All Financial Wisdom

People who, despite earning good salaries, fatally manage their finances

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Despite what many people think, managing our finances correctly does not depend exclusively on our income. Many think that what they really need is to increase their income, but in practice when this income increases, what ends up happening is that they end up spending more and accumulating more debt.

In fact, those who have higher incomes (of about $100,000 dollars a year, when the average income of a household is around 50,000), are the ones who fear most not being able to repay their loans. That is to say, it is precisely the richest people who are worse off managing their finances. It is true that the United States is expensive, but curiously it seems that those who manage their personal finances the worst are those with the best income.

When high income does not imply economic relief

According to a study by Bankrate in 2014, the bad financial situation of many Americans is such that only 38% could assume an unexpected cost of about $1,000 in a medical visit or a repair of the car. Even 71% of Americans worry about having money for day-to-day life.

In addition, according to another study by Annamaria Lusardi of George Washington University, Peter Tufano of Oxford and Daniel Schneider of Princeton, 19% of those questioned would be unable to give a payment of $20,00 dollars with a 30 day notice without go to quick loans or pawning something. Studying them showed that a quarter of households that earn between $100,000 and $150,000 a year would not be able to raise $2,000 in a month. It seems that the pawn shops that appear on TV are going to have a good business for quite some time.

We are not talking about large quantities, but emergencies that domestic or car repairs or even medical issues can occur at any time. They are incidents that can happen at any time.

In the study by the authors of The Millionnaire Next Door, they saw that many of the supposedly rich (good cars, good houses, good salaries, good holidays) were not really that good, but had financial problems and barely capital. On the other hand, others who lived in normal homes, had a normal car and sometimes had manual jobs, were in better economic conditions (yes, most of them used to have their own company).

What begins to happen is that many families considered middle class, are in a bad economic situation. University loans have made a dent in finances, but also in those of many parents who have paid an expensive education to their children.

An example is the strip-tease of its financial situation that Neal Gabler has written about in The Atlantic. Neal is a writer and university professor, one would not expect him to have many financial problems.

Instead, Neal recounted how he only had $5 to his name at one time. As he is postponing repairs to his house, as he has had to borrow from his daughters. In that sense Neal has used the inheritance of his parents to pay for the excellent education of his daughters, but he has also used his 401k  to pay for the wedding of one of them.

In the end, as Neal Gabler tells us, economic impotence is considered a shame, as if it were sexual impotence. He says that they are more likely to confess that they use viagra to confess their financial problems. On the other hand, as Neal tells us about his economic problems, he tells us about his economic mistakes.

In fact, if we compare it with the young Toronto pharmacist who lives with his parents, he earns 130,000 Canadian dollars a year and he dedicates his income mainly to luxuries (trips in style, $200 wine bottles, 30 yr old whiskey at luxury hotels). In comparison, Neal Gabler looks like a responsible head of a family.

Personally, I would prefer to ask for help from friends and family before paying interest, but as we said before, many would prefer to admit that they need viagra before admitting they need money.

Predatory Lending

New users of these type of loans tend to be middle class and well educated. I do not have (and after this article I do not think they’ll give it to me), but I’m not the only one who does not recommend them.

In short, high incomes will not imply a comfortable economic situation, because it seems that it is easy to find ways to spend any amount that comes to mind.

This article is written with Bankrate and Lending Tree in mind.

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