Monday, 2 November 2015

It's Expensive Being Poor

Debt sucks. And in an ideal world, debt is avoidable. But ours is not always an ideal world, and sometimes debt happens. Life happens, accidents happen, emergencies happen, unexpected expenses happen. And sometimes that means debt happens.

I know, I know. If you live within your means and you don't spend more than you make, you won't go into debt. If you plan ahead and set enough aside you'll have enough saved up to cover any emergencies. If you're responsible and smart and have a good plan and stick to it, you'll never find yourself falling behind financially.

But you know what? Accidents and emergencies and unexpected events are just that - unexpected. And sometimes those unexpected life events are just catastrophic enough to completely obliterate the best-laid plans.

A serious illness that keeps you from working will eat through an emergency fund in a few short months. A layoff during a recession could mean long-term unemployment or replacing a comfortable salaried position with a minimum-wage job. Divorce, a death in the family, any unexpected major life change can drastically affect your financial position.

In my case, I went from a double-income couple with two cars, a home, and a lifetime of earning potential ahead of us to a divorced single mom of two infants returning to the workforce at the bottom of the totem pole in the blink of an eye. Though I was a homeowner at twenty-one, before I was thirty I was struggling just to pay rent. As a single parent it was next to impossible to cover rent, daycare, bills and groceries for my little family.

Do you have any idea how much full-time daycare for a one- and a two-year-old costs? Coupled with rent and household bills - not manageable on a single income. I ate through my share of what was left after the divorce in the first few months on my own and started to use credit to bridge the gap every month. That gap got bigger every month, and so did my debt.

And that's how it happens. When you are poor and you have debt, the cycle of becoming ever poorer and more indebted becomes almost impossible to break.

It's expensive being poor.

If your income is barely covering your expenses, home ownership is not an option. Saving up a downpayment is an impossibility - and even if it weren't, you wouldn't be eligible for a mortgage anyway. So you're stuck paying rent - paying off someone else's mortgage, paying to increase someone else's equity in the home you're living in and caring for, paying out an enormous percentage of your income every month toward someone else's asset while your own net worth remains exactly the same. If you're already poor enough that your credit is already a problem, you may even have a hard time finding a rental. Or, living paycheque-to-paycheque, may find saving up first and last month's rent a hardship. You might have to seek out non-traditional - and more expensive - rental living options.

If you have bad credit or are over-credited, you won't be eligible to lease or finance a new car. You can either scrimp and save until you have enough to buy an old used car - which you will subsequently spend a small fortune on in frequent small repairs just to keep it on the road - or take public transit, sucking up the subsequent cost of extra hours of daycare expenses while you sit on the bus every day.

If you are barely making ends meet you can't save by buying in bulk - you don't have the extra five dollars to spend on the club-sized toilet paper pack at the grocery store, nevermind the fees for an annual membership at a big box wholesale club store. You can't buy seasonal items at half-off just after the holidays - you only just have enough to cover what you need to until the next payday. You can't take advantage of sales - you look for discounts on the things you need when you need them, but buying them whenever they happen to be on sale is simply not an option - the money isn't there.

Everything ends up costing more when you're poor, when you have bad credit or no credit, when you have to pay cash and pay up front and pay-as-you-go and when that debt you maybe couldn't help but accrue just balloons bigger and bigger every month while your payments disappear into the black hole of interest.

I was lucky. I landed an amazing job with flexible hours that helped me just manage to just get by without declaring bankruptcy until my kids started school full-time. I worked hard and did without and sacrificed like crazy to get out from under my debilitating debt and move forward. But it was hard - and it could just as easily have turned out very differently if opportunity and timing hadn't worked out so well.

Being poor is expensive. And the poorer you are, often the poorer you become. It's a vicious cycle of increased debt and expensive credit-free options and no matter how hard you work and how much you make, never quite having enough to dig yourself out of that hole and make ends meet.

(Originally published as It's Expensive Being Poor on my weekly column at gailvazoxlade.com)

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