The perils of being a writer

[Katsunami]

Originally Posted by speakingtohe

I can empathize a bit as when I was young I spent money (credit) I couldn't afford as did most people I knew.

Everybody did that once or twice, I think. It's one of the things that teaches you how to handle money. I once bought something, upgrading a piece of equipment, thinking that I had sold my current stuff. Then the buyer e-mailed that he decided he didn't want it. That caused me to be strapped for cash for some time (a few hundred bucks can be a lot in your early twenties), until I sold the current equipment.

Lesson: "Don't spend any money 'you should be getting', because you might never get it."

Today I know several people earning $100k plus annually whose debt is still mounting...

I can't even imagine that. With $100K (€73K), one could lead a princely life, even in the most expensive part of the Netherlands, provided that one doesn't do any exceedingly stupid things.

[speakingtohe]

Originally Posted by Katsunami

Everybody did that once or twice, I think. It's one of the things that teaches you how to handle money. I once bought something, upgrading a piece of equipment, thinking that I had sold my current stuff. Then the buyer e-mailed that he decided he didn't want it. That caused me to be strapped for cash for some time (a few hundred bucks can be a lot in your early twenties), until I sold the current equipment.

Lesson: "Don't spend any money 'you should be getting', because you might never get it."



I can't even imagine that. With $100K (€73K), one could lead a princely life, even in the most expensive part of the Netherlands, provided that one doesn't do any exceedingly stupid things.

Not sure about princely but in Canada a reasonable life can be led by a lot less than 100k. Say 30K for a single person is more than adequate IMO. Not everything you want, but everything you need. Most would beg to defer.

Still many people live far beyond their means or pretty close to the edge with a lot more. Is everyone frugal in the Netherlands? No cars or houses repossessed or credit card debt out of control? Not saying it isn't so, and my understanding is that social services such as child welfare ones are better than North America, but I was not aware of any country where debt rarely got out of control for people who could actually get credit.

My perception is that Canada is fairly affluent and rarely do you see cases of properties etc. being sold for a dime on the dollar as happens to the south, but I hear a sob story every month from someone unable to pay their rent and or going to the food bank while making $20 - $30 an hour. Not that I understand it, but I am pretty sure most of them do not do it intentionally. Some people lack the capacity to learn the 'lessons', and while it is not my fault or responsibility, I do feel bad for them.

And while the person referred to in the OP does come across as self-pitying, she seems to be trying to come to grips with her situation.

Helen

[Katsunami]

Originally Posted by speakingtohe

Still many people live far beyond their means or pretty close to the edge with a lot more. Is everyone frugal in the Netherlands? No cars or houses repossessed or credit card debt out of control?

Many Dutch people are quite wary of credit cards; many people don't have one. I do, but I only use it as a last ditch resort, if I don't have any other way to pay.

The one thing that many Dutch people seem to do however, is buy houses that they can just barely afford, as they include tax benefits in their income. This has driven prices upward.

One example is HRA (hyptheekrente-aftrek). It is a tax benefit intended to make it easier for people to buy a house. For example: you can afford a €200K house, and you'll be able to live OK, if you don't do extra's. Through the benefit, you get some extra money, so you can live somewhat more easily; this was done to encourage people to buy more houses.

However, many people used this benefit as budget/expected income, and in doing so, they can suddenly afford a €240K house. Instead of living more easily, they're going to live bigger/more expensive. So, a €200K house has suddenly risen €40K in price.

This has been happening for some time.

Some people have gone so far that they put themselves into the situation that two people in the household need to work above minimum wage, and all tax benefits must stay constant; should one salary be lowered, or one of the benefits fall away, then these people may get into trouble.

This is the reason why the Dutch government is struggling to abolish HRA: they want to get rid of it, because it is actually mis-used, by rich people buying houses and deducting a lot of taxes, and because it's artificially inflating house prices for a long time. However, if they would drop it all at once, many people would get into great trouble, because they actually NEED the HRA to pay their morgage; something HRA was never intended for.

In short: HRA was used by many people not to live a bit easier in a house they could afford, but to buy a house they couldn't otherwise afford (or, buying their house at a price it wasn't actually worth).

This, at this point in time, is one of the biggest problems in the Netherlands, causing many economical problems. (Housing market is stuck, mobility of people for work purposes is low, house prices are deflating, which makes it impossible to sell, and so on.)

[samhy]

Originally Posted by speakingtohe

Her story actually made me feel a bit bad for her and it does seem like she is trying to take responsibility now.

Helen

I felt that way at first. Then I found another long explanation from back in 2008 when she was pointing her mistakes and decided to act more wisely from now on

Originally Posted by Katsunami

Lesson: "Don't spend any money 'you should be getting', because you might never get it."

There's a saying in French which would go along those lines if translated: don't sell the bear's skin before you've killed it.

[fjtorres]

Originally Posted by Katsunami

The one thing that many Dutch people seem to do however, is buy houses that they can just barely afford, as they include tax benefits in their income. This has driven prices upward.

One example is HRA (hyptheekrente-aftrek). It is a tax benefit intended to make it easier for people to buy a house. For example: you can afford a €200K house, and you'll be able to live OK, if you don't do extra's. Through the benefit, you get some extra money, so you can live somewhat more easily; this was done to encourage people to buy more houses.

However, many people used this benefit as budget/expected income, and in doing so, they can suddenly afford a €240K house. Instead of living more easily, they're going to live bigger/more expensive. So, a €200K house has suddenly risen €40K in price.

This has been happening for some time.

Some people have gone so far that they put themselves into the situation that two people in the household need to work above minimum wage, and all tax benefits must stay constant; should one salary be lowered, or one of the benefits fall away, then these people may get into trouble.

Hmph.
That is *exactly* what happened in the US.
For 30 years the goverment passed laws encouraging banks to lower their lending criteria so that more lower-income people could qualify for mortgages they otherwise wouldn't qualify for. Where a reasonable mortgage payment was once supposed to be no more than 25% of take-home, people were getting mortgages that ran 50% of their pay and running two jobs to keep up.
Default risk on those mortgages were high so banks bundled the high-risk mortgages with lower risk into financial instruments billed as investment grade.
30 years of that maintained high demand for houses so prices spiralled upwards, creating other problems like flipping, speculation, etc.
A classic bubble.
Bubbles pop.
And this bubble was a massive part of the world's biggest economy.
Six years later, the mess is only starting to clear away and it'll take another 4-5 years of the unexpected energy boom to get the economy back in shape.

So, yes, your government is wise to try to scale back that program.
As you said, bad things lie that way.

It is easy to overextend yourself and very hard to muster the self-discipline to stay within your limits. Or even recognize you have limits. As evidenced by the subject of the thread.

Sometimes a windfall is the direct precursor to a downfall.

[Katsunami]

Originally Posted by fjtorres

Hmph.
...
So, yes, your government is wise to try to scale back that program.
As you said, bad things lie that way.

Indeed; but many of the people here are of the opinion that the government is "stealing"; they feel entitled to have that extra money for ever and ever, not realising that this HRA-thing was only intended to live a bit easier after buying a house (one which you could have afforded WITHOUT the HRA, that is), and that originally, the HRA would be lowered, because the expected income would rise as people got older and worked longer.

So, the HRA was first created as some sort of kickstart, a temporary benefit to allow people to buy a house earlier/younger (giving them a longer time to pay back, also), but it ended up being a permanent source of income for many, needed to actually pay the bills. That was never the intention, and now the government can't get rid of it, lest they cause people to lose their house.

Even if HRA stays in place for people who already have it and it gets scaled back or abolished for new buyers, these new buyers can't pay the requested amount for a house anymore. Thus, the €200K house that rose to €240K+, will sink back to a maximum of €200K, possibly lower, because other taxes and such have risen over the year, so people can afford even less.

The original buyers still have their €240K mortgage on that house, so they will not (be able to) move, lest they'll incur a €40K+ dept. All of this uncertainty is causing the housing market in the Netherlands to be in a deadlock.

This is putting restraints on people's mobility. It creates the problem (among others) that we have people capable of job X in the south, and people capable of job Y in the north, while the companies requiring these people are just located the other way around, and many are not able to move. (I'm not even talking about the number of jobs that have been shrinking the last 6-7 years due to the economic downturn that started in 2007-2008.)

[speakingtohe]

Originally Posted by Katsunami

Some people have gone so far that they put themselves into the situation that two people in the household need to work above minimum wage, and all tax benefits must stay constant; should one salary be lowered, or one of the benefits fall away, then these people may get into trouble.

Thanks for the reply. Not quoting whole post although it is very interesting.

The situation that you describe in the snippet is the norm in Canada for a lot of (I would guess the majority) of first time home buyers. In fact many would consider themselves to be doing very well in this situation.

One real life example is my building. Building repairs to the strata/condo building were put off for many years. Then two major repairs were scheduled within a 6 month time frame and assessments were charged to the owners within that period (approximately $12,000 CAD per unit). Liens have been placed against 30% of the units as the owners are unable or unwilling to pay. This could affect the rest of us negatively as the money must be paid to the contractors by someone. It was a foreseeable problem as 1/2 of the nonpayers already had liens. Oh well time to lawyer up as the saying goes.

Possibly I am off topic, but I am basically saying that these things happen even to the financially responsible.

The mobility situation is interesting as well. A 50 mile commute is not uncommon in Canada and a 100 mile daily commute is far from unheard of. The village I live in 1/2 the year is 106 miles from the nearest city and people must drive 106 miles to go to the bank, hospital, do anything but the most basic shopping, and almost all other services. It can cost $1,000's to have a vehicle towed to town for repairs. Children are bussed in weekly to attend high school. 1/2 the population are computer illiterate and wouldn't order online even if they could and shipping rates are pretty high as well. Most of the adult population goes to town more than once a week even at 50 below and several commute daily. Fairly expensive. Many communities are not accessible by road at all. Shipping is $2-$3 a pound and virtually all food other than wild game must be shipped in. I paid $10 for a quart of milk more than once in two of these communities.

Sorry for the off topic if indeed it is and I will get back on again by agreeing with you and samhy that it is indeed the bloggers fault that she got in so deep, and many people do well on far less. Many don't as well, living in debt on a large (to me) income.

I think it is very hard to break bad habits and rarely easy to get out of crippling debt. The skills are hard to master and there is an unfortunate tendency to just give up. Even if she is trying for the second or third time, she does seem to be trying and I find it impossible to condemn her.

Helen