By Minghe Hu
As a father of eight children, George Grea works hard at two jobs to pay off debts, his mortgage and to save money. Troubled by spending more than he should with his credit cards, the 47-year-old parent got rid of all of them and decided to build up his credit score slowly, he said.
Going shopping made him feel good and credit cards made expensive products seem affordable to him, so he couldn’t stop himself from overspending on things he didn’t need, Grea said.
“So if you give me a credit card for $1,000, I am going to max that thousand dollars out. I’m gonna max it out before I can pay the first, second or third bill, then it comes with interest,” he said.
Grea isn’t the only consumer who is in this situation. According to a survey by GOBankingRates, a personal finance information website, of more than 2,500 Americans in July, nearly one-quarter of them consider never being able to retire as their biggest money fear and 18 percent are most afraid of living in debt forever.
Overspending with credit cards isn’t unusual, said James Brewer, a certified financial planner at Envision Wealth Planning. People realize a payment includes interest only after they purchased the products and enjoyed the services, Brewer said.
“Most people usually don’t understand how interest is set, so it’s easy for the credit card balance to increase. And people don’t know how the interest was charged on that credit card,” he said.
Paul Widner, a 31-year-old full-time Uber driver, learned the same lesson as Grea did. With four credit cards, he said he was intimidated by the interest generated by his purchases. After paying off his cards, he has only one for emergency purposes, he said. He now records everything he spends to avoid buying more than he should, Widner said.
“I have the mentality of self-regulation now. I have to learn finance in a hard way and cut down everything,” he said.
In addition to credit card debts, Grea also has 23 years remaining on a 30-year mortgage. Living in a big house, he won’t need the extra space after his two of college-age children move out after graduation, he said. Then, Grea will be able to sell the home and use the money to pay the rest of the mortgage.
“I’m 47, so you do the math. I’m going to be paying it out for a long time unless I sell it,” he said.
For the third consecutive year, real estate is the preferred way to invest money not needed for at least a decade, followed by cash investments and the stock market, according to a national survey in 2017 by Bankrate.com, an independent online publisher and comparison service.
Jiachun Li, a 27-year-old labor immigrant from China, owns and lives in an apartment in the Lake View neighborhood. The monthly payment is more than $3,000, including mortgage, management fee, and taxes, she said. It’s a considerable amount of money and is hurting her ability to save, she said. She plans on leasing the flat and using the rent to finance the bill, she said.
“There’s too much payment to make to afford the apartment but since it’s located by Navy Pier, it can be easily rent out and the rental fee will not be cheap,” Li said, indicating the monthly rental fee would be above the monthly payment for the flat.
Li rented two rooms and started a restaurant in Chinatown food court using her salary from an architecture firm. Although it’s expensive to hire a Chinese chef and staff, the business is running well, and she is considering expanding it, she said.
“The rent for the two tiny rooms is not much. For the next step, I am saving money and planning on investing it to a larger one,” Li said.
Sujia Wu, 24, also bought an apartment in the Gold Coast neighborhood of Chicago but didn’t need to borrow money from the bank to pay for it because her parents in Shanghai gave her the needed money. Wu rents the condo and covers the monthly management fee and taxes on the apartment with the rental payment, she said.
“The return is excellent so far, and my parents are happy about it,” Wu said. “They own properties in Shanghai as well, and they believe they can’t put all the eggs in one basket, so the investment in Chicago is part of the plan of diversifying assets.”
Working at a real estate firm, Wu said her monthly spending is beyond her salary. She needs financial support from parents because of the amount of money she spends on luxuries, she said.
“If I could save or earn more money, I would invest in pension funds or 401(k),” Wu said. “But at the same time, I am still young, so there’s no rush to invest for retirement.”
Brewer, the financial planner, said it’s typical for people not to put enough in their 401(k) and to start doing so later than they should. Since some don’t want to retire or don’t want to think about retirement at a young age, they eventually don’t have enough time to plan and build an adequate amount for their lives after they stop working, Brewer said.
“If I put away $5,000 a year for 20 to 30 years at 6 or 7 percent rate of return, it could get into one million dollars,” he said. “But most people don’t even think like that.”
Trying to save for his retirement, Grea invests in a wide variety of stocks in stock market, and he put 3 percent of his monthly income into a 401(k). Although the percentage is relatively small, he said it stretches the family’s budget.
“I got eight kids. And I need every penny,” Grea said.