'Best to Be Prepared for the Worst'

Our latest reader story of fiscal conservatism in the face of uncertainty comes from an African American woman in Birmingham, Alabama:

I was born in January of 1973 out of wedlock to a single mother who already had two older kids. My mother and father were surprisingly cordial to each other all my life until they passed in 2008. Neither had a high school diploma, but my father was a very smart man. My father took financial responsibility for me but not my two half sibling, so basically my mother struggled all her days to make ends meet.  

I lived with my mother in public housing (ghetto) in the state of Alabama.  She was a CNA [certified nursing assistant] and we lived paycheck to paycheck. If she was able to save any money, an emergency would come along to gobble it up.

One of the emergencies that has stuck in my head for 30 years and set me on my current path was a flat tire.

Yes, a flat tire. I’ll never forget I was about 13 and my mother's old Ford Pinto (green) got a flat tire. The puncture was on the side of the tire and it couldn’t be patched, so it needed to be replaced, but she didn’t have enough money to buy a new one. She had to call around to family members to borrow the money for the tire. She made promises to pay back the cash on payday.

I made a promise to myself never to be in the situation of having to beg or borrow money. In my mother’s household there was always an emergency. I learned there will always be an emergency when you don’t make enough money for day-to-day living.  Those early life lessons have made me into a penny pincher.  I started working at age 15 and have never stopped.  

I got accepted into every university I applied to. I stretched myself thin working while in college to cover basic needs that my family couldn’t help me with, like food. I got scholarships and financial aid to cover most of the costs of a college education, but because of financial illiteracy (and family illiteracy), I got into student loan debt and credit card debt.  

My father and I sat down on his front porch after I got my first job out of college and he told me how to budget. (I was too embarrassed to tell him I was already in debt when I graduated.) This is advice from a man that never went to high school but also never went homeless or hungry:

1. Use one week of your salary to pay a car note and insurance.

2. Use two weeks of your salary to pay rent or house note.

3. Use one week of salary to pay your monthly bills.

4. Twice a year you’re going to get an extra two week’s pay—save it for a rainy day.

My response was, “OK daddy, but how can I save a dollar when all I got is a dollar?” His response was, “Spend 80 cents and save and tithe the other 20 cents.” If you can’t pay for it out of what you have, don’t get it.

And he meant every word he said. There weren’t any rich family members or grandparents available to bail me out of financial trouble. And neither he nor my mother had access to lines of credit, such as home equity loans. But my mother sometimes used payday loans to stretch her money to support her household. Payday loans would put an enormous strain on her that translated into stress for her kids. Watching my mother struggle was hard for me. I grew up with a since of lack, uncertainty, and a feeling of insecurity. We had love and respect but no money.  

How am I doing now at age 43? I am divorced. I have one child (11) and a niece (14) I support. I’ve been in the workforce for 18 years in a stable career. I made about $69,200.00 last year.

$12,586.26 (18.2%) of my salary went to taxes (fed, AL state, Birmingham city, SS, and Medicare)

$11,313.79 (16.3%)  of my salary went to pretax deductions (retirement, medical, dental)

$45,299.95 (65.5%) Went to me!

I have a modest house payment of $1,000.00 / month. I pay extra each month to pay it off faster.

I send my kids to public school ($1,000.00 yearly in fees and lunches)

I have a 2015 Camry that I owe about $12,800.00 on. I could have saved more money last year but I wanted a new Camry with a sunroof.  My used Prius’ lithium ion battery died four months after the warranty was up and six months after I spent $900.00 in repairs. It was time for an upgrade.

I don’t have credit card debt (thanks to Dave Ramsey [the financial author]). I have $70,000.00 in my state pension and $60,000.00 in my IRA. My daughter has a 529 college plan worth about $4,000.00. I have about $30,000.00 cash in the bank.

Since I don’t have a financial safety net, I need a hefty savings account to make me feel secure. I would like to save more and spend less, but the costs of life keep creeping up. The monthly rates for water, gas, and electricity have increased this year, so that I am paying about $30.00 more per month than this time in 2014. That is $360.00 per year.  

I shop at thrift stores for clothing except for underwear and shoes, and those costs have steadily increased every year. I shop at ALDI instead of Walmart but still spend close to $500.00 on groceries. I even take my lunch to work most days.    

I learned some hard lessons about the lack of money early in life and during my struggle through college that have stirred me toward financial literacy, security, and peace. I also know that life isn’t predictable and bad things happen to good people, so it is best to be prepared for the worst.  

Our reader mentions payday loans, and if you’re interested in reading more on that subject, check out Bethany McLean’s piece in our May issue, “Payday Lending: Will Anything Better Replace It?” Er, money quote:

Payday lending works like this: In exchange for a small loan—the average amount borrowed is about $350—a customer agrees to pay a single flat fee, typically in the vicinity of $15 per $100 borrowed. For a two-week loan, that can equate to an annualized rate of almost 400 percent. The entire amount—the fee plus the sum that was borrowed—is generally due all at once, at the end of the term. (Borrowers give the lender access to their bank account when they take out the loan.) But because many borrowers can’t pay it all back at once, they roll the loan into a new one, and end up in what the industry’s many critics call a debt trap, with gargantuan fees piling up.

As Mehrsa Baradaran, an associate professor at the University of Georgia’s law school, puts it in her new book, How the Other Half Banks, “One of the great ironies in modern America is that the less money you have, the more you pay to use it.”