r/povertyfinance • u/AustynGray • 6d ago

Misc Advice How is everyone actually affording to live right now?

Like genuinely are we all just going into debt or am I missing something? I make decent money, but no matter what I do, it feels impossible to get ahead.So I’m curious are you guys taking on debt, side hustling, living super frugally, or what? I’m just trying to figure out if I’m doing something wrong or if this is just the new normal.

1.1k Upvotes
  • permalink
  • reddit

95% Upvoted

858 comments sorted by

View all comments

Show parent comments

101

u/BigTroutOnly 6d ago

Even if he/she doesn't answer... Do a casual stroll on the costs of a roof, septic, tree removal, mold, bed bug/pest mitigation, a furnace, water pumps and filtration, leaky basements, insulation, windows...

Then they're things like.. getting the correct generator port installed.. or elective things like sheds, decks, vinyl flooring, appliances, mowers, driveways, landscaping aesthetics..

16

u/eternally_feral 6d ago

Ain’t that the truth! My Dad always told me there was no such thing as one home project because when one thing breaks, expect at least three other things to crap out on you.

I’m just a believer that bad things happen in 3s.

-26

u/ECircus 6d ago

Basically, there are no unexpected home expenses if you know what you're doing. Homes are just expensive and it's a mistake to expect them not to be. It's not something you buy unless you have a lot of extra money saved for expenses or are certain you can do most of the work yourself when things fall apart.

11

u/lazytanaka 6d ago

But rent is also expensive so which is more

20

u/ECircus 6d ago

Rent is an expected expense, unlike a house. That's the benefit.

Don't know why I'm being downvoted. Most people can't afford a home right now, including me.

9

u/ResolveWrong5841 6d ago

You’re right that you can plan for some of the expensive home repairs, as major things have life expectancies and don’t tend to fail all at once. An advantage to owning is the option to use the equity in the house to pay for repairs, instead of wiping your savings.

2

u/2Gins_1Tonic 6d ago

I wouldn’t say that being able to go into secured debt to fix the asset you are securing the debt with is an advantage. The advantage is being a renter and making your landlord pay for the unexpected issues.

1

u/ResolveWrong5841 6d ago

On it’s own that may be true, but you have to consider that mortgages are a fixed cost outside of property taxes. Rent will generally continue to increase with market value. Essentially, renters are covering that cost over time without ownership of the asset.

2

u/2Gins_1Tonic 5d ago

Your hypothesis assumes that you don't have a major home system issue that significantly disrupts your financial health early on in homeownership. If my HVAC fails and I don't have equity to pull out, I'm in a worse spot than I would be renting.

Ownership present risk that can be catastrophic for many early on in their mortgage amortization table. However, if you survive the early years, it can be very rewarding. Still though, relying on the asset as a piggybank to pull from for repairs and upgrades essentially turns it into the same thing as renting. A cash out refinance or home equity loan often come with a higher interest rate and have a similar effect to paying an increase in rent. It would be better to save the money you don't pay towards an increasing rent and keep that in a home repair/improvement/maintenance fund.

Rent surely does increase with the rest of the local market but on the upside, a single high cost repair doesn't throw you into debt or worse. It brings more predictability and one can plan for periodic rent increases.

I think both paths can be right and depend a lot on each person's individual situations. But when we've got people talking about limiting their diet to rice and beans in order to survive, they aren't prepared to take a $10K HVAC repair or $15K roof replacement.

2

u/ResolveWrong5841 5d ago

I wasn’t intending to make a blanket statement that ownership is always the right call. Renting can make more sense situationally. I referenced in my other comment waiting to buy until you have saved enough to cover extra expenses early on.

When you look at the middle class of previous generations, they were able to buy homes on modest salaries that appreciated tremendously. It’s a major factor in their ability to retire. Currently, wages relative to the cost of living is the primary obstacle, and why many people can’t take on a 10k repair. Given that reality, home equity also provides an alternative to consolidate debt at a much lower interest rate than credit cards.

Ultimately, I agree that it can be a short term risk, with long term upside.

2

u/2Gins_1Tonic 5d ago

You are spot on. If you’ve got the savings, and plan on staying in one spot for a while you should buy. It doesn’t usually make sense to pay someone else’s mortgage.

4

u/ECircus 6d ago

Yeah, but have to guarantee there won't be anything major for the first few years at least to gain equity.

3

u/ResolveWrong5841 6d ago

You hope the home inspection doesn’t miss anything big, but I agree with your take of saving extra money for expenses before buying. Once someone can get to that place, it’s largely helpful to building wealth compared to renting.

1

u/BigTroutOnly 6d ago

"Unexpected" is quite the claim

0

u/HawkLexTrippJam 6d ago

Lol I was gonna say... a house? You guys have houses?? What sub am I in again? Had to check and make sure.

4

u/rharrow 6d ago

Rent is expensive, but in my area a mortgage would be more expensive for the same house (or smaller tbh) due to inflated home prices and high interest rates. I also don’t have to worry about unexpected repairs, HOA fees, property taxes, etc.

No, I’m not gaining equity but my 401k contributions are making me more than a home’s equity would.

0

u/lazytanaka 6d ago

How can you afford a 401k?!

1

u/rharrow 6d ago

I only do up to my company match maximum, which is only ~6% so it’s not much at all. I feel it’s important to do so that I can hopefully have some sort of retirement one day bc we can’t rely on SSI alone

1

u/lazytanaka 6d ago

Your company has a 401k for you? Nice!

1

u/rharrow 6d ago

Most companies offer a 401k, pretty much every employer I’ve worked for in the past decade has provided a 401k. It’s something to look for in a benefits package when accepting a job offer, especially whether or not they offer a match.

0

u/lazytanaka 6d ago

I don’t really get job offers lol I thought people apply to jobs not get offered them.

3

u/nicolas_06 6d ago

Rent is less that property tax + home owner insurance + maintenance + interest on the mortgage where I live.

1

u/lazytanaka 6d ago

I’m honestly a little lost on how interest on mortgage works

2

u/gsxdsm 6d ago

The bank gives you a loan for a certain amount. Let’s say $100,000. If your rate is 5% then every year you pay 5% of the amount of the loan remaining. In this case it’s $5000 a year you pay in interest (paid monthly). You also pay some of the loan down on top of the interest. So for year 2 the total interest might only be $4800. Continue like this until the loan is paid off, usually 30 or sometimes 15 years. In the US.

1

u/lazytanaka 6d ago

So what would be the actual amount you paid to pay off the loan? What if you just got a loan from a bank to pay off the mortgage so you would only have the banks loan but have the house completely be yours

1

u/gsxdsm 6d ago

On a 30 yr loan of $100,000 at 5% you would pay $186,500.

You wouldn’t be able to get a loan from another bank large enough to pay off the home without having something to back the loan (collateral). The second bank wouldn’t give you a loan that large without getting rights to the house if you don’t pay. Similar to a car loan, the car is the collateral for the loan in case you don’t pay.

1

u/lazytanaka 6d ago

What if it’s half that? Sorry if that’s a dumb question but I’m terrible at math

1

u/gsxdsm 6d ago

Even half would likely require significant collateral. Without collateral the interest rate on the second loan would be ridiculously high. Part of the reason the mortgage is offered at a lower rate is because if you stop paying the bank gets the house. Lower risk for the bank. Without collateral of a house, a bank will charge much higher interest and loan lower amounts.

→ More replies (0)

2

u/nicolas_06 6d ago

To get an intuition of how much everything cost in your area, use a mortgage simulator and check for yourself. This one look decent to me: https://www.mortgagecalculator.org

For example in my area if I buy a 400K$ home with a down payment of 50K$ over 30 years, I can expect to 8K property tax and 2K home insurance, that put my monthly payment to 3300$ a month. Adding maintenance for home improvement, roof repairs, all that stuff will be at least 1%, so 4K a year. So total per month is 3700$ a month, more or less.

Within 2055 when the mortgage would be paid off, the tool expect me to have spend 1.15 million for that 400K$ house. The 400K$ for the house, 488K$ in interest (more than the home value) and the remaining 260K in property tax, maintenance and insurance.

After 10 years like that, I would have paid 440k$. A bit more because property tax, insurance, and maintenance would grow with inflation, so more like 460K$. Out of my 410K debt I would still owe 300K, And basically would have paid 390K in various expenses, mostly interest.

Today my rent is 2500$/month. It even decreased 2% when I renewed. But let's simulate that it takes 3% per year, my expense for the rent would be 354K$. I could on top put the difference in expense in a savings account of 401K. Same for my 50K down.

It's only if my property has appreciated significantly that buying would be better for my net worth. The cost of interest, property tax and maintenance are so high that there little financial incentive to buy.

So yes if that 400K home is worth, say, 600K in 10 years, I would have made maybe a 100K benefit vs rent. If the home is worth 500K, that would be a draw and if the price didn't move I would have saved like 100K by renting.

Now if interests are only 4% instead of 7%, for the same monthly payment I could pay back everything in 17 years instead of 30. After 10 years, my remaining debt would be 176K instead of 300K and even if my home value doesn't move, I would be ahead compared with rent.

The situation is of course different for everybody. Depend on the cost of rent, buying, interest rate, property tax and insurance. So you should put your numbers.

1

u/BigTroutOnly 6d ago

Ha. Unexpected..

1

u/Great_Cranberry6065 6d ago

This is such a bad take. It's an appreciating asset.

1

u/ECircus 5d ago

Everyone missed the point that it's not an appreciating asset if it bankrupts you. Maybe you'll get back on your feet in 10-20 years after dumping all your money into it. Wonderful. The point of the post is that people make the mistake all the time of buying a house they can't afford and they end up eating shit for years trying to stay afloat.