Beater Shopping - Borrowing Money to Buy a Car With Better MPG Can Make Sense

If you don't have a lot of money and you're shopping for a beater car you likely find that the cheapest cars usually have pretty poor fuel economy.   I believe people in the car market realize the value of better MPG and are willing to pay a bit of a premium for it and see the problem with a low MPG car and discount its value.   So the end result is that the  cheaper cars often have poor economy.     If you don't have a lot of money this puts you in a poor spot since it seems all you can afford is a car that will cost you more to operate.    I think in this situation it can make sense to borrow some money simply to buy a car with better fuel economy.

Lets look at some examples.   I looked on Craigslist and found a couple cars around $1000.   One was a 1994 Pontiac Grandprix that gets 20 MPG (17/26) and the other is a '94 Ford Explorer 4x4 which gets 17 MPG (15/20).    These are cheap cars and if you don't have much money maybe its all you can get.   But your gasoline bills are going to be pretty high.   If you drive 10,000 miles in a year at $3.50 per gallon then that Grand Prix will run you about $1,750 to fill the tank for just one year.   If you found a car that got 25MPG then it would be $1,400 and a 30MPG car would only cost $1,167. 

Paying a bit more can net you a car with decent mileage.  I found a 1996 Honda for $2000.   That car would get 25 MPG (22/29) and so the gas would run you about $1,400 a year.   So spending $1000 more on the car would save you about $350 a year in gas.  I also found a '99 Chevy Prizm for about $2000 which would get 29 MPG (27/34).   That car would run about $1,207 a year to fuel or about $543 less.

Note that I'm ignoring things like reliability here which of course you'd want to take into account as well.

Can you borrow $1000 somewhere?    Lets say the best you could do is a personal loan at your credit union at 12%.   Thats really high interest so hopefully you've got better options.    If you borrowed an extra $1000 to afford that Prizm with better MPG then your payments over 36 months would be $33 per month.   You'd save more in gas than your payments on the loan would be.     Or if you went with that Honda then your payments and gas savings would be about a wash.


Here lets compare the total cost of my 4 example cars if you look at what you'd pay over 5 years :

	cost	MPG	annual gas	5 year total
Grand Prix	$1,000	20	$1,750	$9,750
Explorer	$1,000	17	$2,059	$11,294
Honda	$2,000	25	$1,400	$9,188
Prizm	$2,000	29	$1,207	$8,222

The last column with the 5 year total includes 5 years worth of gasoline and the cost to buy the car.  For the Honda and Prizm I'm counting $1000 out of pocket and then 36 months forth of $33 payments on that 12% loan.   In the end the more expensive cars with better MPG are going to cost you less even if you finance their purchase at 12%.

Now don't get me wrong, I'm not saying you should borrow $25,000 to get a car with 40MPG.   The point here is that if you're looking for a beater car in the low end and have very limited funds than rather settle for the cheapest car you can find and pay out the nose at gas station, it can make sense to borrow some money to finance a car at the 2nd to bottom rung of the beater pile.

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Two dozen countries have higher minimum wages than the US ... (if Compared to wages that are often lower than the US.)

Yahoo's finance blog The Exchange wrote that  Two dozen countries with a higher minimum wage than America’s  That sounds pretty bad that we come in behind 2 dozen countries.   Even worse the article compares the US to 27 OECD nations and we're 26th. 

They say :

Data from the Organization for Economic Cooperation and Development shows the federal minimum wage of $7.25 per hour ranks 26th out of 27 countries, when measured as a percentage of the average wage in each of those countries

I underlined that last bit for emphasis.

The USA has relatively high average wages.   Some of you may scoff at that idea because we Americans seem to be all convinced that we're struggling to make ends meet and that our wages can't possibly be 'high'.   But rest assured we (the richest nation in the world) do in fact have high wages compared to most other nations.

Lets look at  the List of minimum wages by nation and List of average wages by nation
and find an example...

Greece's minimum is $5.19 per hour which is much lower than the US minimum of $7.25.
Greece's average wage is about $1100 a month and the US average is cited as $3693.   
Their minimum wage then is about 78% of the average wage and the US minimum wage is about 33% of our average.   SO by this measure of minimum wage / national average then Greece's minimum wage beats the US minimum wage.  

Would you rather make $5.19 an hour or $7.25 an hour?    I'd prefer $7.25 an hour.    And I don't really think I'd care what % of the national average that figure represents.    How about you?   Would you like to be broke in a broke country or less broke in a well off country?

Now this isn't to say that the US has a particularly generous minimum wage.  We fall behind many industrial nations for sure.   And I can see some of the argument for putting minimum wage in relation to national average since countries with high average wages often have higher cost of living.  But its still just not all that effective of a measure as far as I'm concerned. 

Business Insider compared wages in Here's How America's Minimum Wage Stacks Up Against Countries Like India, Russia, Greece, And France and their graphic shows us coming in behind Australia, Australia, France, New Zealand, UK, Canada and Japan.     

If you sort the List of minimum wages by nation then we come in at 13th in that list among all countries.   If you sort the List of average wages by nation then we come in 16th.

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Minimum Wage History Adjusted for Inflation

Recently I read that if the minimum wage had kept pace with inflation since the 60's that it would be over $10 today.   I think it was on The Big Picture that I saw this but I can't remember for sure.    Anyway theres been talk about raising the minimum wage lately so I thought it would be interesting to check this out and see how the minimum wage rate has looked over time if adjusted for todays dollars.

I got the data from History of minimum wage from DoL and Historical CPU data at the BLS.  I used the annual average CPI where available and then just the October 2013 figure for 2013 since they didn't have a 2013 annual average.

Here's the result :

The peak figure was $10.74 in real dollars for 1968.   Minimum was just $1.60 in 1968 but in todays dollars thats $10.74.   The low was $3.98 in real 2013 dollars from 1944 when the minimum was just 30¢.

I think it would also be pretty meaningful to find out what % of the working population made minimum wage or less but I don't know if I could find that data historically.

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How To Buy a Beater Car under $2,000

A 'beater' car is an older car that has seen better days which can be bought for cheap.    The beater is the car you buy if you can't afford anything else.   Personally I don't think that a beater is the ideal car financially since they are usually so old that maintenance and repair costs tend to be a frequent problem. 

Beaters often aren't best
There is a lot more to car costs than simply the purchase price.   I think you're usually going to be better off buying a car in the $5,000 range which still has some good years in it than buying a sub $2000 vehicle that may very well face a >$1,000 repair bill at any time.  If you drive a fair amount then you also have to consider cost of gas in the equation as well as many beaters aren't the most fuel efficient.   If you don't have $5,000 cash then you can usually finance the car purchase for a relatively reasonable interest rate and the pay down the loan as soon as you have more cash to do so.

1995 Dodge Spirit.   Your next car?

When would you buy a beater?
The situation then when you might want to buy a beater is if you don't have more cash available to buy a more reliable car and you can't obtain reasonable financing rates to finance a better car.    Another possible scenario is if you are good at repairing cars and can handle repairs and maintenance yourself for little out of pocket costs.

Disposable Car
As a special case version of the beater, there is also the rare situation of what I would call the 'disposable car'.   This is a car that is very cheap say in the $500 to $1000 ballpark yet still at least runs.   For a car that cheap it really doesn't matter too much if it breaks down since your losses are minimal.   You can always junk the car at a salvage yard for $100 to $300 depending on the car and local market.  So worst case you're running the risk of losing $200-400 total which isn't much more than a common repair bill on any other used car.   I would really only consider a disposable car if and only if I found one dirt cheap.   The car would have to be around $500 or so to make it worth considering.   If you start paying more than $500 and get > $1000 range then you should do better job to filter and find a more reliable model.   Only at the very cheapest level is any functional car worth a gamble.



What to look for in a beater.

There are four main considerations in car features that I'd look for.   You want to get a good balance of low mileage, a good reliable brand/model, good fuel efficiency and preferably a newer car rather than something older.   You'll probably be looking at a trade off or balancing act between these four features.  You're not going to find a new, low mileage, good MPG and high reliability brand car for cheap.   But you might find a lowish mileage, poor MPG, decent reliability brand car thats 15 years old or a high mileage, decent MPG, fair reliability brand car that is 10 years old.   The trick will be to look at all these factors and find a decent balance that will hopefully give you low chances of major repair bills and reasonable expectation the car will continue to run all while not killing you at the gas pump.

Meets Your Basic Needs

You'll need to find a car that will meet your needs.    As far as basic needs I"m talking whether or not the car has enough passenger or cargo space to do what you need it to do.   This is really only a factor if you've got a larger family and need to haul a lot of people or if you do any work that requires a pickup or van to haul cargo.  Otherwise most of us can meet our basic needs with any car that runs.  

Ignore luxury and amenities
We're talking about a 'beater' here folks.   Your priority isn't to get a car with a 6 disc CD changer or leather seats and a moonroof.  The priority should be getting a car that has reasonable reliability and decent gasoline mileage.  Any luxury features that the car might have should be considered lucky bonus.   If you can't afford more than a beater then you are not in a position to be picky about luxury features.

Filter out the Lemons
Some cars will be described as being a 'mechanics special' or 'needing some care' or other euphemisms for a car that is broken down and in need of repair.   Unless you're a car mechanic looking for a project, cross those cars out.   Other cars to avoid are ones with major problems in their CarFax history like salvage titles or major accidents.  



Mileage
Generally speaking the lower the miles on a cars odometer the less likely it is to have a major break down.    Of course cheap cars are almost always going to have high miles and thats kind of unavoidable.   For a $2,000 or lower beater you should not expect to see cars with 100,000 miles or more.   Your first filter for a good beater is to look for one with lower miles.   Shoot for a car with under 150,000 miles if you can find it or at least under 200,000.


MPG
The cost of gas can be a big factor in a cars ongoing expense.   If you have a choice you should look for a more fuel efficient car.   This matters more if you drive more and matters less if you drive minimally.   You can find the MPG rating for older cars by looking them up at fueleconomy.gov and then calculate your expected gasoline costs by using your own annual driving amount and a rough estimate of gasoline prices.  

For example I found an older Ford SUV that looks pretty good for about $1,900 with only 110,000 miles and it even has leather seats!   However that car gets 14/17 MPG.   If I drive a 50/50 mix of 12,000 miles a year then that means I'll be using 6000 city miles and 6000 highway miles.   My gas usage would be 6000/14 + 6000/17 = 781 gallons.  At a rough guess cost of $3.75 per gallon I'm paying about $2,930 a year in gas for that car.

On the other hand there is a 1998 Dodge Neon for about $2,000 with around 150,000 miles.   That Neon gets 21/30 MPG.   With the same 50/50 mix of 12k miles a year that would be 6000/21 + 6000/30 = 485 gallons x $3.75 = $1,821 per year in gasoline.

Comparing the Ford SUV with the Neon I'd be spending about $1,000 more each year for gas with that SUV.   Thats a pretty big deal.   That SUV might look a little nicer if you don't consider the MPG ratings but its not $1,000 per year nicer.


Make / Model
First you should look for a car brand that has a reputation for high reliability.    If you can find a Toyota or Honda with lowish miles in the sub-$2,000 range then I'd snap it up.   But in my local search I found a grand total of one Toyota or Honda car under $2,000.  These makes have a reputation for good reliability and people are willing to pay a premium for that so there aren't many for sale for cheap.   If you can't find a Toyota or Honda then open the options to look at other brands and take the age and mileage into account.   For individual cars look up the make and model in question on sties like Edmunds.com and see what their reliability history is like.   If you start at Edmunds used car area then you can look under the brand of car and find the make/year car in question.  When you have the right car and year then look for the reliability information.

Again comparing the Ford SUV with that Dodge Neon.  On Edmunds I find that the ford SUV has a few 'moderate problems' and one 'significant problem' but none of them are major failures and all have repair costs in the $250 range or less.  The overall reliability rating is 3 of 5 stars.     The Dodge Neon has a history of  head gasket failures which can several hundred dollars to fix but its overall rating is 4 of 5 stars.  Personally I'd say that the Ford wins that comparison since while it has more problems and a lower overall rating the risk of a major failure like a blown head gasket with the Neon is a bigger worry in a beater.

You might find a bargain price on an older European car like a Saab or Volvo or even a Japanese luxury brand like a Lexus with high very miles.  However I'd be careful with premium brands and European cars as I understand they tend to have a lot higher maintenance and repair bills.

Age
Newer cars are better.   The big reason for this is that as time progresses the car makers get better and better at building reliable cars.  This is true for all car makers and not just the most reliable models.   I'd take a 2013 car over a 1983 car any day regardless of the make.   The difference of a few years won't over ride the difference between the most reliable brands and the least reliable, but the difference of decades can do so.    For example according to an old press report using the JD Power Vehicle Dependability Study back on 1996 the top brand was Lexus with 217 problems per 100 (PP100) reported.    But compared to the latest JD power report for 2013 the industry average was just 126 PP100 and in fact all but one brand had better results than the 1996 Lexus 217 PP100.   So the very best brand from 17 years ago would now be far below average compared to todays new cars.
Todays least reliable brands are more reliable than the most reliable models from 20 years ago.


Putting it all together :

Here is the basic process I'd use to try and find a decent beater for under $2,000

1. Search cars for sale under $2,000.  If this gives you a ton of cars you can reduce the list by sorting for cars under 200,000 miles or 150,000 until you get it down to a manageable list of 2 dozen or less
2. Skim the descriptions and ignore any cars that are 'fixer uppers' or have major body damage.
3. Sort the cars from lowest to most miles and keep the 10 cars with the lowest mileage.

4. If available online review the carfax or autocheck reports and cross off any cars with major problems in the reports such as salvage title or flood history or major accidents
5. Remove any cars with very low gasoline mileage ratings.  You may need to look them up on fueleconomy.gov since they aren't often listed in sales ads
6. Sort the cars from newest to oldest based on model year.  This will probably result in 1990's cars.
7. Look at the newest car and review its reliability rating in Edmunds.com and cross off any cars that have major known problems (major engine failure, transmission failure, etc) in their reliability history.  Repeat this till you have at least 3 cars that don't have a history of major problems.
8. From the 3 cars resulting from step 7 compare them overall and sort them based on best fit to your preferences
9. Call up the seller for the car that you prefer the most and ask if you can check it out and do a test drive. 

You might need to repeat steps and loosen up requirements if you end up with no cars that fit.  

As a test I used this method with a quick search in my local market and ended up with a 1995 Dodge Spirit, a 1999  Ford Windstar and a 1989 Cadillac Eldorado.   They have similar mileage, about $2000  and no major reliability problems that I could find.   The Dodge has a bit better gas mileage averaging combined 22 MPG while the Ford and Cadillac are 17 / 18 MPG.   That would be about $500 a year lower gasoline costs for the Dodge.   The Ford is newer but the difference isn't huge and the higher gas costs don't warrant it.   I'd put the Dodge on the top of my list.


Photo source Wikipedia
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Poverty Rate is Inflated by up to 0.7% Due to College Students

A recent Planet Money article A College Kid, A Single Mom, And The Problem With The Poverty Line said that : "U.S. Census Bureau recently reported that more than half of all college students who are living off campus and not at home are poor."    That shouldn't be a surprise to anyone that a lot of college students have low income.   But what they really mean is that the US government adds these college students to the official tally of people in the nation that are below the poverty line.  

I also found a Census blog post on it here When Off-Campus College Students are Excluded, Poverty Rates Fall in Many College Towns  Here is the full Census report on the topic : Examining the Effect of Off-Campus College Students on Poverty Rates

If you are in college and you don't live with your parents or in a college dorm then you are counted as a household.   College students living on their own who have low income below the poverty line are added to the number of people in the nation officially deemed as living in poverty.    If you live with your parents then you're included in your parents family and the poverty rate is based on your families entire household with your parents income.   The Census excludes people living in college dorms from the poverty statistics.   But if you live off campus and don't live with family then you're considered your own household and your poverty rate is figured based on your own income.

 If you look at table 2 in the Census report it tells us that 51.8% of college students not living with parents or on campus are below the poverty rate.    That is not surprising.    But there are actually 2-3 million such people in the nation and it adds up.   Table 2 also shows that the impact on the poverty rate in the U.S. of excluding college students living on their own would be a -0.7% difference.

As of 2009-2011 figures the official poverty rate was 15.2%.    But that includes college students living on their own.    If college students living on their own were excluded from the poverty tally then the poverty rate would change by -0.7% and would have been 14.5% instead of 15.2%.   

It makes an even bigger difference if you look at local areas like college towns.   The Census report says : "For example, Monongalia County, West Virginia where the University of West Virginia is located , had its poverty rate drop from about 23 .0 percent to 12.6 percent."     But there are not a lot of counties in the nation that see large changes.  

Should they include college students living alone or not?     Well I think it depends.   If you happen to live alone in an apartment your rich parents pay for and you make $8 an hour working 10 hours a week for spending money then I don't think you should be added to the governments official tally of the ranks of the poor.     But if you're a 29 year old who is officially independent from your parents and paying your own way through community college on 30 hr/week minimum wage job then yes maybe you should be in the poverty ranks.    I don't know but I would suspect that most college students are not really independent.

It seems clear to me that including college students living in off campus housing is inflating the poverty rate in the nation.   I'm not sure how much of the 0.7% difference is really students who get support from their parents.     I think they should exclude any college student who can be claimed as a dependent by someone else.    I'm assuming that the Census survey that figures the poverty rate doesn't ask if you can be claimed by someone else.    If your parents are claiming you as a dependent then I really don't think you should be counted in the poverty figures for the same reason that they already exclude college students living on campus or living with family members.


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Example $100 / month Grocery Budget for One

In a comment on an old post Surviving on Minimum Wage? : An Example Budget a reader Nightvid challenged me to come up with a $100 / month food budget.    A while ago I did an  Example $5 / day Grocery Budget for One  but that was $150/month.    $100 a month is a bit more of a challenge.   But its still feasible :



Here is an example weekly food shopping list that comes out to $100/month:

1.5 gallon of milk
1 box cereal
1 loaf bread
2 cheese
7 bananas
3 frozen dinner
1 12oz pasta
1 mac n cheese
1 ramen
1 hot dogs
1 hot dog buns
0.5 peanut butter
6 eggs

Total cost is = $98.56 / week

You can throw in another buck or two to buy some condiments once in a while.


This comes out to 2503 calories, 15.1% protein

The example list is heavy on pastas and pretty light on fruits, veges.  Someone could adjust to suit.   You'd want to mix things up as well as I'm sure people don't want to eat the same stuff every week.   I'm sure you can find fault with this shopping list, it isn't necessarily that healthy and I'm sure some people will object to the food choices.   The idea isn't to get the perfect menu, but just to show an example shopping budget for a relatively low cost diet.

The prices are just off Safeway retail prices.  I didn't shop around.  No coupons used.  I used generic store brands across the board.   If you shop around or use coupons or shop for sales you can undoubtedly get cheaper prices on average with some effort.

I'm not saying that you should want to limit your grocery spending to $100/month.  But if money is tight then you could do so.

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Why Don't Some People Have Bank Accounts?

You may have heard about the 'unbanked'.   The unbanked are people who do not have a bank account.   They don't have a checking or savings account.    The FDIC has a whole web site discussing the topic.   In December 2009 they wrote a report all about the demographics of and reasons for people being unbanked.

I've pulled out of that 2 specific charts showing why people don't have bank accounts.   There are 2 groups among the unbanked, first the people who have never had a bank account and second are the people who once had a bank account but do not currently.

First lets look at the never banked.  

(click image for full size)

Now the previously banked:

(click image for full size)

All this data is from the FDIC report dated Dec. 2009.   Note that the numbers add up to more than 100% because people could choose more than one reason so some people have multiple reasons.    The sum of each is about 137% so about 2/3 or more of the people only gave one reason.

As you can see for both groups the top reasons are lack of money, lack of need and high fees.    That seems to cover most people.   Past that though there are a variety of reasons people don't have bank accounts.  Everything from not trusting banks, having language problems and not having a bank nearby.
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Do You Accept Section 8?

If you are a landlord then its likely that you've been asked if you take Section 8.   We currently have a rental vacant that we're advertising and we've had three separate people call asking if we take Section 8.  My wife and I do not take Section 8.   Thus far we've not wanted to deal with "the hassle" of it.   But by not taking it we are missing out on an under served portion of the rental market.   If you're a landlord then you should know about Section 8 and how it works.  

What is Section 8?

Section 8 is a housing voucher program where the government helps subsidize the rent payment for families with low income.   The Housing and Urban Development (HUD) department runs the Section 8 program.   They call it the Housing Choice Voucher Program Section 8.   The system is funded by HUD but administered at the local level by public housing authorities (PHA).   Generally the program is set up so that the family will pay up to 30% of their gross household income towards the rent and utilities and then the government will pay the rest of the rent.  So for example if a family has $2000 income then they'd pay up to $600 in rent.  If fair market rents are $1000 then the government will pay the remaining $400 via the Section 8 voucher.   The tenants pick the rental they want independently so they're free to live in any rental that accepts the vouchers.

Do you Have to Accept it?

Generally landlords are not required to take section 8 vouchers.   Federal law does not require landlords to take Section 8.    However there are some states or cities that may have laws mandating that you do not discriminate based on such a program and/or simply require that landlords accept Section 8.   While in general its not mandatory in most areas, you should check your local laws to see if its optional or not.

What does a Landlord have to do?

If you do want to take section 8 then theres a few things landlords need to do.   First is that the property must pass a HUD inspection.     The inspection ensures that the house meets HUD Housing Quality Standards.  The inspection checklist doesn't look bad to me and is mostly concerned with basic safety features.   They do have particular attention to lead based paint so that could be a issue in older houses.    In addition to the inspection the landlord also has to maintain the house in a satisfactory manner.   This part shouldn't differ significantly from normal laws that already require you to keep the property safe and habitable but there could be some details that are different.

PROS
- Portion of the rent is automatically paid by the government
- Cater to a specialized renter audience, there may be more tenants with section 8 vouchers than landlords willing to accept it.
- Tenants may be more likely to stay after they find housing that accepts Section 8.
- Good rental rates, you can charge the fair market rent which is usually fairly good rent rates.
CONS
- Have to submit to the government inspection.
- Extra scrutiny of your rental by the housing authority.

Basic Steps for Section 8 Rental

1. The family applies for and gets Section 8.  This is usually a difficult thing for the low income family to get and theres usually waiting lists.
2. You rent your property and the tenant finds it.  
3. You agree to rent to the tenant and accept their section 8.
4. You and the tenant fill out a government form.
5. You schedule an inspection with the housing authority.   They come out and inspect your house.
6. Assuming your house passes inspection and your rent isn't too high then you sign the lease with the tenant.
7. When the tenant is moved in you will get a portion of the rent from the tenant and a portion direct from the housing authority.

What the government does and does NOT do.

For section 8 housing the government pays a portion of the rent and inspects the housing.    Thats mostly it.   The government housing authority does not screen tenants and they do not match renters and landlords.   As a landlord you will still need to property screen the tenants, check references, etc.   You should not assume that just because someone has a section 8 voucher that they are in any way screened by the government as thats not part of the process.

Are they good tenants?

This is a topic with a lot of disagreement.   Some landlords dislike Section 8 and have a negative stereotype of the type of tenants they get.   Other landlords are perfectly happy with Section 8.   I'm sure it varies as much as anything and you can get good or bad tenants with Section 8 just like you can get good or bad landlords.   I personally would not want to stereotype the tenants nor develop prejudices.   And keep in mind that in some areas you are legally banned from discriminating based on Section 8.

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Free or Reduced School Lunches

When I was in junior high school I got free lunch for a while.   I worked in the cafeteria to help wash dishes, but in hindsight I'm not sure if that was the reason I got free lunches or not.  My dad didn't work much in the 1980's and we had relatively low family income.   I may have been benefiting from the government free lunch program.

Free or reduced price school lunches at our nations public schools are part of the National School Lunch Program.   See NSL fact sheet   You may be surprised how many families qualify for free or reduced lunches.   Today a large percentage of families with school age children can qualify for free or reduced lunches.   I looked up our local school and found that 55% of the students are eligible for either free or reduced lunch.  Another school in the city has 88% of the kids who qualify.   Our county has median income that is just about the national average so this is likely not unique.  
 
For a free lunch your family income must fall below 130% of the poverty line and for reduced price lunch the household income needs to be under 185% of poverty.      Free lunch is free entirely.   Reduced price lunch costs 'no more than' 40¢.    Based on the 2012 poverty rates the thresholds would be as follows :

#	free	reduced
1	$14,521	$20,665
2	$19,669	$27,991
3	$24,817	$35,317
4	$29,965	$42,643
5	$35,113	$49,969
6	$40,261	$57,295
7	$45,409	$64,621
8	$50,557	$71,947

Note these are not the official numbers.  I don't know if they've yet defined the rates for the 2012 - 2013 school year.   But it will probably be the figures above of relatively close to them.

As you can see in the above table a family of 4 could qualify for reduced lunch  with a family income of under $42,000.     I would guess that 25-50% of families with school age children qualify for at least reduced lunches.    I'm not sure on the statistics cause its hard to find family income data distributions specific to households with children in school.   I expect that families with children in school are lower income than older families in general as people usually have peak incomes later in life.

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The Spent Game... Working Poor in America

The online game called Spent illustrates what it is like to be in a working poor situation or low income job.

The game is interesting.   It points out the various costs that can hit you unexpectedly and notes how various every day costs can be extremely hard for low income earners to handle.

I've played the game a few times now and I've 'lost' most of the times I played.   My latest attempt I ran out of money on day 6 of the month...

I will fault the game for being a little unrealistic since it seems to throw disaster after disaster at you.   A typical week does not include a car accident and $100 bill from a neighbor breaking your window which your sinister slumlord expects you to pay.   And yeah the times I've played any interaction with a landlord makes out the landlord as an evil moustache twirling sinister villain who blatantly breaks laws.   As a landlord myself this is an unrealistic and blatantly unfair stereotype.  But its common enough that it can happen... just like a car accident or a medical bill or another unforseen bill or even common bills.   Still while all these emergencies won't happen in a given month, its likely that they will happen sooner or later.  If you live paycheck to paycheck then its only a matter of time before an emergency or unexpected cost or even daily bills will empty your bank account.

If you answer all the questions the right way and have some luck than you can win.  I've won a couple times playing the warehouse worker.  However I did have to work with a sore back and persevere through other hardships.  Hey, who said being poor was fun?


Maybe its not super realistic but it has a point.   The game is interesting and illustrates pretty well that living on low income is not fun.

Discount Internet from Comcast for Children on Free lunch

If you or someone you know is a low income family with children then you may qualify for $9.95 /month discount internet service from Comcast.   The program is called Internet Essentials.    Comcast runs the deal so you have to be in their service area.     To qualify you have to have one or more children who get free lunches at school.   Generally my understanding is that people qualify for free lunches if their income is below a threshold equal to about 130% of the poverty line.   If you qualify for the program then you also have the option to buy a discount price netbook computer for $149.99 + tax.

I think that having Internet at home is pretty important.   It may seem like a luxury but nowadays I would assume that any kid doing a school report would rely on the internet more than anything.   If a low income child doesn't have internet access then this could put them at a serious disadvantage and internet access at libraries is often limited.

What is Poverty?

This article called The Real Poverty Line in America  discusses a study about what income is required for a decent standard of living.    You can find the actual study at The Basic Economic Security Tables™ Index (BEST)

They used the term 'poverty line' in the Main St. article title.   I don't know if they really think that 'poverty line' and 'economic security' are the same thing or not.   They might just be trying to be controversial or something.  

The BEST economic security income levels

The income levels that he BEST study come up with to give that 'economic security' level are :

1 worker	$30,012
1 worker, 1 infant	$46,368
1 worker, 1 preschooler, 1 schoolchild	$57,756
2 workers	$42,504

The BEST figures include things like monthly spending of $490 for transportation, $291 for personal and household items and saving $75 a month towards emergency fund.   That is NOT poverty level living for certain.   Its not even particularly frugal living in my opinion.   But defining a poverty rate is not the intent of the BEST study.  BEST is the "Basic Economic Security Tables" so they are looking at an "economic security" level and not "poverty" level.   Economic security is a higher standard than poverty.


The federal poverty line 

The federal poverty lines are :

The 2009 Poverty Guidelines for the 48 Contiguous States and the District of Columbia

Persons in family	Poverty guideline
1	$10,830
2	14,570
3	18,310
4	22,050
5	25,790
6	29,530
7	33,270
8	37,010
For families with more than 8 persons, add $3,740 for each additional person.

They have higher figures for Alaska and Hawaii

The BEST numbers are roughly triple the federal poverty level amounts.

The federal poverty line is apparently not really a direct measure of what it really costs people to subsist.   Apparently the poverty line was developed in 1963-1964 by taking the cost of food for a family of 3-4 and then multiplying by 3.  They multiplied food costs by 3 because at the time people spent about 33% of their money on food.    Since then the poverty line has been updated by using the CPI inflation index.   The current federal government poverty line has very little to do with hat it costs to provide the basic necessities in 2011.
The social security administration site has more on the history of the poverty lines used by the federal government. 

It seems that the federal poverty line is more accurately an inflation adjusted measure of what it cost to feed three families in the 1960's.

What is Poverty?

I'm not going to pretend that I know a lot about poverty.   My family may have been 'low income' at some points when I was growing up but we were never what I'd consider poor.    However I did qualify for free lunches at school at one point so it seems that we could have been considered poor by some government standard at the time.   When I think of poverty I think of not being able to afford basic necessities like food and shelter.  If you don't have enough money to feed or shelter yourself then you are definitely poor.   I don't mean that you ran out of money at the end of the month because you blew all your cash on iPhone apps or at the casino.   I mean that you don't have enough money coming in to afford life's necessities.

As a single person I could pretty easily rent a room with utilities included and feed myself for about $450 a month.   Thats only $5,400 a year.    Throw in another $100 for clothing.  By one measure then I could say that the poverty line for an individual is around $5,500 a year.

Are transportation, health care, and a phone basic necessities of life?    You could look at it that way.   Personally I think health care is more fundamental to basic subsistence than transportation.   For another $1,000 I could get an annual bus and train pass.

 The cost of healthcare is a killer for anyones budget if they're paying it out of pocket without any government aid.     Health insurance would run up to $400 a month for another $4,800 a year.   You could get a lower cost health insurance plan and risk that you don't have high bills, but in the end you may pay as much or more than the higher premium plan with lower deductible.   I could get a plan with a $175 monthly premium and a $2,500 annual deductible which on average would cost list.  This might run you $250 monthly on average over multiple year periods.   That is still $3,000 a year for health care.

Is a phone a necessity?   I think there is a reasonable argument that says that you do need a phone.   You have to have some way to keep in touch with the rest of the world and get help in emergencies.   Today however a basic cheap cell phone can be had for as little as $5 or $10 a month.  

Looking at it 4 different ways we come up with 4 different thresholds.   For a single person those levels would be : 

Food, shelter and clothing = $5,500
Food, shelter, healthcare, transportation, clothing and a phone = $9,500
Federal poverty guideline = $10,830
BEST minimum = $30,012

Surviving on Minimum Wage? : An Example Budget

Can you live off of minimum wage?  I think it is possible for a single adult to support themselves with a full time minimum wage job.   Its not at all easy of course but with very careful and frugal spending you may be able to get by.   I really don't think minimum wage could support more than one person and in higher cost cities it may be nearly impossible to live on just minimum wage.   But for a large number of single adults living in medium or lower cost cities I think minimum wages are enough to survive on.         Before some of you get too upset about how it absolutely can't be done, bear in mind I think that there are various situations where it is not really possible. 

How much do you actually make

Federal minimum wage is $7.25.     If you work full time 40 hours a week and 50 weeks a year then thats about 2000 hours per year.   I'm going to semi-randomly use California state income taxes as an example.  Your state income taxes are likely to vary but aren't going to be significantly more.  

Income :   $7.25 per hour x 2000 hours a year = $14,500 annual income.

Taxes : Income tax = $515 using standard deduction, social security / medicare = $1,109.
State income taxes:    $255 estimate for California.     Total $1,879

After tax income :  $12,621 annually or $1,051 per month.

That gives us a little over $1,000 a month to work with.   Its not a lot.

How I come to my Budget

I'm starting with rough baseline costs for necessities and savings.   The dollar figures I give are example amounts only and of course everyone's unique situation will be different.   Undoubtedly some of the amounts are going to be too low or too high for a specific situation depending on the person in question and what city they live in.   I'm just using basic example numbers here to give a rough starting point.   

First, the Necessities

Lets cover the basics of shelter, food, clothing and transportation: 

Monthly spending for the mandatory basics :
Rent : $300
Food : $100
Utilities : $75
Transportation : $100
Clothing : $20

Notes on each of these major entries:
Rent :   I have only $300 dedicated for rent so this assumes you're sharing housing or renting a room.  With this little income to live off of having private housing is not affordable.   In many higher cost cities this may not even be practical. 
Food : I'm using a very minimal bare bones $100 monthly food budget.  This would give you just over $3 per day to spend on food.  That is not much at all, but it can be done with careful frugal spending.
Utilities:   I'm using a rough estimate number of $75 for utilities.   In many places your utilities may be lower.  I'm assuming only basic household utilities like electric and gas.  This does not consider phone or cable.  In shared housing I'd also assume you split utilities.
Transportation: I consider transportation costs to be generally mandatory since people need some way to get around either public transportation or a car.   A monthly bus / metro pass is probably the best option here.  A car simply may be too expensive depending on the insurance costs and usage.  In some cities you can get around by just biking or walking but that doesn't work well in Northern winters or many less pedestrian friendly cities.     If you can you may choose to go without transportation costs which will cut your expenses considerably.
Clothes:   I put in $20 for clothes.   If you shop at thrift stores and hunt for bargains that should be enough money to keep you clothed.

Again the numbers are just baselines to meet basic living needs.   You may desire to spend more on certain categories above the baseline amounts here.  If you do want to increase a particular expense then you can do that with discretionary money after we've paid all our basic bills and covered all the basic needs.

Save for the Future

Now that we've covered the basic costs of shelter and food and such we should put some money aside.   I put paying down debt and health insurance in this category because in a way they are similar to savings.   Paying of debt and having insurance is planning ahead for your financial future much like putting saving in the bank.

Savings or Paying down Debt: : $100
Health Insurance : $150

Paying off Debt :  Hopefully you aren't in debt but if you are then you should focus on getting rid of the debts.   If you currently have debts then you should use the snowball method of paying off your debts one at a time.   I would first start by building some sort of emergency fund as a reserve, and then dedicate your savings money to debt pay off instead. 
Savings :   I'd like to save about 10% of income.   This should be put aside for emergencies or other misc. costs.   It will also double as retirement savings.   You could put a portion of your savings in a Roth IRA so that it will grow towards retirement but still give you access in case you need it for an emergency.   Roth IRAs are a good option for anyone in a very low tax bracket since you'll be locking in low tax rate today and get tax free withdrawals when you retire.

Health insurance :  Health insurance may seem too expensive on such a tight budget.   I think that health insurance is something you should make room for in your budget.    You can use an online site like eHealthInsurance to shop around for an individual plan or sign up for the low cost option at your employer if they offer one thats practical.   You can keep your monthly costs lower by getting a HMO or POS plan and choosing a higher deductible option.    Health insurance costs vary a lot from state to state.   At eHealthInsurance I can get a minimal high deductible plan for something around $100 to $200 range.  

Spend the Rest however you need / want

So for I've accounted for $895 in monthly spending.    We started with $1,051 in monthly after tax income so we've still got about $156 left to spend per month.    That money can be spent on items you need to increase your budget for basic items where you desire. For example you could spend a bit more on transportation if you'd really prefer to have a car.

Some items you may want to spend any left over money on :
Cell Phone: pay as you go plan for $10 / month
Home Internet : $20 to $40 for a basic high speed account
Pet : you could afford to keep a pet but if you encounter costly vet bills it may be a real problem
Hobby:  you might set aside a budget for your favorite hobby
Gifts : giving is important to many people and this may be a portion of your expenses

Many gotchas that keep it from working

I've tried to present what I think is at least a somewhat realistic basic budget plan for someone to support themselves on minimum wage.   But I realize that this just wont work in various situations.
Large debt burdens:   If you've got $750 in monthly loan payments then it would not be possible to live on just minimum wage.
Higher cost living areas:  I don't imagine its possible to live on minimum wage in a city like New York or San Francisco.
Major emergency costs:  Inevitably something bad may happen that presents you with a major financial set back.  Even if you do have health insurance a large medical bill could give you significant out of pocket costs.
Special needs:   You may have ongoing costs that not everyone else has like medical prescriptions or


Bottom Line:  It would be difficult to survive on minimum wage.  In at least some cases I think a single person can 'get by' on minimum wage income.

Minimum wage sign image from DOL site.

FREE Cell Phones For the Poor

I read about this in a recent Businessweek article Free Cell Phone Service for the Poor.   If you meet eligibility requirements you can get free cell phone service.  If you have existing cell or landline you may instead qualify for a subsidy for your phone service.


The free phones come via a government  program called Lifeline.  The program is funded by the telecom companies through a program setup by the US government.   The program has existed for quite a while but only recently have wireless phone companies set it up so users can get a fully free phone.  


General state to state information on Lifeline can be found at Lifelinesupport.org website.


Assurance Wireless from Virgin mobile is one of the providers.   They offer a free phone and 250 free minutes a month.
Safelink from Tracfone is another.  The amount of minutes they offer seems to depend on the state you live in.

But the lifeline program isn't limited to those companies.   There are other companies that operate in various states offering subsidized or free services.  

To qualify you must be low income and/or on certain government subsidies.   Safelink says: "Eligibility guidelines vary by state but in general individuals qualify if they participate in a public assistance program such as Food Stamps, Medicaid, Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), Low Income Home Energy Assistance Program (LIHEAP), National Free School Lunch, Federal Housing/Section 8 Assistance, or if they do not receive any of these public assistance programs, they may also qualify based on total household gross monthly income."



If you're low income and might qualify or if you know someone who is low income then this might get someone a free phone to keep in touch for emergencies or to call employers about jobs, etc.

Rich People Live Longer

I don't know if this will come as a surprise to anyone but wealthier people tend to live longer.


An article in SF Gate on the topic discusses a study that compared life expectancy of the poor and the wealthy.   It says that "By 1998-2000, the difference in life expectancy had increased to 4.5 years (79.2 versus 74.7 years), and it continues to grow, he said".  

There are a variety of reasons richer people live longer.  

Health practices and access to good quality health care is one of them.    Lower income people are less likely to have health insurance or get regular preventative care. This USAToday article reported that higher income people are about twice as likely to report "good health" with 71% of high income people doing so compared to 37% of low income.    They also found that diabetes rates are lower for higher income individuals.   Just 6.5% of the highest income population had diabetes compared to 13.9% of the lowest income group.  Lower income people are more likely to be smokers.   

Lower income people are also more likely to live in neighborhoods with higher violent crime or engage in higher risk jobs.

Book Review: Nickel and Dimed : On (Not ) Getting By in America

This is a review of "Nickel and Dimed : On (Not) Getting By in America" by Barbara Ehrenreich.

The concept of the book is to run a real world test to see if the author could "get by" on a low wage job. The author worked in Key West, Maine and Minneapolis working as a waitress, maid and at Walmart for a month each to test her ability to make ends meet. While it is an interesting and at times an entertaining read, the book fails to accomplish its goal of demonstrating the real difficulty in low wage work.

Nickel and Dimed was a entertaining and easy read. First of all the concept of testing out the difficulty of living on low wages is an interesting idea to me. The stories of her daily work and interaction with management and co-workers were interesting. I laughed out loud more than once. But unfortunately I was most entertained by the stupid things the author did and said.

Let me be clear that I think it can be very difficult for someone to support themselves on minimum wage. Its not impossible for a single person to survive but it isn't easy. Supporting a family on one minimum wage income is not very realistic if not basically impossible. I generally agree with the authors belief that its hard to make it on low income wages but I feel she did a horrible job proving or arguing the point.

My biggest fault with Nickel and Dimed is how poorly she proved her point. First of all she set out with the assumption that it couldn't be done. Its not hard to fail if you believe you will fail. More than that she didn't do much at all to really prove her point. She was able to find work pretty easily. She rarely talked about the actual dollars she was spending. She didn't seem to do a good job at being frugal at all in my opinion. About all she did was demonstrate that work can be hard, bosses can be jerks and low cost housing can be hard to find. I didn't need to read a over 200 pages to find that out. The biggest difficulty she had was the cost of housing. If she had simply gotten a roommate then her budget problems would have been fixed. She could have made a lot better argument for her point if she covered such topics as the cost of health care insurance, the cost of child care, unexpected emergency bills or high cost of gasoline but she didn't go into these topics much if at all.

Unfortunately the author had some significant personal biases that detracted from the actual topic. While working as a waitress she decided that 'visible Christians' were bad tippers and felt necessary to share that opinion with us. It was a pretty judgmental and stereotypical declaration that I don't expect is based on anything credible except a couple anecdotal incidents. The author is an atheist. So it seems to me she's really just voicing her anti religious views. She also spent a significant amount of time whining about how she disliked drug tests. She went so far as to suspect that its 'demeaning effect' was appealing to employers. These points are pretty irrelevant to the struggles of an individual earning low wages. They really only seem to be in the book as a reflection of the authors biases. The author later revealed an obvious bias on that topic when she feared she might not pass a drug test due to her "chemical indiscretion in recent weeks". I guess if you use marijuana as she had then the idea of a drug test might be a concern. An atheist drug users dislike for religious people and drug tests doesn't have anything to do with how hard it can be to make in on low wages. When she went into those topics it was distracting and detracted from the legitimacy of her points.

The author seems to have some problems with management or maybe authority in general. She frequently assumed or implied that the people in charge had evil motives for everything. The worst example of this kind of thing on her part was when she called the owner of the house keeping business a 'pimp' for no real reason I could see other than that he was a man who employed women.

At times Nickel and Dimed came across with a condescending or arrogant tone. Here's a good example of that "You might think that unskilled jobs would be a snap for someone who holds a PhD." To even suggest that having a PhD means you'll be a good waitress or maid or have an easy time of those jobs is arrogant and condescending in my opinion. She declares in her conclusion "I am an unusually fit person" which isn't what I'd call humble. I found it amusing how she was surprised that nobody she worked with seemed to care that she was writing a book.

With all its faults, I have to admit that I actually enjoyed reading the book. The concept was very fascinating. The writing and story was interesting enough to keep my attention. But the author failed to make a good argument at all and had some views that would offend many people. Its sad though since I do think there is a real story to be told about the difficulties of the working poor in America. Nickel and Dimed simply doesn't do the topic justice at all.

There is a preview of the book on Google Books if you search for the title.

But the bottom line is : I can not recommend this book.


If you're interested in the topic then I'd recommend instead watching the "Minimum Wage" episode of the TV show 30 Days from Morgan Spurlock. You can watch the full episode on the Hulu site. They do a LOT better job of discussing the actual finances without all the attitude that Ehrenreich had.

Free Urgent care visit for unemployed / uninsured at Walgrees Take Care Clinics

Walgreens is offering free visits to their Take Care medical clinics for people who are unemployed or uninsured. Here is a news article on it.

Take Care clinics are not in all Walgreens locations. See the locations of Take Care clinics

I found this on Fatwallet.

Help others and yourself with the Peace Corp and AmeriCorps

The Peace Corps and AmeriCorps are volunteer programs that give you the opportunity to help others. Recent college graduates or retired senior citizens are some of the people who might be in a situation to volunteer for either program. In addition to making a difference in the world both programs have financial benefits to the volunteers. One of the benefits is deferment and possible forgiveness of student loan debt.

So instead of becoming a Walmart greeter after you retire or serving coffee at Starbucks when college is done you might consider joining one of these programs. Maybe you're in your 30's to 50's and simply want to do something different and make a difference in the world. Whatever your situation both programs offer lots of opportunity to help others.

Peace Corps

Peace Corp volunteers serve for 27 months. The location will be over seas. The work varies and includes things like: teaching, building irrigation or making a computer center.

While you serve you get 100% free medical coverage, a living allowance so you can live at the level of the country you're in and deferral for your student loans. You may also be eligible for forgiveness of some student loan debt. When you return from your trip you get $6000 stipend.

So basically your bills are paid while you're away and then you get $6,000 when you come back.

AmeriCorps

This program is very similar to the Peace Corps but you serve in the U.S. There are a variety of volunteer programs where you serve with local volunteer organizations. Members serve full or part time for 10-12 months.

AmeriCorp volunteers get a living allowance. The allowance varies but I found one source stating in California that the rate was in the $10,000 to $20,000 annually. You also get deferral for student loans. After 1 year of service you'll be eligible for an education awarded of $4,725 that you can use towards education expenses or repaying college loans. You may also qualify for student loan forgiveness.

Payday loans are a very bad idea

Payday loans are a short term loan you get to carry you until your next payday. Generally the amount loaned is $100-500 range. The loan is paid back when you get your next paycheck and you will owe a fee. The fees charged are essentially interest. Fees are HIGH. Its typical to pay $25 fee for a $100 loan which equates to 25% interest for a single month or 365% annual interest rate.

There are also car title loans and cash advance loans. These are very similar to payday loans in how they work and are regulated. Car title loans will use your car title as collateral. Cash advance loans are essentially the same thing as a payday loan but not necessarily tied to your payday.

ABC News reported on payday loans in the article: 391 Percent Interest on Fast Money: Worth It?. They talk about how payday loans can be a financial trap for people. Its typical for people to take a loan and then not be able to pay it back. The payday lender will then roll it into a second loan and you'll owe more fees.

The payday loans are governed by state laws so what they can do will differ from state to state. Generally interest rates are very high and 200-300% range. Some places the rates can hit 500% or more.

I did a Google search for 'payday loan' and the first hit was called Personal Cash Advance. I browsed through that site trying to find the interest rate and terms of the loans they offer. But I don't see anything quoting an interest rate. You can sign up and give them all your information to apply for a loan. They say they'll loan you up to $1500. They don't even tell you the interest rate. That is HORRIBLE. Nobody should ever sign up for a loan if they don't know the interest rate and terms of the loan in advance. Next site I found was USA Quick Payday. They don't quote an interest rate but they say what the fee is and the length of the loan. They say: "Your due date will normally be due on your next payday that is between 8 and 25 days away." "Our fees are competitive and in compliance with all applicable state and federal laws. Depending on the lender the fee can range from $25 to $30 per $100 borrowed. So if you borrow $300 the fee will be between $75.00 to $90.00." OK so lets say its $25 for $100 due in 25 days or less. So its about $1 /day interest. If you held that loan for an entire year then you'd be paying $365 on a $100 loan. Thats an annual interest rate of 365%.

Payday loans are a VERY BAD way to borrow money and should be avoided at all costs.

But you might be in a tight spot with no emergency fund and you need some money. So what should you do instead?

Here are several possible alternatives to payday loans:

* Sell some stuff. If you have anything on hand that you don't need and can sell then selling something to get some money would be a good option.

* Seek terms from whoever you owe. If you're getting a short term loan then you are probably facing some bills or expenses. If you talk to the people you owe money to then they might allow you to pay in payments.

* Ask your employer for an advance. I don't know how feasible this is with many employers but it wouldn't hurt to ask.

* Find short term or temporary work. You might be able to get an extra job with a temp agency for a couple days and work it around your regular schedule.

* Get a credit card advance. If you have a credit card with available credit then you can put your expense on the credit card or get a cash advance. Your interest rate will vary but will usually be under 30%.

* Pawn something at the local pawn shop. The rates at pawn shops are better than payday loans. Plus if you can't pay the debt then they just keep your property as payment. The terms for pawning isn't great but its still a better alternative than a Payday loan. Interest rates vary depending on state laws so be careful. My state caps interest at less than 50% annually so its not a bad deal at all. But many states aren't that good. Another example from an article on pawnshops from HowStuffWorks cites a $2.20 fee on a $10 loan or 22% interest for 30 days, which comes to 264% annual rate.

* Borrow from friends or family. You might have friends or family that can lend you some money short term. But be careful, you are unable to pay them back then it could hurt the relationship.


Photo by taberandrew