A Look at Personal Struggle and Social Inequity in Finance.
In my first two posts in this series of short articles grappling with the preparatory steps required to embark on the path of financial planning and investment, my personal story was revealed for the purpose of discussing how we get ourselves into the rut of hand-to-mouth living — with a buck earned a buck is spent. I want to dig into that a little further to demonstrate how to get out of it.
I am still in the process of becoming an Investor, and I am starting from a position that anyone can relate to, because I grew up with one foot in the door to the middle class, but we never really escaped the lower class. That door ultimately closed on my family again, as they are retired and still possess more debt than cash.
The fact is, if you are born poor in America, you are privileged compared to Guatemalans born equally poor in scale to Guatemala. And it gets worse from there — god bless whomever is the poorest person in the world. Every American has access to financial tools far greater than that person can probably conceive of. The financial markets are a public, democratic tool that anybody can wield.
I live in Philadelphia, we have a third world within the first because these folks were abandoned by their employers in the name of profit. Blight and unemployed men are a volatile combination. While I assert we have to hold ourselves accountable for job creation and community building, we also have to adapt, and for the folks living there that have to work at Wal-Mart, I have a financial strategy for them.
It was my personal choice to live in chronic poverty as an artist and activist from 2003 to 2016. The consequence of that included the same kind of discrimination any poor person deals with: Unable to get credit, build credit, secure home leases, auto leases, and all that.
Folks are discriminated against on the long pathway to the bank loan, but not at the bank branch, where truthfully, the final decision is made by computer systems, and most of the employees considering your loan are from minority groups or working families themselves, and they understand discrimination. You just have to have reliable credit behavior and an income to get good, non-predatory loans.
Generational poverty and social biases can set one on the wrong path from day one. However, once a person lifts themselves up and out of the situations that keep them down, they cannot learn to present themselves to the financial system toward their own advantage.
It is interesting how there are moral implications to good credit behavior, you know, like paying your debts rather than stealing from your debtors, being honest about your income on tax returns, on public assistance applications, rather than lying, and so on. If we abide by it, life seems to open up.
There can also be crippling repercussions to our financial system, it broadly produces social inequity. But how to reform the system is beyond my scope, and beyond our personal control. I really believe however that mass adoption of stock trading would improve inequity. One way to achieve that is worker-ownership through stocks, either by law, or by strike. But these are the weeds of political-economy, again. So it is indeed another discussion.
I do feel that finance can be applied to my own Buddhist morality. The code that we go by is “Right Living.” This means that earning your money can be earned in a wrong manner. It won’t matter how generous you are with your profits if you are making your living in a rapacious way, hurting others in the bullheaded drive for money, or investing in companies that behave that way. My moral compass determines how I invest and from whom I seek employment.
I cannot tell you where your compass will direct you. I am not saying outcomes will be equal under our system, but that won’t be a problem if we can, together, through self-determination, pull wealth back from the upper-upper-class and end this era of deep inequity. You, as an individual, making the system work for you, realizing that a better democracy and economy depends on your cooperation with others, can improve the world.
The more of us that own stocks, the closer we are to real democracy. That is how we literally own the corporations and make demands of the Board. This is a radical endeavor that I’m embarking on, not one that will make me soft, or turn me into a Republican. You may however break from the spell of party-line thinking. That would be good, because when you associate securing your financial health with greed, then they win, by planting this negative seed in your mind. They have tooled your mind to keep you out of the game.
This series of financial articles is for people like myself, starting with, maybe a hundred bucks, zero investments, no credit cards, no direct experience. That is how I started three years ago. I am not wealthy, but I broke from a 15-year streak of hand-to-mouth budgeting, securitized my savings into retirement and brokerage accounts, became a property owner, raised my credit score at least 100 points, and bought my first house. My income has averaged just $23K per year.
All that said, in this article, I can just outline the main structural points that build credit and financial strength: Income, Debt, Budgeting, Banking, Insurance, Investment.
Without income, you cannot (or you should not) take on debts. You cannot budget without an income, and you cannot manage debt without a budget. You really cannot manage all of that without banking. When you have your cash flow keeping your bank account well above water, then you can begin the path of investment. Finally, to protect your assets, and your debts, you must have insurance. Let’s go through that again with a simple story.
Someone, lets call them Ra, is born urban poor and managed only a high school education. Ra starts working at age 16, but other kids in the neighborhood, even Ra’s own family members, hustle Ra out of every extra dollar, so that by age 18, everyone in the community is still broke. Ra loves the family but realizes they will never let money accumulate in the household. Ra strikes out with their next paycheck before anyone can hustle it.
Ra struggles but gets it together in a new place and after several months of work finds there is an extra paycheck sitting on the dresser — it wasn’t cashed because it wasn’t needed. Ra opens a bank account and realizes that this bank can grow with a little budgeting. After putting together a budget, saving receipts and looking closely at spending habits, Ra settled on a savings rate of $100 per month.
It has been a year since leaving the house, so Ra takes a vacation. After two weeks off, travel costs, and gifts for the family, Ra notices that they still have one month’s budget leftover. They research investment and secondary banking options to begin taking that $100 a month directly into investments.
About a year later, Ra has $1,200 invested at an average growth rate of 5%, so the portfolio is now worth $1,323. But during that time, Ra earned a first promotion at work, taking home an extra $200 per month after health benefits. They got their first credit card, and have researched first-time home buyer opportunities in the area.
Over the following year, Ra saved $200 per month and advanced through the home purchase process with a down payment partially funded by homebuyer grant. Nevertheless, that savings is stored in the value of the home and that position improves month over month.
As a new homebuyer, Ra is also spared almost two months of bills, as mortgage repayments and utilities are delayed. By the first mortgage payment, Ra has returned $1,200 into investments.
One year later, investing $200 per month, the home down payment has been restored plus 5% and is now valued at $3,843. With compound interest and more aggressive strategies, Ra doubles the growth rate to 10%, holding now $6,483.
Over the next twenty years, the portfolio improves to an average return of 15%. Some years are better than others. Ra never increased the original monthly contribution because they started a family, and expenses have kept up with every increase in pay.
Ra and spouse are now in their mid-fifties, the kids are gone, they paid off their house, and the assets have grown. They do market research and determine they can sell their house for $250,000, and relocate somewhere to buy a smaller home at half the price, and enjoy their retirement. The portfolio has grown to $58,920. Meanwhile the spouse who worked after raising the babies also squirreled away $50,000 in an IRA account.
They become semi-retired Investors with a capitol I, spreading that $308,920 toward a house, putting 50% down to maintain low payments, but also to keep substantial liquid capital. Ra takes a more aggressive approach toward stocks, diversifies brokerage accounts, accumulates precious metals, and keeps an eye out for unique investment opportunities. Altogether Ra and spouse are spending maybe 15 hours a week managing the portfolio. The growth rate of their capital falls flat, because their new home is being paid down again, and the good life is being lived without new income. So they make do for the rest of their lives with about $250K, living on quarterly returns.
This is not ambitious. It is responsible behavior — basic risk management. I never said Ra didn’t party, have fun, have family emergencies and all that. That is what budgeting and credit is for. They just managed risk. Ra learns to save money, only a little, to build that into an early, comfortable retirement. It is an average story, not a perfect one. Your story is more complex. Your story is yours to realize.
Each post will get into those specifics: Income, Debt, Budgeting, Banking, Insurance, Investment. They will be more research driven than narrative, although I’ll continue sharing personal experiences.