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A Sucker Punch of Personal Finance to America

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In the last 24 hours I've had three experiences drastically change how I feel about personal finance in America - one of them major, one of them minor, and one... calling it a stretch would be generous.

Last night, my wife called me from her hotel in upstate NY. That's a long ways from our San Francisco home. She said, "It's worse that I thought here."

Let me back up a bit. My wife has a white-collar job in the military. She asked to be deployed to help with victims of Hurricane Irene as that was a requested need. I was surprised to hear about a military deployment to Hurricane Irene months after the fact. I didn't really take the need that seriously. It seemed that Vermont got all the news stories, not New York (though there's not a large distance there). I had figured that by this time everyone had reached safety. This clearly wasn't going to be like the deployment for Katrina that I've heard so many stories that I won't repeat in this space.

What's so bad in upstate, NY? It turns out it is a personal finance nightmare. There are people who don't have houses because they were swept away by the river. Some of these people didn't have flood insurance. (Dear FEMA, you require me to buy flood insurance when I already have it, and others don't have to have it at all? Really?!?!) Many people lost their jobs because they were literally washed down the river as well. My wife explained that these people are in the worst kind of pickle - no home so they can't get a job... no job, so they can't get a home. I've never really thought of this predicament. Two thoughts immediately came to mind:

  • Where's the emergency fund? It kills me that over and over again, people don't seem to have an emergency fund set up. They don't realize it until something that they can't control and devistates them - like a hurricane or a flood.
  • What about and extended stay hotel on credit cards? I know it's not a good situation, but getting income is key and if a place of residence is required, get an extended stay hotel and use that. You need to stay somewhere. In times like this, it's probably worth even looking to cash out some those Roth IRA and 401k savings. The kind of thing is a financial set back, but you are able to live.

I'm waiting to hear more details about the pickle, because it seems solvable especially in extreme cases that effects the whole community. I'll be waiting for a couple of weeks until my wife gets back. Then I'll be able to ask her in more detail.

I do believe she is coming away with a new appreciation of sound personal finance. Though in some ways she may think my site is more of joke now, as I don't cover these extreme situations - the ones where people need the most help. I honestly don't have a lot of experience with such situations, so I don't know if my advice would be helpful. I'm better off at handing the "problem" of having maxed out your 401k too early in the year (we should be so lucky).

There's hope though. I think people are learning from these experiences. And I don't think they are learning from just having it happen it to them, but the media is doing a decent job covering it. Unfortunately, there's also a lot of people learning about how unemployment works from first-hand experience. I was there once and I didn't want to go back. It directly lead to the creation of this website. This whole thought of hope came to me in the form of that second, minor experience that I mentioned above. I was watching an old episode of Clark Howard and he said the following in a clip on a radio show:

"I used to feel I had to convince people why they should be smart with their money. I don't have to do that as much any more. The mood of the country has changed."

When I first started writing about why MonaVie was a scam, a lot of distributors said, "Big deal, it's only $125 a month. I know my finances and I can afford that." I would love to be able to audit them and find out how many of them have a year of expenses in their emergency fund. I'd like to know how many have their retirement all squared away. The $125 per month, per person in a family of four turns out to be $5000 a year (there's some bulk discounts). I think people are now starting to take stock of what that $5000 a year would mean to them. We are talking aftertax money too. That's like giving yourself a $7500 at work. Who wouldn't want that?

I'm cautiously optimistic that America seems to be getting it. Perhaps America is as smart as my dog after all.

This brings me to the third experience - the Sucker Punch. I was watching the movie last night (scantily clad women fighting with swords is the kind of thing you can get away with when your wife is 2500 miles away) and while the long middle part of the movie dragged from too many fight scenes, I thought the ending was fantastic, perhaps one of the best I've seen. I don't think I'm giving anything away with this, but I'm going to leave you with the final sentence:

"You have all the weapons you need - now fight!"

Posted on October 26, 2011.

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11 Responses to “A Sucker Punch of Personal Finance to America”

  1. Steve says:

    It is focusing on saving money during normal times, that enables you and I to have emergency funds with which we could (hopefully) survive the crazy times. All else being equal, someone with more savings is going to have less problems during an emergency than someone with less.

    Perhaps with the exception that if society collapses, someone who burned all her money on her gun collection might be better off :)

  2. People really need to save early and now. You just can’t wait until something bad happens and start realizing you need to save money. It’s just too late. When you are doing well, that’s the best time to save but many people end up spending all their income. It’s really sad… If you do not have emergency fund right now, you must start one immediately for your future! Good luck.

  3. “(Dear FEMA, you require me to buy flood insurance when I already have it, and others don’t have to have it at all? Really?!?!) ”

    Most people outside designated flood zones don’t purchase flood insurance (nor is it required by most lenders in those cases).

    Unfortunately, hurricanes don’t always play by the rules and can flood areas that aren’t “flood-prone”. (Sometimes rivers also don’t read the documentation and spill outside the flood plains).

    Not sure if that was the case in NY or not.

  4. The media gave WAY too much attention (IMHO) to Katrina and its aftermath – we’re still hearing about it to this day. Meanwhile, barely a peep of attention is given to those in NY and Vermont who are still homeless after Irene. There have been several areas of the U.S. that have been devastated by post-Katrina floods (like towns near the Mississippi); but you wouldn’t know that if you went by what the media decides to report. It’s too bad the media hasn’t reported more on what your wife is seeing first hand, because that might lead others to donate to charities set up to help those in need in those areas. However, the rest of us need reminders that an emergency fund is a need, not a luxury.

  5. @ Track Your Bucks – Very true. I’m a witness to that locally. Cedar Rapids, Iowa (where I work) is still working to recover from the floods of 2008, but there’s not much national news about it. Lot of streets lined with vacant houses.

  6. robyn says:

    i lived in an extended stay hotel for 6 months, while transient. it was $400 a week!!! all the other residents were students, 4 to a room. my BF lived in one for 6 months, his was only $550 a month, but it was one room, about 12 by 16 ft including the bath and kitchenette. there were families living in that extended stay.
    so don’t blithely assume people can afford that. Or that they have credit cards to pay for it.
    people in that area of new york were on the edge anyway, high unemployment, just over minimum wage. you can’t plan for the future when you are struggling to eat.

  7. Lazy Man says:

    Well $400 a week is pretty expensive. I guess it depends where you live, but I’ve seen Motel 6s be $39 to $55 a night.

    The $550 a month sounds like a pretty good rate. Perhaps I’m off, but I presumed that people have access to that kind of cash, especially with credit cards.

  8. […] Man at Lazy Guy and Funds presents A Sucker Punch of Individual Finance to America, declaring &#8220In the last 24 hours I&#8217ve had three experiences dramatically change how I […]

  9. Rockledge says:

    I agree about the emergency fund. I’ve come to realize ours is too low and am trying very hard to bring it up to a year’s worth of expenses plus adding in for paying our health insurance during that time (work pays for it now).

    However even if you get a motel room for $55 a night, that’s probably not including taxes so the weekly rate is about $400. Now add on that most hotels at that rate don’t have kitchen areas and you have to factor in buying convenience food vs. making it. Add paying to do laundry instead of using your own machine and other costs like that. Say, an extra $200 dollars a week. That’s an extra $2,500 in living expenses a month. Were these people getting health insurance, do they now have extra health costs? Did they have access to public transportation or car pooling that they don’t have now? Are they still paying a mortgage for a house that’s standing but unlivable? (That happened to a lot of people here in Houston with Ike–paying for a motel or apartment and a mortgage at the same time for months while waiting for insurance and repairs to come through. Heaven help you if you had a bad insurance company.)

    Let’s see, Irene occurred at the end of Aug., that’s about three months, so we are talking about needing at least $7500 extra by now with little end in sight. That’s not easy for the majority of people.

    This is what worries me about planning for an emergency fund–I don’t really know what the costs might be. Are we talking about someone being injured and losing a job and health insurance just when it’s most needed? Are we talking about a hurricane damaging the house to the point that it’s unlivable but not unsalvageable? The number of bad scenarios is quite large. It has dawned on me that the only way to have a really good emergency fund is to double my original estimates.

    Or am I over reacting?

  10. Lazy Man says:

    Rockledge,

    Great comment. That $55 plan was per day, but I bet if you talked to the motel management you could work out a weekly or monthly rate below that… they love guaranteed occupancy. Your point is still solid, the costs add up. I think some were still paying for a mortgage on a place that was unlivable as you suggested.

    Given all that, perhaps I was a little harsh and people who had what seemed to be solid emergency funds saw them evaporate quickly. Like you, I’m going to take that as motivation to create an even bigger emergency fund than I normally would have. However, I have a final thought on this. Usually people don’t consider equities as being part of their emergency fund because they can’t access the cash quickly. In a case such as a localized natural disaster, tapping into mutual funds makes sense. Of course if the disaster comes at the same time that equities drop something like 30-50% that can really hurt, but that double whammy is pretty rare.

  11. Rockledge says:

    I’m sorry, I realize I left out some info about Hurricane Ike damage in my area. First, a lot of homes received wind damage that allowed torrential rains to enter the house, doing tremendous amounts of water damage that did not qualify as flood damage and frequently wasn’t covered under home or wind insurance. Or, secondly, they had a scenario similar to a friend of ours who had enough insurance, but their mortgage company would not let them tear down their unlivable house. They had to pay both mortgage and apartment rental. After many, many months, the city finally stepped in and condemned the house before they could move on.

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