Earning Less and Spending More: A Reflection of the Times

It all started with FOMO…

I was coveting a house. Renting a townhouse, I wanted a place to call my own. I have owned houses before, but life changed, and I had to let those go. Despite the fact that I desperately wish I could turn back time, I am still a renter. 

Over the last few weeks, I have been, self-admittedly, experiencing FOMO. I have a fear of missing out. It’s not fear of not receiving, but a fear of not having a choice. 

Home Ownership and Renting

There’s a lot of controversy about homeownership vs. renting. Many people believe owning a house allows you to build equity, but it comes with a cost. Appreciation is never a sure thing, and as the owner, all repairs and maintenance belong to you. 

Renters claim expenses are lower than owning a house. Renters never need to replace a furnace, pay for a new roof, or pay realty taxes. A two-month notice to the landlord means the renter is free to move anywhere, without having to wait for a house to sell. A smart renter who invests the difference between owning and renting will often come out ahead. 

This is not a debate about which is better or worse. That’s a topic for another day. 

Back to my FOMO. I was scouring the real estate sites, looking for the “deal” or a diamond in the rough. I was shocked to see houses had more than doubled in cost over the last 20 years, and it led me to a comparison that was shocking. 

The Year: 2000

In the year 2000, I rented a two-bedroom apartment. It was close to amenities and downtown, but still located in a residential area. The building was an actual apartment building with laundry facilities and an elevator. People were friendly, and we were allowed pets. That apartment was my all-time favourite. When the sun set, the bedroom walls would glow a soft orange. All windows faced a city park that featured the old canal, and a large totem pole. It was big enough for two, and for a time, it was perfect for one. 

I paid $650 a month for this apartment. 

In the same year, I worked for a call centre where I made nearly twice the minimum wage. I had started in an entry-level position, working full time and receiving raises fairly regularly. Walking to work or taking the bus was an option, therefore I did not need a car. Grocery shopping was a bit more difficult, but it meant I purchased less, and supported smaller vendors when shopping downtown. My only real expense was my rent. 

My rent was only 33% of my gross income. 

By the time I left that employer, I was making 2.5x the minimum wage. Minimum wage did increase slightly – I believe it increased by $0.60 cents. I was earning a decent income for a position that was available to anyone with a high school diploma. Also, I had medical benefits, and paid vacation. 

The Years: 2005 – 2008

Unfortunately, and ultimately, my position was reassigned to Manila, and I was on the hunt for my “career”. After working for a couple employers, I decided that it was time to get educated for my new career, so I went back to school. 

It was a difficult two years, as my marriage ended shortly after I had started school, and I was not working during the school period, as our course was intense. Did I say intense? INTENSE.  After I graduated, I applied myself to working in the field. 

That was almost 13 years ago. 

The Year: 2019

So, I was reminiscing about lower-priced houses, and apartments of the past, and I decided to look up the rental cost for that apartment I rented. Then, I calculated my income and made the same comparison as above. 

The same apartment rents today for $1,450.00. It’s scary to think that rent has increased so significantly over the last 19 years, but it’s a fact. It’s just like food, transportation, utilities, cost of licences and everything else. 

Then I looked at my wage. I am now in a position where education is mandatory, and I am considered to be a senior staff (not based on age! based on experience). Ready for this? 

I earn $4.00 more today than I did 20 years ago. I have no medical benefits.  

That same apartment would eat up nearly TEN PERCENT MORE of my income! It would be approximately 42% of my current gross income. 

Let’s consider minimum wage as a scale: Today I make less than 2.5 times the minimum wage. It’s less than 2 times the minimum wage. In fact, I earn 1.5 times the minimum wage. 

So, the apartment now costs 223% more than it did in the year 2000. But my wage has decreased to being 1.5 times the minimum wage. My wage, with education and without benefits, has only increased by 21% in 20 years. 

How can this be real? When minimum wage was increased to a more reasonable amount (it jumped from $11 to $14 very recently), a relative few received an equal increase while still earning above minimum wage. Most of us did not get an equalizer increase. In fact, when I asked my previous employer if considerations would be made for the increase, I was informed that “no one in the company makes minimum wage, so it doesn’t affect anyone”. 

Did they not understand that the increase in minimum wage (and no increase to our wage) created a situation where costs significantly rose, and in turn, we were actually making less than we were before?

The New Norm

All of this is part and parcel of my FOMO experience, as I am not sure if I should try to purchase a house to stop the cycle of housing increases. Perhaps I should continue to rent, as it would be cheaper … or would it? I have no idea anymore. What I see is a new norm: the working poor. 

I know I live in a first world country, and I have heat, hydro, water and food. I am grateful for all that I have, and know things could be much, much worse. Yet, I still work a 40-hour work week, and when my wage does not increase to match the increases of the cost of living around me, I am losing ground. I feel like I am failing.

I must admit: I panicked. What if we have to move? What if we need to find a new place to live? How are we going to afford it? Why can we not afford a house when others around us are buying and selling? How are we going to save money, afford to have a roof over our heads and feed ourselves? What will retirement look like?  

Then I wondered where all the money has gone. If we (employees) are not receiving adequate increases, and the cost of living is demanding more money, who is the lucky winner of this windfall?

This is the new norm. We are making less money every day, and every time that someone increases the minimum wage, small business owners are shut down, and we, as the former middle class sector, make less and less. 

Yet those entry level jobs now pay $14/hour … it almost makes you wonder if it’s worth the $25k in student loans.

One day, I’d love to address employers and governments. I’d love to shout from the rooftops that we need something done to adjust the gap. It’s getting too wide of a divide. 

What happens if that divide increases? 

We are earning less, and having to spend more. This is our new reality. 

Goodbye to the Joneses: Who Were They, Anyway?

Goodbye to the Joneses:
Who Were They, Anyway?

 

Obituary: It is with our deepest condolences to all that we announce the death of Mr. and Mrs. Jones, everyone’s favourite neighbours and friends, as they passed away at the ripe old age of 105. They will no longer taunt us with their fancy purchases and their beautiful pictures of every vacation we have ever dreamt of. We wish them a peaceful rest, and ask that, in lieu of flowers and donations, your money may remain with yourselves and your time with your friends and family. There will be no service, as we have celebrated life of keeping up with the Joneses for far too long. 

 

Who were the Joneses, anyway?

 

You hear the term “Keeping up with the Joneses” used liberally in the personal finance space. If you don’t know the term, it describes the efforts that people take to keep up with the neighbours that have everything.

 

What I didn’t know was that it started with a comic strip called Keeping up with the Joneses created by Arthur R. “Pop” Momand in 1913. The comic strip was popular and ran until 1940 in The New York World and other newspapers.

 

There are a few other ideas where the Jones’ family came from, but this is the most widely accepted version.

 

Here we are, more than a hundred years later, still chasing the dream of keeping up with the Joneses!

 

I had previously shared a post about our history, and how, post-war, we were in the mindset to accumulate anything and everything, as life before was a struggle, and excess anything was but a dream. In the post, I felt we had become addicts of owning stuff.

 

Despite being an Xennial (for those who do not know, it’s the gap between Gen X and Millennials, roughly 1978 – 1983), I was raised with the Gen X mindset of more is better. To have more, to afford more, to accumulate more meant that you were wealthier, and therefore better off, should something happen in the world that limited our access to “stuff”. Gen X was really the last generation raised by parents who remember rations and war/post-war life. Those were the days when parents  made you sit at the table until your dinner was finished, whether you were still hungry or not, and if you liked it or not, because that was what was served. There was no option for a different meal, or not finishing your plate, because that was wasteful.

 

How many people remember being told there are starving children in the world, so finish your dinner! (Can’t say it made sense to me then, or now. I offered to ship it to them…. that didn’t go over well.)

 

My parents, for example, have a basement full of stuff. An extra dining table, supplies that were “on sale”, childhood toys, exercise equipment from the 80s, the old Atari game system, an old stove, a massive freezer (for the two people that live there), a couch, the last two artificial Christmas trees, a dresser… the list goes on and on.

 

Sometimes there were benefits from having parents that saved everything. We all had that time in our lives that we didn’t have anything: college days where life was about hand-me-downs, and making due with small spaces because we didn’t have the money yet to have the life we wanted. Post-college, reality tended to set in, and we started wanting, but for some, a simple lesson (or two) was learned. Fellow blogger,  Your Money Geek, shared a post about being broke and learning the value of things during that period of time.

 

It’s a common perspective that millennials have been raised in a completely different time, leaving them with a different mindset. They have never seen a shortage of anything: there’s been a never-ending supply of food, commodities and technology that moved faster than a speeding bullet.

 

They can’t reminisce about getting up to change the television station, rewinding a cassette tape with a pencil, or waiting for a sibling to get off the phone so you could call your friends.

 

(Removing the privilege argument from this to say that not all millennials have been raised to rely on having enough. I acknowledge that many were not as fortunate to have everything handed to them.)

 

Earlier, I read a post shared by the blogger of FlytoFi.com where he has a guest writer who discusses minimalism and millennials. This post resonated with me, as I agree with the writer who states that minimalism can be traced to millennials, and not needing everything is a concept that is new to everyone. Millennials had enough, or too much, depending on the situation, and now excess has flipped to the extreme: to want nothing.

 

So, who are today’s Joneses? Are they the neighbour who has a boat, two or three cars, a big house and flashy jewelry? Or, are they the neighbour who lives in a condo, has a compact car, and believes less is more?

 

Are today's Joneses the mindless consumer or the immaculate minimalist? Do they still exist and why, after 105 years, do we let them control us? Click To Tweet

 

We struggle with the concept that both are the Joneses. We want access to the big house, the boat and the flashy side effects, but we also crave the simplicity of minimalism. How many times have you gone on vacation with just a suitcase, stayed in a hotel room, and realized that there was very little you actually needed beyond what was there? How many times have you gone home, glad to be home, but overwhelmed with all the clutter and things you own?

 

And yet, how many of us still get a thrill from going shopping and buying something we think we need, just to bring it home and realize three months later that it was not something we needed, but something that cluttered up our space and gave us a momentary glimpse of what being the Joneses is like.

 

What a vicious circle we have created for ourselves!

 

Whether you are on the journey to seek financial independence, saving for your retirement, or just having a healthy savings account, let’s redefine the Joneses.

 

Ten Reasons Not To Be The Next Joneses:

 

  1. Reduce waste in our landfills.

 

  1. Less property tax to be paid on smaller properties.

 

  1. Less fuel emissions on smaller or hybrid cars. (What’s better than paying for a Ferrari? Having a friend who has a Ferrari!)

 

  1. Less stuff to clean and purge or to launder (like clothes).

 

  1. Enjoy and appreciate your belongings more.

 

  1. No stressing about overextension of credit.

 

  1. No awkward moments with the repo man.

 

  1. Better credit score from less debt.

 

  1. No worries about people trying to steal from you if you are perceived as wealthy.

 

  1. More money for the people and things that matter.

 

Being a conscientious spender is one of the biggest factors in the pursuit of financial freedom.

 

What do you think about the Joneses? Is it still attractive or has it finally come to an end? While I wish the Joneses of our lives well, I think their reign has finally come to an end.

 

This post may contain affiliate links, meaning, at no additional cost to you, I may earn a small commission if you choose to purchase through these links. Please see my disclosure for more information. Amazon Affiliate Disclosure: I am a participant in the Amazon Associates Program, an affiliate advertising program designed to provide a means for me to earn fees by providing links to Amazon.ca and affiliated sites.

How Credit Cards Really Work

How Do Credit Cards Really Work?
A Guide For Anyone With A Credit Card.

 

A lot of readers of personal finance blogs are already advanced in their knowledge of how money works; how to make it, how to spend it and how to save it. It’s almost an elite club where we push each other to find new ways to stretch a dollar, make a buck or aim for early retirement. This time, I am writing for those who are not masters of their finance; people like you and me: they may be on either end of the income scale, they drive on the same side of the street and yet know nothing about credit cards.

 

These days, I am working with people and helping them understand their credit card debts.  It’s no wonder that we can get ourselves into financial messes and not really understand how it happened because no one has taken the time to explain how credit cards work.

 

CREDIT

 

Credit. It’s like a four letter word with gatekeepers on either side. Credit seems to be a confusing animal. Here is the simplified version of the way credit cards work. I wish everyone would take a moment and read or share.

 

The Credit Card

 

Credit is money that is lent to people who may have demonstrated the ability to manage money through other means as reported by the credit bureaus. Credit cards are a device to access funds that a bank or institution has given you access to. It is not your money, it is the bank’s money. If you use that money, it is still the bank’s money. You have borrowed it.

 

Let me repeat that. You are borrowing someone else’s money and the credit card belongs to the bank, not to you.

 

In order to assist you, and to be accountable to you, banks issue statements on a regular basis. Generally, they send you a statement monthly that outlines each charge or payment or adjustment that occurred during the last month, if any.

 

The statements have a due date scheduled on them, generally 21-26 days after the date of the statement, and the statement shows you a balance due. This balance is the amount YOU have spent or accrued over the last month. Pay that amount by the due date, and you’ve received a free loan. Seriously.

 

There’s a second amount on the statement called minimum due. This is a good faith payment that the bank expects from you to show that you intend to pay off that balance in time, if you cannot pay it in full. The minimum payment will keep your account in good standing but will not deflect interest from accumulating on the balance that remains.

 

Let’s simplify that: Pay full balance by due date, no interest to pay. Do not pay full balance by due date, then your balance is subject to interest from the date you spent it.

 

I want to mention here that banks are businesses. I am not advocating for the amount of money they make, as I think it’s truly excessive (my opinion). However, judging by the amount of people who do not understand how to use a credit card, it’s no wonder that they are making oodles of money and you are losing your hard-earned money in return.

 

Example: If you borrow a library book and don’t return it on time, the library fines you. This is no different. If you choose to pay in instalments on a credit card, that’s your choice to do so – that’s why the credit cards set out minimum payments.  It’s enough to keep your account current, but if you do not return the funds in a timely manner, there are fines to pay.

 

Interest on the Credit Card

 

Interest is how banks make lending money affordable. It’s how they make their money. And, if you are reading personal finance blogs, it’s all about how to make the money, right?

 

Interest rates on credit cards can range anywhere from 12 – 30%. Banks generally have lower interest rates available to those with good credit, but there’s a catch:

No rewards, good credit = lower interest rate 

Rewards, good credit = middle interest rate 

No rewards, bad credit = higher interest rate

Rewards, bad credit = highest interest rate 

*there are exceptions to every rule, but this is a general perspective.

 

Before deciding on a credit card that earns you miles, or points or freebies, you need to consider how you use your credit. If you pay your balance in full each and every month, a higher interest rate and higher rewards would benefit you because you wouldn’t pay interest. However, if you carry a balance, then you would be paying interest on these funds, and would have to consider if the cost of carrying the balance at that interest rate is worth the rewards you are receiving. It doesn’t make sense to pay a high interest rate to earn air miles, for example, if you could turn that interest into a flight by the time you are done!

 

Before deciding on a rewards card, make the decision to pay off the balance every month; otherwise, you are paying for the rewards. Why not just pay for what you want? Click To Tweet

 

Interest rates are set by market standards: cost to borrow money (if the bank borrows), cost to run the business, cost of risk from customers, etc. The standard credit card will have a range of interest rates from 18 – 22%, and more if you are higher risk. This is why the cost of borrowing money is so expensive.

 

Remember, when you don’t pay your borrowed funds back by the due date, you will owe interest!

 

Cash advances on the Credit Card

 

A lot of people have no idea what or how a cash advance works! A cash advance is when you use an ATM machine to withdraw cash from your credit card. Alternatively, it can also be when you use your credit card for gambling or lottery. These transactions are often processed as a cash advance.

 

Your credit provider likely has a fee for cash advances, as cash advances are a service provided in conjunction with the Mastercard and other networks. Like a scenario where you withdraw funds from another bank’s ATM, the other bank will likely have a service fee attached as well.

 

That’s not all that happens with cash advances. Interest begins the day that you take the cash out, and will continue until your full balance, purchases and cash advances together, are paid off.

 

Cash can be used for nearly anything and is not traceable as easily as a purchase, which makes it a higher risk transaction.

 

Cash advances are usually charged at a higher interest rate because they are a higher risk to the bank. There are usually fees associated with obtaining a cash advance, and interest starts on the first day that you take one out.

Let me repeat that: cash advances accrue interest the first day you take it out.

CREDIT CARDS Before you assume you understand the credit card, read this. I was shocked at the questions that I heard over and over. Here are your answers. #credit #creditcard #debt #wealth #money #budget

Credit cards have complicated repayment methods, and are individual to each company. There’s a good chance that your payment is spread between regular purchases and cash advances, after paying fees and interest. If you carry a balance on your credit card, you will likely not be able to directly pay back the advance. Interest on that cash advance will continue, at a higher rate, while you pay down the remainder of the balance. That couple hundred bucks you borrowed will be eating at your payments for a long time.

 

Credit cards are fantastic tools for managing your money, building credit and earning rewards, but only if you pay them in full every month. If you carry a balance, you are borrowing money, and that means the lender can charge you to do this, so don’t be surprised at the result!

Using your Credit Card Correctly

Many people get credit cards and think they know how they work, but be sure you do. Understand how interest is calculated. Be aware of annual fees, late fees, interest charges, and interest rates. I am sure to get feedback from some people that this is common knowledge, but I assure you, it’s not. If you have any questions about how credit works, please send me a message or comment below, because credit is not an easy concept for everyone, and there’s no reason to be lining someone else’s pocket when it could easily be your own.

 

This post may contain affiliate links, meaning, at no additional cost to you, I may earn a small commission if you choose to purchase through these links. Please see my disclosure for more information. Amazon Affiliate Disclosure: I am a participant in the Amazon Associates Program, an affiliate advertising program designed to provide a means for me to earn fees by providing links to Amazon.ca and affiliated sites.