I rarely – if ever – feel compelled to engage in any type of political conversation. But recently I learned about two different things that helped me understand why regular families have money problems. One of these things I already knew. First – the debt to income ratio allowed for families or individuals in the United States (US) and second the USDA monthly cost of food reports which are calculations on food cost across the US – probably an average. I already knew how much is “recommended” for a home mortgage.
I want or need to say upfront, I am not a financial expert nor is any of this about real people. This is just a mama who is a little fired up about the how the cultural narrative allows for people to be taken advantage of while being told “This will build wealth for you.”
HOUSING COST
We are also told to keep our house payment at 25-33% of our monthly take home pay, this is reasonable. The advice is given so that a regular family will have enough margin to do other things like buy groceries, gas and possibly save. Although, I found out recently that there are lenders willing to give families mortgages at 45% of gross income, before anything is taken out. Please don’t do this to yourself, regardless of your income.
DEBT TO INCOME RATIO
During the purchase of a business asset we asked if the purchase and loan amount affect our ability to get a car loan in the next year. Our loan officer said “Well, with your income, considering the mortgage and this loan… as long as you keep a car loan under 50k, you shouldn’t have a problem. We will loan you up to 38% of your net income.” When my husband came to tell me this… it made me nearly choke on my mid afternoon snack.
THIRTY EIGHT PERCENT
That is an insane amount of debt for the average family to carry, it is suffocating.
But I just read on the nerdWallet the other night that there are lenders or credit agencies that will give you loans that come up to 50% of your monthly take home pay!
FOOD COST
The USDA says that the “average” American family (two adults, two kids between 6-11) on a THRIFTY food budget pays about $223 on groceries a week or about $970. The thrifty food plan serves as the basis for the Supplemental Nutrition Assistance Program (SNAP) maximum benefit allotments. There is also a low, moderate and liberal food plan as well. This is the bottom of the barrel, according to the USDA food plan program calculations.
In Kansas, for that average family, you have to gross $3250 or less then take home less than $2500 a month (130% of the poverty level in the US). .
This means – in Kansas – they expect a family to be using 39% of their income on food before they are able to get assistance. This makes me the most dumbfounded.
ADDITION
Let’s stop and add this up with the Graham Family. The Grahams have a four person household dad, mom, son (11) and daughter (8). Dad goes to works a blue collar job and mom stays home with the kids to homeschool. Dad brings home $3000 a month, just over the assistance income limit for the state of Kansas. Now they decided to move to the country, great deal and low interest rat. Yet it maxed out their house payment at $990 or 33% of their take home pay. Then they have a truck loan at $150. This truck loan brings them to the debt limit of 38%, given to them by the local (reasonable) bank. Mom hasn’t been great at meal plans or really stretched herself into budgeting for food. Most months they end up at about $1170 for food, 39% of income. This budget includes dinner take out a couple times a week, plus Dad eats out for lunch.
What does this family have left over?
About $700 for insurance, emergency savings, and utilities. We are not even considering giving, fun money, car repair and maintenance, home supplies, etc.
Even if we look at averages for these costs – these folks are losing money every month. I can tell you with one emergency – they are also in credit card debt.
SOLUTION
If our average American family, would take a couple of the idea below seriously they would have a different narrative. They would be confident and in control of the money that comes into the home. Not longer being one of the families have money problems.
Budget: The Graham family has to be able to make sure every single dollar of income has a place to go. There is not room for spending on nonessential items. Which you can do for a while, but not forever.
Get Out of Debt: Possibly downsizing, selling some land, or moving would help with the house payment. Is the truck loan is necessary or if they need to get a use Honda Accord for a while, better gas milage and the cost is way less.
Prioritize Investment: The boring, long term financial gains that are consistent and proven. Not the get quick rich with BitCoin and going viral on Instagram. Even when families have money problems, they lean on time tested methods of wealth building. Go for the old stuff that has proven itself, then when you have money to burn – let it burn in Bit Coin…
Create Income: This can be hard because it takes mom or dad away from the family even more when the goal is to be home more. In the mean time – it might be the only way to make it work. Unless their farm can pay for itself.
Learn More: This family could really reduce their food budget, if the parents were willing to cook and make budget meals it would help significantly. Probably cutting out junk food, soda, alcohol and take out. These types of food are money sucks – they are not moral issues. I have a simple meal guide here so that you can feel more confident cooking at home, without a recipe.
CONCLUSION
I honestly think this is a huge problem and a scheme for keeping people poor. When I heard these numbers I was overwhelmed with understanding as to why regular families have money problems. There are people willing to take advantage of you. Credit card companies are not on your side – they make billions of dollars every year and you get… what? Maybe if we change some laws or assistance level that would be effective.
Unfortunately when we are already here, in debt and broke, we can’t blame our way out of this problem. No one will pay our groceries. It is doubtful that anyone will pay off our house or debt… so we are responsible for the mess.
You and I will have to say “NO” to one or more of these traps. It will mean that we live differently than people around us. We won’t have the same things, our houses will be smaller, we won’t drive the same cars… but we will have peace of mind.
