How To Stop Being Poor – 10 Steps To Change The Way You Manage Your Money
Why am I poor? People ask me this question all the time.
Honestly, it is a tough question to answer because there are so many variables – very few people are poor because of one specific action. Often I’ve found that when people want to stop being poor they have to address multiple issues.
To further complicate things, most money issues are intertwined which means you have to be making multiple changes at the same time to stop being poor.
What this also means that if you want to stop asking why you are always poor there are multiple ways to begin addressing your money issues and multiple ways of fixing your problems.
Often I’ve found that if you can find one of two problems areas to address, as you work to fix those areas the other smaller money issues will begin resolving themselves.
I’m also a firm believer in the fact that being poor is often a mindset issue. I know a lot of people who are poor on the books who actually do great financially. When you choose to manage your money rather than have it manage you most people can begin to make substantial process in their personal finances.
10 Tips Help You Control Your Money and Stop Being Poor
1. Why you may be poor – You constantly overspend!
If you can’t learn to control your spending you are always going to be poor. I say this because I know personally.
I enjoy spending money.
I love the rush of finding a good deal and having cute fun clothing and all the other junk we waste money on.
There have been multiple times in my life when I’ve had to ban myself from certain stores to keep myself from spending money. Even though our finances have stabilized, I still avoid Target and Costco.
Those two stores are my weakness. I can always find something I “need” when I’m there.
How to stop being poor: Control your spending
The best way to control your spending is to avoid situations that you know will trigger your spending. If you have problem stores, stop shopping there.
Another option is to leave your credit card at home and only shop with cash. It sucks when you find an amazing deal, but it keeps you from overspending.
If you want to stop being broke, you have to learn to control your spending.
2. Why you may be poor – You don’t follow a budget
Ahhh, the dreaded B word. Seriously though, budgeting isn’t as bad as people make it out to be. When I finally started budgeting – and doing it right – I felt like I got a raise.
I seriously save so much money when I’m actively budgeting and paying attention to my money.
What I really like about having a budget is the control it gives me.
I set a budget at the beginning of the month and then I control where I’m spending my money. I don’t let my desires for stuff control my spending (or at least I try to control it).
The best part about budgeting is watching your savings account start to build. You won’t be poor when you can begin putting a little bit of money aside each month. It really is life changing when you learn to budget and do it right.
If you are struggling to budget and save money one of the easiest ways to cheat the system I’ve found is to sign up for a DIGIT account. DIGIT automatically transfers small amounts of money from your account to a separate savings account. I started using Digit almost a year ago and already have almost $7,000 saved.
Seriously if you only get one thing out of this post sign up for DIGIT. You’ll be amazed at how quickly and easily you can start saving money (and hopefully building your emergency fund)
How to stop being poor: Create a budget
Creating your first budget is going to take a little bit of time, but honestly, it isn’t as hard as you think. At it’s most simple form a budget is a list of your income and your expenses. If you can keep your income greater then your expenses you just won!
Creating a budget is probably the most important step to take when you are poor and want to stop struggling financially. If you can cut your spending you’ve already given yourself your first raise.
If you are new to budgeting check out these posts to help you get started:
3. Why you may be poor – You waste your time!
You are probably wondering why this is on a financial blog. Here is the deal, you will never get ahead financially if you are constantly wasting time.
#toughlove – if you know every detail of what is happening on The Bachelor/Bachelorette, but haven’t read a book or listened to a podcast lately you are wasting time.
I’m not saying don’t veg out occasionally, but if that is all you do with your free time you are wasting a ton of time for self-improvement. Lack of self-improvement is one of the biggest reasons that people are poor.
Think about it this way. If you spent an extra 30 minutes working out each day, how much quicker would you get into shape and lose the extra ten pounds you have been struggling with for 2 years (yah that is me!)?
It would happen real quick.
The same goes for your job situation. If you spend an extra 30 minutes a day working on your job skills how quickly would you get the promotion? What if you spend an extra 30 minutes a day on educational training? What about 30 minutes reading a good book?
One of the reasons that people are poor is because they won’t even spend 30 minutes a week reviewing their finances and coming up with a plan.
What I’m trying to say, is if you just focus even a short amount of your free time on self-improvement I can guarantee that you’ll start making more money (especially if you start a side-hustle).
How to stop being poor: Optimize your time
Find the one thing that causes you to waste time and do something about it. For me, it is social media. I love hopping on Facebook or Instagram. Thirty minutes later when I come up for air, I get so frustrated with myself. I finally started setting a timer before going on social media.
How do you waste your time? Comment below, so I know I’m not the only person!
Your goal over the next couple of weeks is to carefully look at how you spend your time. Find the number one time suck and do your best to eliminate it. Then keep going down your list and gradually work through all of your negative habits.
One of the best ways I’ve found to overcome my negative habits (always a work in process) check out this Free Downloadable Habit Tracker.
Remember being poor is more about your attitude and mindset then your money. There is a difference between being broke and poor!
Wasting some time is okay, but the goal is to make sure that the time you waste is minimal and is controlled by you, not your subconscious mind.
4. Why you may be poor – You spend too much money going out!
Spending money on entertainment is a great way to end up poor. Look back over your spending for the last three months. How much money did you spend on:
- Dining out/socializing
- Parties in general
- Take-out food (because you hate cooking like me)
- Sporting events
I’m not saying that any of these things are bad. I’m just saying that they need to happen in moderation.
If you are poor and struggling to pay your bills you need to be looking at the extra’s in your life and making some major changes.
How to stop being poor: Pick your extra activities wisely
Everyone needs a little bit of time to relax and have fun. The trick is to do it in moderation! When our entertainment budget starts to get out of control we sit down at the beginning of each week and reprioritize our activities.
Over the years, we’ve had to learn to say no. It isn’t always fun, but you can’t do every social activity you are invited too.
One of the ways I’ve tried to cut my spending is by finding inexpensive hobbies. Inexpensive hobbies are great since they keep you occupied, but hey they are inexpensive ways to enjoy your time. Check out this list of 100 inexpensive hobbies to get started.
5. Why you may be poor – You have overspent on a house or car!
Have you heard the term, house poor? This refers to the fact that you have a huge house payment that you can’t afford.
I’d much rather have a small house and have the extra cash then a huge house that is costing me all my money.
I’ve seen the same thing with cars. I’m sorry, but if you are making $40,000 a year then you shouldn’t be buying a car that is worth $40,000.
Overspending on cars and homes can put you in the poor house quicker than anything else I know.
How to stop being poor: Get out of debt asap and stop overspending on housing and vehicles
This one is often a two-step process. Most of us have already gotten ourselves into trouble in this area, so the first step is to take steps to correct our current problems. This may mean radical choices like selling a current vehicle, even if you are underwater and purchasing a beater.
I’m a firm believer in running my car’s into the ground. We finally broke down and purchased a new truck, but until 3 months ago, our three other vehicles all had over 200,000 miles.
It may mean taking the steps to sell a home and do some major downsizing. Everyone is in their own situation so you’ll need to do your own assessment. Here is a standard rule of thumb though. Your housing costs shouldn’t be more than 25% of your take-home income and you shouldn’t have vehicles that are worth more then you make in a year.
Related Post: How To Avoid Overspending on Your Home Mortgage
If you fall into any of these situations it is time to do some major downsizing. It will suck, but your pocketbook will thank you later.
6. Why you may be poor – You ignore your money issues!
It is super easy to think that if you ignore your money issues that they will go away. I’ve tried it – it doesn’t work.
You just get poorer when you ignore your financial problems.
How to stop being poor: Stop ignoring your money issues
This is a whole lot easier said than done, but honestly, you have to face facts. Take a deep dive into your finances and then make a plan. Don’t just go surface level. Look at your spending patterns, look at your debt, look at your budget, look at your personal habits? You have to ask yourself over and over again, why you are poor?
What behaviors do you have that are causing you to remain poor and continually make poor financial decisions?
Until you can be honest with yourself and face facts you will continue to be poor.
One of the best things you can do is to create a personal financial plan. This link will take you to an article I wrote with a free downloadable personal financial template.
7. Why you may be poor – You don’t understand the power of interest!
Interest can either make your very very poor or very very rich. The question is will you be paying interest or earning interest.
You will always be poor if you are constantly paying interest. Debt is the biggest tax you will ever pay and honestly poor people tend to pay a disproportionate amount of interest. If you have poor credit you will end up paying higher rates on everything. Also as a poor person, you tend to finance more purchases. Unfortunately, a lot of these purchases are items that you should be paying for in cash which makes the situation worst.
How to stop being poor: Stop paying interest and find ways of earning interest!
Take a few minutes – right now – to add up all of your debt. Then add up how much you are paying each month in interest. The number is going to make you sick to your stomach. When we first added up our debt we were paying $1,975 per month in interest – that is a crazy amount of money each month.
Once you know how much you are spending each month on interest hopefully this will motivate you to take some drastic steps to reduce your debt. I’m a huge fan of the debt snowball plan.
To pay off debt with the debt snowball you organize your debts based on the amount you owe (ignore the interest rates) and then throw every last penny you can towards your smallest debt. Once you pay off your smallest debt you add the money you had been paying monthly towards the next smallest debt. It is amazing how quickly the numbers start to add up when you are focusing all of your intensity on paying off debt. You won’t be poor for long if you can get out of debt.
Check out this video to see the debt snowball in action.
Once you get out of debt you can really begin to experience the wonders of having interest work for you.
I’m not a fan of 401K plans and have gradually been transitioning all of my retirement accounts to max funded index universal life policies (IUL’s). If you want an amazing way to begin seeing the power of compounding interest. If you want to see how powerful compounding interest can be you need to check out this post – What Is IUL Insurance and Why Do You Need It?
If you are new to investing you may want to start out simple by using a program like Acorns which does all of the work for you. Once you connect your bank account to Acorns they will take small chunks of money from your account for macro investing. It is all done via computer which can be a great way to start.
I’ve been using Acorns for about 6 months now and have saved just over $3,000. It is amazing how quickly small chunks of change can add up.
8. Why you may be poor – You have expensive habits!
You are going to be poor if you are constantly trying to keep up with your neighbors. Keeping up with the Joneses is a very quick way to get to the poor house. Purchasing name brand clothing and always having the best of the best isn’t a good way to get ahead financially.
If you are like the rest of us, you overuse your credit card. I know this is often an issue for me. Our brains don’t connect credit card spending with pain receptors like they do with cash. It is so hard to keep spending in control when you always have access to such easy money.
How to stop being poor: Make conscious spending decisions
There is nothing wrong with liking and purchasing quality products, the trick is to do it responsibly. You have to find the balance between your budget and the products you want/need.
I’m a firm believer in cutting costs in some areas so that you can spend more in other areas. For example, I’m a huge outdoor nut and I like having quality outdoor gear. However, I’m not a huge fashion person, so my regular clothing is purchased at discount stores so that I can use the money on outdoor gear instead.
Spending is all about making informed spending decisions rather than purchasing items on a whim.
If all else fails and you just can’t seem to control your spending then you probably need to take drastic steps and cut your credit cards up. I’ve had friends who didn’t want to cut them so they froze their credit cards in a block of ice.
Be creative and find ways to cut your spending!
9. Why you may be poor – You are underemployed!
Being underemployed is the worst! Unfortunately, it is an easy trap to fall into. Sometimes we are just desperate for jobs, so we take whatever we can get. Sometimes we get trapped in dead-end jobs. Sometimes you just outgrow a job. There are tons of reasons you can be underemployed.
Being underemployed will definitely keep you poor. When you are underemployed you tend to underperform as well. It is hard to stay motivated when you don’t feel appreciated or are making decent money.
How to stop being poor: Always search for better employment
I’m a firm believer in the fact that you should constantly be trying to improve your job situation. At times this means growing within your own company. Other times it means searching for a new job. Depending on your mindset it may also be time to branch out on your own and go the entrepreneurial route.
Every situation is different, but often starting a side hustle to earn a little bit of extra money can solve the underemployed situation.
10. Why you may be poor – You have a scarcity mentality!
Having a scarcity mentality is often a quality attributed to “poor” people. This isn’t super politically correct, but I believe that when you have a scarcity mentality it leads to a poor attitude which typically leads to becoming poor.
If you don’t believe you can succeed then why should anyone else? It will affect your job prospects, it will affect your spending. A poor attitude literally impacts every aspect of your life.
How to stop being poor: Ditch the attitude
I know that many people have reason to believe in the scarcity mindset. If this is you, I’m so sorry for the constant negativity in your life and for the many things that have caused you financial issues (often outside of your control). I get it, life sucks at times.
Here is the deal though, if that is your attitude you’ll never be able to get ahead. Turning your thought process around is crazy difficult, but you have to make the choice today to dump the scarcity mentality. You have to decide that you are going to start cutting costs, you are going to find ways of making extra money and you are going to start paying yourself first.
If you want to stop asking “Why Am I Poor?” then you need to change your financial habits
You don’t have to be poor, you may be broke occasionally, but you don’t need to be poor. I know that when money is tight and you feel like the world is collapsing around you it is hard to even breath let alone change your money habits.
When you are struggling financially literally all of your time is spent trying to keep your head above water and end up even poorer. I’ve been there, it is really rough, but you are the only one that can pull yourself out of your financial hole.
If you look at this list and feel completely overwhelmed (which is normal), then take a deep breath and start working on one step. Work on one step for 1-2 weeks and then gradually add another step to the mix.
Don’t expect to change your financial picture overnight. It took us 5 long years of sacrifice to pay off $293,000 in debt. I still owe $102,000 on my home and we’ve now been aggressively paying down our debt for almost nine years.
Here is the deal though, if we had never started our debt free journey 9 years ago I can guarantee that we would be really really poor right now.
We had to work on every single one of these steps (usually multiple times). We messed up (check out this post on when I completely blew our budget), but we got back up and restarted the process multiple times.
We aren’t rich, but I no longer consider myself poor and for the most part, we don’t struggle financially as much anymore. It took us a long time, but I just want you to know that it is possible to get your finances in order and begin reducing your debt. You can do it!
If you have any questions or need help to get started feel free to email me or leave a note in the comment sections. I’d love to hear how much debt you have and what steps you are taking to get out of debt and stop being poor!