I came across an intriguing headline while doing some of my personal finance reading today. It was over at MSN MoneyCentral and it really caught my attention. It was "The Biggest Mistakes Poor People Make".
According to Liz Pullium Weston, there are seven money mistakes that poor people make that ensure they will stay poor, such as paying too much for rent or a mortgage, confusing needs with wants, only making minimum monthly payments, failing to budget, having no emergency savings and spending retirement savings.
Well...yeah, those things will guarantee that poor people will stay poor, but they didn't all really address my own personal situation a few years ago, when I was REALLY poor. I wasn't just poor, I was "po"...I couldn't even afford the extra "or". The worst part: it was really all my (and my wife's) fault. Worse yet: they are mistakes that so many other people make.
Spending every last dime you earn in one week...and you're paid every two weeks. Well, what do you do when you spend your check in one week, and there is another week until you get paid again? You either play the "float" by writing checks for money you don't have and hope they won't clear by the time you get paid again (but bank processing times have gotten faster, so that won't even buy you time anymore) or you use a payday loan lender, which charges hundreds of percent of annual interest. Good way to stay poor.
Buying things because they are a "good deal". "Wow, look how much money I saved" you might say. But, you couldn't even afford the amount of money you did spend, because you're broke. Good move, Wisenheimer. Now you're even more broke.
Ignoring bills. Every day, bills would come in the mail and I would toss them on a heap and ignore them. I couldn't afford to pay them, so what was the point? The point was if I had contacted the bill collectors and worked out a payment plan, the mail would have stopped coming, or at least they wouldn't have been as threatening. Plus, I was damaging my credit and racking up extra fees. Stupid.
It's "their" fault I'm poor. I was poor because my boss didn't pay me enough, because the bank charged me fees for bad checks, because the bill collectors were overcharging me, because I didn't have enough education, because my parents never taught me how to handle money. At least, that's what I used to think. The real reason was it was really all my fault. Don't have an education? Get one. Don't make enough money at your job? Get another one, or start your own business. Born into a poor family? So what. Millionaires, U.S. presidents and famous actors were also born into poor families. You can get ahead, too...but no one is going to hand it to you. You have to work for it.
Spending more than you earn. If I was to write a book about how to get ahead, it would be the shortest book in existance. It would be one page long, and contain just one sentence. That sentence would be: Live below your means. If you spend less than you earn, suddenly you have more money to use to get ahead. It really is than simple. "But, I don't earn much money to begin with" you might say. That may be true, but whatever you earn, you can still live on less. People all over the world do it everyday. In some African nations, the average annual salary is $300 a year. Not a week, not a month, but in one full year. You're much better off than that. You can live on less than you earn. If you can't, either increase your income, or find areas were you can cut back. Five years ago, I took a job which paid 20 percent less than what I had been earning. I still managed to cut my spending even further, and my family begain to live on about 75-80 percent of what I was earning. It wasn't fun, it wasn't easy, but we did it...and we're better today for it.
Savvy Frugality Recommended Reading: More Employees Getting Scrooged This Christmas.
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Yes, I pay too much for rent ($650 for a room in a house with nine people - two own it and collect rent from the other secven),
But that rent is 70 percent of my monthly income, si I am in no position to move somewhere cheaper.
Whoa...what? You're renting a room in a house with nine other people and paying $650 a month in rent? I'm not sure if you're renting a room in a mansion, or if you live in an outrageously high-rent area, but you, my friend, are being ripped off. That amount of money will get you your own apartment or house rental where I live. Consider checking out Craigslist.com and find yourself some new roommates. I am sure you could find yourself a house or apartment to share at much lower rent than you are currently paying. Seventy percent of your income for rent is way too much. You should never pay more than 30-40 percent of your income for rent or mortgage payments. How do you pay for the other necessities of life? Your current landlords are taking advantage of you.
Excellent post, even if it's hard to come to grips with for many that are living beyond their means.
Having a baby or babies (on purpose) even though you cannot afford your current situation. If you want to screw up your life with poor life choices and live in poverty, that's your decision but don't bring an innocent child into the mix. There is a reason that I do not have children. It's not that I don't like children, I do, but I just don't make enough money to have one. But I'm always around to be the "cool aunt" (trust me, I'm not that cool)when mom and dad need a break.
@curt - Thanks for the comments, Curt. It can be hard to hear, and people often have an aversion to taking personal responsibility for their mistakes. I know it took me a long time to come to grips with mine. I enjoyed reading your blog. I have added it to my blogroll.
@slackerjo - You're right...kids are expensive. However, they are not always something that are planned. I know my first son was a (welcome) surprise, even though my wife and I were broke when she got pregnant. He lives on his own now, and we have done our best to teach him how NOT to make our financial mistakes.