The Big Squeeze
If you’re like me and in Generation X (born between 1961 – 1981) you are beginning to feel the financial squeeze that no-one is really talking about, but everyone is dreading.
Here are some frightening statistics:
Credit Card Debt
The most credit card debt ever accumulated in the history of Australia was by Generation X and it is still going.
Why?
It’s simple maths. Even if you are married and both partners are working full time, it is barely enough to cover the basic costs of living, or should I say, the levels to which you have grown accustomed. In my view it is more than adequate but we’ll get to that in another post. For now, let’s just accept that you need every penny to just keep the utilities on, the kids fed and in school.
Most teenagers have braces or some dental work during their span of years. This is expensive. Period. Even with health insurance, which many Gen X’s have dropped, there is a considerable out of pocket expense. For example, each of my teenagers have had braces and each of them have been $5,000 out of pocket. The first 2 were with health insurance, the third, um no.
So the average cost of full hospital and extras cover for a family of 4 ranges from $265.00 up to and over $394.00 a MONTH.
Now if we invest that over time, even in a small calculated daily paid monthly savings account at 3% in a year we would have $5,154.00 which is a nice emergency health care fund. Over 5 years it’s $25,877 with $1887.00 of INTEREST EARNED.
So I would recommend if your babies are at least 5 years pre-teen put the money in the bank and pay everything up front, rather than pay $394.00 and STILL have to find your out of pocket expenses.
But in the meantime, the insurance premiums are being handled by your credit cards as well as groceries, phone bills, electricity, car insurance, car registration (2 cars are definitely needed for this lifestyle).
Just STOP for a second. I know you don’t want to. I know you are just swiping your credit card and hoping it goes through and paying the minimum or whatever you can at the end of each month and recycling this debt to scrape through to the next one.
Let’s just STOP a second. Look at your statement. Actually look at it and see the transactions and see if there is ANYTHING you can either cut down, cut out or change the way you are looking at a necessity and see if there is another way i.e. Health insurance premiums. It’s going to be very scary to do this. You may have a little panic attack, but trust me, just face it and see what you can change.
Mortgage Debt
The current median price of a house is 11 times the median salary. This is WAY out of proportion to what it should be. Usually a house should cost you 4 times your salary and a brand new car is one year’s salary. So immediately we are pretty well screwed.
To this end both adults need to work to service the mortgage and eat and stuff. My inherent belief is that this came about due to the feminist revolution where given that both parties could work, they could both contribute to the cost of a house and hence the prices went up. Add to this foreign investment and the free wheeling lending nature of the banks to investors to purchase as many houses as they wanted to, to rent out, and you have a volatile mix which has pretty much shut out your ordinary Gen Y and Millenial from the housing market.
But Gen X (that’s probably you reading this 1964-1981) are already locked into the mortgage we got when things were more reasonable.
Now, given that houses have risen in price it would / could be presumed that you are sitting pretty well. You have a low mortgage and your house is probably worth 3-4 times what you paid for it right? Um no. The greed of the banks and the increased cost of living, gave us the opportunity to borrow against this increased ‘equity’ which we used to either renovate and extend, pay for braces, healthcare, holidays for the kids for those lifetime memories, new and larger cars to transport the growing family and on and on. You have probably also put down a down payment or are contributing to the care of your ageing parents either in semi-retirement or nursing home care.
So now, you are probably sitting with an even larger mortgage with higher payments than ever before. But the interest is low right? Not for much longer. Interest rates will definitely rise by the end of 2018 and going into 2019 and here is another bit of bad news.
Housing prices have slowed and decreased. I lost $35K in 3 months over December 2017 and February 2018 so this is real my friends. Here is the terrifying part of that drop.
Some mortgages were approved at 95% value of the house. If the house itself has now devalued, well you owe more than the ‘asset’ it was borrowed against.
So what to do? Double down as fast as you can and make extra payments to your mortgage. Yes I know you’re laughing and scoffing at me and saying “As if, I can barely make my payments now”. It’s only going to get worse so as fast as you can make extra ones if you want to keep any equity at all.
Ageing Parents
This is the triple whammy that Generation X is facing right now. They may either have a parent living with them or are contributing to the cost of care for frail and elderly parents. They are being hit from all sides.
Caring for parents
Trying to get ahead financially
Rising and paying for children
Are you stressed just reading about this?
I get it. I understand the stress. Divorce rates are up. Suicide rates in males 40-55 has increased 10 fold over the last 10 years. It’s unbearable pressure and has dwindled the enjoyment of life away to being on a treadmill just paying the bills and falling further and further behind.
You are not alone. You feel you are. You feel like no-one else is struggling as much as you are because they have all the shiny things, and their kids are well dressed and fed and have all the shiny things, nice cars, good jobs. Where did you go wrong? YOU HAVEN’T. They are all in the EXACT same position as you – don’t forget that. It’s simple maths.
There is a way forward but it’s going to take absolute guts and determination to get there and sadly most of you will be happy to remain in the status quo and just hope you get through it all. But sadly, it’s only going to take one bad thing to have your whole scaffold come tumbling down and this blog and my aim is to help you prepare for that when, not if, it comes.
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