The recession of 2008 turned America upside down, and changed how allot of generation Xers viewed the economy. The wakeup call came in the form of debt, either credit card, Mortgage or other types of loans or credit.
Home mortgages were one of the key contributors to the great recession. Mortgage prices were on the rise. Most Americans strategy was to buy a house and hold it for 2-5 years then sell it for a great profit. Baby boomers warned allot of the generation Xers that mortgage prices cannot rise forever. Some listened but most didn’t.
During this time people would ask how could a person who makes $80,000 a year get approved for a mortgage of $600,000. With interest rates on average at the time of 6% on the low side. http://mortgage-x.com/general/national_monthly_average.asp?y=2008
The month payments on a 30 year fixed rate mortgage would be $3,597 a months. This mortgage would cost $43,164 a year
www.mortgagecalculator.org
Salary: $80,000
Take home: I subtracted 20% for taxes state federal social security: - $16,000 (just an estimate)
Take home pay before expenses: $64,000
Money left after mortgage payment $20,836
Available monthly pay before expenses: $1736
List of Monthly Expenses: These are just estimates
- Food = $300
- CAR/Transportation/Gas: $600
- Cable: $120
- Water/Sewage: $100
- Insurance: $200
- Heat Electricity: $300
- Cell Phone: $100
Total Expenses = $1720
Do I need to say any more, this is a huge part of what caused the recession.
I didn’t add home owners insurance another $100 a month. Also I didn’t add car maintenance. Oil changes, tune-ups, tires etc. what about other debt like credit card debt, student loans the list can go on and on. As you can see there are allot of other expenses that can be added to this list, but the point is that the economy went through a ‘boom’ interest rates were sky high and the banks were profiting like there was no tomorrow.
The cycle is beginning again. With every interest hike we see the fed approve this puts more money in the pockets of the banks and make credit more expensive. This is how the poor get victimized if they don’t see the trap. When I say poor I’m talking about most people. Most people get caught into the credit consumerism life style and before they know it they are thousands of dollars in debt.
Student loan debt is our very first introduction into debt and probably one of the most destructive. We ask students between the ages of 18 and 21 to be responsible and understand credit when no one has ever explained it to them.
I’m giving this message to millennials who may not have been aware as to what was happening between 2000 and 2008.
Here were some of the signs that a bubble was developing.
- Credit was expensive in 2008 the average 30 year fixed rate was 6%
- Credit was easily accessible if you had a credit score over 600 Credit card companies would throw $10,000 lines of credit at you.
- The housing industry was thriving property values were rising with no end in sight.
- The stock market was on the rise and stocks were doing very well.
As individuals we have the responsibility to our families and our finances that our families depend on to see a destructive pattern and protect ourselves when we see pot holes in the road. Bitcoins rise and the push from young milleniels to create this decentralized platform is a direct result of the greedy banks and the calamity that they in large part caused. The banks are the problem the root and the cause. Crypto currency is an answer for a problem that still exists, don’t get me wrong bitcoin has its flaws but, with every new innovation either by bitcoin or other altcoins we move closer to a solution and a way of generating wealth for the small person. Word of advice; stop getting into debt that you know you can’t afford the older you will thank the younger you.
Awesome post :) Great financial info!
Thank You my man.
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Some very good advice in this post. Take it from someone who knows the effect that uncontrolled debt can have.
Yes I wrote this post based on personal experience.