'd guess median salary approaches $100,000. They also offer an employee stock participation program whereby you can contribute 5% of your paycheck, and every 6 months the amount saved is used to buy company stock at a 15% discount to the lower of the prices at the beginning and end of the period. You can turn around and sell the stock immediately, making it a virtually risk-free transaction.

Needless to say, this is a fantastic deal. On average your money is invested for 3 months, and you get a 17.6% return. That's nearly 100% annualized. Some times it works out to much, much more.

And yet there are a fair number of people who complain about the program because they can't afford to lose access to that 5% of their paycheck for 6 months. Now either they don't understand the program (certainly possible, though these are college educated people and there are plenty of older folks explaining the benefits), or they are so strapped for money that they're willing to pass up an unbeatable return on their money.

It saddens me that the latter may be true.

I don't get a paycheck at all. The simple reason being that I retired in September 1992.

When you leave your home country in November 1956 as a young married couple of 22 & 23, and don't have enough money to return home even if you wanted to the highest priority you have is to SAVE MONEY. We didn't have a car of course but I joined a car pool from work and my wife used public transportation. Once we had a nest egg big enough to get us home if needed we bought our first car, a used 1955 Chevy for $1,300 with the help of a loan from my company's credit union.

We kept saving of course and have been able to live the true American Dream. We both worked very hard, raised 3 children that have each been successful. Our investment portfolio reached $1M on 8/6/1997 and today our total net worth is in 8 figures and growing steadily on automatic pilot. We're still saving of course because, now at 79 and 80 we have quit travelling and our main expenses are just the normal necessities of life.

It's too bad that America's net worth isn't growing, all that it has growing is its National Debt.

How does every comment by Ol limey end up about him?

I'm"paycheck to paycheck" in that all but ~$100/check is accounted for prior to receipt. I save 45% of my salary, pay rent, preschool, and bills, leaving very little flex in my budget, so it would be a real hardship to miss a check. That said, I have substantial savings I could access if need be. So, it depends on your definition of paycheck to paycheck.

@ Jason It's a non-threatening method of giving advice. He's been around and so he uses experience and history of what works to be a positive influence to other readers.

anon - Thats a good point that really opens up all kinds of talking points, from the benefits of automating your savings and govt retirement accounts with early withdrawal penalties (to create "imaginary" tight budgets) to the flip side, those that have and access credit in a manner that they don't have a cashflow issue... to their eventual detriment..

It also reminds me of one of the things that always cracks me up about Suze Orman, she'll crucify someone with a $500K retirement account, $200K in home equity and $5K in an emergency fund and praise someone in the same situation with a $100K retirement account, no home equity and $50K in an emergency account. I get the point but I'll take the former myself...

My guess is that its even higher than 50 %, perhaps more like 80%. I'm basing this just on people i know, from observation as well as from what they say... and in manycases, what they don't. I realize this may be misleading, as i may be misinterpreting both.
What I find interesting is the method by which the study determined the " living from pay check to paycheck" http://assetsandopportunity.org/scorecard/about/main_findings/
As FMF pointed out, they make the leap with this statement: " Nearly half (44%) of households in the United States are “liquid asset poor,” meaning they have less than three months’ worth of savings—conservatively measured as $5,887 for a family of four, or three times monthly income at the poverty level."

Yikes... $5887 isn't much of a personal financial safety net for a family of four. I don't think it is, anyway.

Id like to know how much the remaining half has, since in my mind, even tripling that savings amount to ~18 k for a family of four would still put them in a financially insecure position.

SO perhaps my 80/20 rule isn't so far off, with the 20% who are financially secure having most of the money, and the remaining 80% at or near that less-than 3 months- of poverty- level- income- saved figure that the study sites.

Yes I believe that is on the low end, and I have seen CNN money report it to be around 80%. I don't know who is right but a range between 50-80% is still pretty bad.

Not all that surprizing considering about half of working Americans pay zero income tax, almost all of them are the working poor. Right there is 50% without including the middle class and above with no financial cushion.

Part of the reason for the high numbers of people living pay check to pay check is that America has undergone a significant change since my working days. Think about how many items you buy, other than food, that bear the "Made in the USA" stamp - I seldom see that stamp any more. Here in Silicon Valley there are loads of super rich people that became rich because they either started, or work for very innovative companies that lead the world in many of their products. If you are fortunate enough to work for one of these companies you receive a very high salary whereas most of the "Help Wanted" signs I see are for low income jobs in retailers, fast food restaurants and the like. One of the big current gripes I read about in our newspaper is that high tech workers in San Francisco are pricing the low tech workers out of many of the rental properties. Some companies such as GOOGLE are even providing free tour bus transportation from San Francisco to their workplace locations which encourages more of their younger workers to live and enjoy what the big city offers while also avoiding the daily commute and heavy traffic and putting that time to better use..

The working poor, students, the elderly living on their SS only...these are not people with many opportunities to build significant savings cushions. When I was earning under $20,000 a year, I didn't have an emergency fund. When I earned comfortably in the six figures, I grew one. I have to say that I showed more discipline and suffered more during the first period of my life. It's easy to save when you can easily cover everything you want and still have cash left over.

That article was sloppily written. There were several blatant errors in word usage, one that actually conveyed the opposite of what the article was trying to say. I hate sloppily written stuff.

I know for a fact that with 47.5% or so people on Food Stamps the number has to be MUCH HIGHER than the reported number. Once again, the govt stats which is the main source of this calculations is computing family counts, and not people count, or some monkey business like that to determine this percent. If you have to put everyone in the category of a family of 4, of course, you are going to skew the percentage.

I have many apartments and a lot of blue collar workers live in them, and as a result, I know that as soon as Nov to Mar timeframe arrives, there is usually multiple families who lose their full time working status and hence, pay their rents late. Sometimes they pay close to 15 days in late fees before they catch up and once they are on the 'late' cycle, they do not catchup until March timeframe when things get restored back. This is a pattern since 2008.

When our politicians and fed is talking about 6% unemployment, again that is a manipulated count of the real statistic, and make it sound like it is improving, but in reality there are too many people that have stopped searching for work.

Having a very high savings rate, and a mentality of saving through sacrifices is how my family has gotten here. But, the families that live in our apartments live by much higher standards, and hence result in a "hand to mouth" lifestyle. It is because of their spending that America still survives / thrives to the extent it does.

Add on the credit card debt which is basically living life on Future Money that is unearned, and we have a deadly combination of Rich Getting Richer, and Poor getting Poorer.

Kenny

I think the percentage is quite high. My friends and neighbors all live high on the hog. Fancy new cars, vacation homes, private high schools for the kids, pricey colleges.

My gut is they do not make substantially more than me.....so how do they do it?

My buddy who is an accountant and does 800 tax returns a year tells me that the majority of people do not have much savings or investments. They spend all or more than they make. And they "borrow" from their 401k's and Roths. Many people think savings means getting a tax refund.

My friend who is in HR at a big company tells me that a large percentage of people ask for advances or loans on next weeks pay--have taxes, alimony or court judgments deducted from their salaries before they see them-- and almost no one fully funds their 401k.

I would guess that the situation is dire. The baby boomers begin turning 65 now--- I think the $%#^ will be hitting the fan as a result of slim to no retirement savings by that generation. We have an epidemic coming our way. Can they survive on social security? Can social security survive that kind of burden? There are many more recipients of Social security than there are workers paying into the system. How can this Ponzi scheme avoid self destruction?

The people who read this blog are the exception to the rule......

These are interesting times.

Oh, for the love of Jeff, #19. Social Security is NOT a Ponzi scheme, a Ponzi scheme is fraud in which there is deliberate deception and broken promises. It's just a gov't insurance program. If Social Security is a Ponzi scheme, there would be people not receiving promised payments. It's foolish to retire solely on Social Security, but fact is it hasn't missed a payment in 74 years and is stable.

Seen too many people oversave not thinking SS would be there and then die with millions, which is not a good fact pattern. It will be there, live a little.

@elb

Really? Social security may "be there", as you say, but I sincerely doubt that it will "be there" in the same form it is today. And there are PLENTY of broken promises--- and more to come.

After all, taxpayers were promised money for social security was to be put in a impenetrable trust fund-- never to be used for any other purpose. But that fell through, the money was spent for other purposes, and there is no money reserved now--- just another promise to tax future generations for old broken promises.

Originally, social security distributions were promised never to be taxed to the recipient. But now they are taxed in most cases-- especially if you are "wealthy". Social security is itself a tax--- and now they tax you on the tax.

And it is true that there are currently more recipients than there are persons paying into the fund. For that to work- either we need more workers paying into the fund ( that's not looking good in this economy) or we need to change the system. My bet is "they" change the system to avoid collapse. I think this is your point as well.

But-- these changes will mean that instead of the non-discriminating "if you pay in-- you will receive" system we have now---it will become another welfare hand out taking from the rich and giving to the poor.

So what will change? Say goodbye to the current "cap" on earnings paid into social security. Soon all of your
w-2 earnings will be taxed. That will be the first change. You are also likely to see wealthy people excluded from the social security system despite the fact that they paid in their fair share. This will be done with the initiation of a wage test for eligibility. And this will be just the beginning.


The main point is that it is broken. Why? because our Congress spent the money that was earmarked for the program. Now, to fix their error they need to reduce benefits, and probably wage test (or net worth test) recipients for eligibility ---and all because they broke the original promises made to American taxpayers.

The readers of this blog are likely the people who will be adversely affected by any future changes. That is the breaks for being prudent, saving your money, and looking out for your future.

Our society seems to spend like crazy, disregard their own future needs, grow their debt to the ceiling and sit back and wait for the government (and the rest of us) to take care of them and bail them out.

Don't get me wrong-- I am all for helping those in need. I personally give 15% of my earnings to charities and church each year. But I fear we are enabling those among us with lackluster values, dubious work ethic and rewarding bad behavior.

Your conclusion that it is broken is not supported by the facts, exhaustion will be in 2033 and benefits will continue to be paid through 2087 at ~75%. A tweak in tax treatment of benefits and a change in the commingling / accounting practice hardly adds up to "broken" or "insolvent".

As far as potential changes, your suggestions are 100% emotion and rank speculation. The cap will go up, sure, but there is no political will to pull it way up -- you'd likely see a donut-hole like the current additional Medicare tax over $250K. Further, incremental change (or even substantial change, like Medicare Pt. D) to a long standing program doesn't make it a Ponzi scheme, or fraudulent.

As far as "adversely affected," "excluded," "fair share," get a grip and try to tear yourself off the cross. SS is an insurance program. Do you complain that you don't get home insurance payouts because your house doesn't catch on fire, or that you haven't had the good fortune of being in a car accident and receive proceeds therefrom?

Be happy you don't need the $, and try not to let your uncharitable view of your fellow man (dubious work ethic? bad behavior? lackluster values? you're a corporate attorney, we're all thieves with briefcases who push paper instead of an honest living) poison your life and cause you to take political positions that actually hurt real people.

@ elb

Alas, we seem to disagree not about the facts themselves but upon the nature, politics, ethics and justification surrounding them. So it goes with political banter. Reasonable people often disagree. This country is great because we are both entitled to our opinions.

The fun truth is that at this point we are both just speculating. Opining. The changes forthcoming, bad or good, are yet to be known to either of us. My crystal ball stopped working a while ago. If yours still works--- you have a leg up.

Time will tell.

@OldLimey what funds are you invested in these days

I, for one, don't begrudge "handouts" to those too old and sick to work...which is where we're all going to end up one of these days, unless we have the "good fortune" to die suddenly.

@Biere
I only own the following fund in addition to my corporate & municipal bonds & CDs.
OSTIX - Osterweis Strategic Income Fund
Fund Assets $6.6B of which I own $752K in my IRA. My daughter also has $415K in her SEP-IRA.
Minimum purchase $5K
Transaction fee at Fidelity is $49.95 to buy, zero to sell.
It has a redemption fee of 2% for shares held less than 30 days.
It has a distribution 4 times/year, the most recent was yesterday and was 9c/share. The share price as of today was $11.96.
Annual rate of return over last 6 months was 7.82%
It's best to view the fund's performance on a chart that reinvests all of the distributions, since the distributions are very significant. Most charts do not do this. The charts that I use are only available to paid subscribers.

Lurker Carl said: "about half of working Americans pay zero income tax, almost all of them are the working poor"

Not exactly. 47% of all households do not pay income tax. Its not just "working Americans" but its all households. The 47% who don't pay taxes includes retirees who are currently on social security benefits, unemployed people, etc. About 35% of people who do work do not pay income taxes and a lot of them benefit from child credits. e.g. a family of 4 can make $47k and have zero income tax due to the child tax credits.

Kenny said: "with 47.5% or so people on Food Stamps"

No. There are 47 million people on food stamps. Not 47%. 47 million is about 15% of the population.

M19,

When did they promise that he trust fund would not be spent on something else? Quote that promise. The money was always borrowed from the government. There was never a giant piggy bank of trust fund money sitting idle. That was never the design.

When did they promise that SS would "never" be taxed? Quote that promise.

No SS does not have more current beneficiaries than contributors. About 57m people get checks and about 138m people pay in. More money currently goes out than comes in if thats what you meant.

Yes they will eventually make changes to SS that will be higher taxes, reduced benefits or some combination of both. But we don't know what the changes be and any variety of changes could keep the system solvent indefinitely.
They'll probably wait until nearly the very last minute when SS is actually truly bankrupt. That time is currently projected to be about 20 years in the future. Its what they did last time in the 80's.

Jim,

Thanks for setting the record straight on the statistics.

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