Why Am I Poor? 10 Steps to Stop Being Broke


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Being poor isn’t a life sentence – it’s a mindset. You and your wallet may disagree right now, but it’s the truth. I know because I used to be poor.

I was raised on hand-me-downs and kitchen scissor haircuts and grew up without learning how to manage money, much less how to manage it well. As a young adult I worked minimum wage jobs and struggled to pay my bills, even after receiving food stamps and state assistance for housing and childcare. I honestly believed I would always be poor and, like you, I asked myself “why am I poor?” more times than I can count.

Today my husband and I are just a few years out from a very early retirement, with a net worth far greater than I used to think possible. My financial situation didn’t change overnight though and it didn’t change by itself. In fact, nothing changed for me until I finally recognized that if I wanted my financial situation to be different from that of my parents, I was going to have to make different choices than they had. That meant I had to figure out what had led me to where I was and honestly assess what I needed to do to take responsibility for my financial future.

If you want to stop being broke, you’ll need to do the same.

The good news is that your financial struggles can be overcome. Whether you grew up poor, experienced a major financial setback or have just made poor financial decisions, your past doesn’t have to dictate your present. More good news? Your present doesn’t necessarily have any bearing on your future. I say necessarily because it absolutely can if you don’t actively work to make changes in your life.

10 steps to stop being broke

Even when it feels like there’s no way to turn your financial situation around, there almost certainly is. Sometimes it’s hard to see a path to change when we’re stuck in the day-to-day grind, just trying to keep up and get by. But the worst thing you can do is resign yourself to your current circumstances. You have the ability to make huge, positive improvements to your life if that’s what you set your mind to.

1. Commit to change

The absolute first thing you need to do is stop asking “why am I poor?” Instead, commit to doing something about it. This helps you reframe your situation from one that is outside of your control – why is this happening to me? – to one that’s within your control – what can I do about it?

Will Smith has a great video on fault versus responsibility. In it, he explains that it really doesn’t matter whose fault it is that something happened to you if it’s your responsibility to deal with it now. It’s easy to get caught up in victim mode, pointing fingers at all of the people or circumstances that have led to us being broke but doing so doesn’t change anything – it only keeps us stuck. The fact remains – if you want your financial situation to change, you have to do the work to change it.

Since you can’t change things that are outside of your control, you need to figure out what is within your control. The past is in the past but the future is yours. You can make deliberate choices beginning right now about how you’ll handle your current situation and what you’ll do from this point forward.

2. Determine how poor you really are

You need to know exactly where you’re starting from in order to make a plan to get to where you want to be. Saying that you’re “poor”or “broke” is meaningless without hard numbers because these are relative terms – poor compared to who?

The reality is that you need to know where you stand. Don’t shy away from your numbers – you’re going to use them as motivation to do better.

The easiest way to get a complete picture of your finances is by calculating your net worth. In a nutshell, you’ll subtract everything you owe from everything you own to see what, if anything, is left over. This gives you a baseline to use for tracking your progress. You can use your net worth number to see how far you’ve come and how far you have to go. Most importantly, it allows you to see if you’re moving in the right direction – toward your goals or away from them.

3. Stop caring what other people think

Our ego is often one of the biggest hurdles to financial freedom, or even financial security. Keeping up with the Joneses may be the norm but it also leads to debt and a never-ending cycle of needing more and not having enough.

Here’s what you have to understand: spending money to keep up appearances isn’t just making you broke now, it’s keeping you broke longer. Every time you buy something that you can’t afford, you’re only further reducing your net worth and making it harder to get in control of your money. That’s because you’re letting your money, via your pride, control you.

Let go of what other people think and stop worrying about being judged. The size of your house isn’t a reflection of the size of your heart. The value of your vehicle has nothing to do with your value as a person. Speaking of values – if you truly want to be in control of your finances and stop being broke, you need to figure out yours.

4. Figure out your values and set goals

Your values affect the way you live. Taking the time to sit down and determine your values will help you align your life with your priorities. Then you can set financial goals based on those values so you’re spending and saving your money in accordance with what matters most to you.

Knowing your values also helps you keep focused on your why and the bigger picture. That can be hard when you’re scraping by but it goes a long way toward reaching your goals.

When setting financial goals, make sure they are SMART. Specific, Measurable, Attainable, Realistic, and Time-bound. Write them down so you can refer back to them. Studies have shown that writing down your goals makes you more likely to achieve them. In a study by Psychology Professor Dr. Gail Matthews, 76% of participants who wrote down their goals successfully achieved them. In contrast, of those who didn’t write down their goals, only 43% achieved them.

When writing your goals, consider the following questions:

  • What do I want to achieve?
  • How can I measure my progress?
  • Is this realistic?
  • Is it relevant – i.e. does it align with my values and long-term vision?
  • What is the end point so I know it’s been accomplished?

Here’s an example goal:

S = I will pay off all my student loan debt.
M = I plan to pay off $5,000 total.
A = I’ll reach my $5,000 goal by paying $250 toward my student loan each month.
R = I’ll cancel Direct TV and pick up 3 dog walking jobs in order to save $250 every month.
T = By paying off $250 a month, I’ll pay off $5,000 in 20 months.

5. Create a budget

Like it or not, budgeting is a basic but necessary tool for getting your finances on track. Budgeting doesn’t have to be complex. You can use software or an app to help you organize your budget, or you can use a simple Excel spreadsheet or paper and pencil. What matters is that you actually take the time to create a spending plan that you can and will stick to.

By creating a budget, you’re creating a plan for your money. It provides a blueprint for you to follow and to lean on. Importantly, it helps keep you from overspending and spending impulsively. If you want to start saving money and building your net worth, budgeting is your next step.

There are several budgeting styles you can adopt depending on your preference. Here are four popular ones:

1. Traditional budget. You’ll calculate your income and determine your spending categories, then allocate how much to spend in each category.

  • Pros: flexible, very straightforward, and can be as detailed as needed.
  • Cons: can be time consuming and some find it restrictive.

2. Zero-based budget. Similar to the traditional budget. With a zero-based budget, however, if you have any money left over after paying bills, etc., you assign that money a job so that your income – expenses = $0. Instead of hanging out (and potentially being spent) any extra would be allocated toward debt, savings, or another category.

  • Pros: works especially well because it ensures that every dollar has a job which reduces unnecessary/impulse spending.
  • Cons: can be overly time consuming to set up and maintain.

3. Cash envelope system. Again, you’ll begin with the traditional budget method. Then you’ll physically withdraw cash and put the budgeted amount into envelopes marked with the budget categories. For example, if your monthly grocery budget is $300, then you’ll mark an envelope “groceries” and place $300 in it.

  • Pros: if you commit to paying only with cash then this system works extremely well since once the cash is gone, it’s gone. It’s easy to see how much is leftover that can be used for savings or paying off debt.
  • Cons: inflexible and can be cumbersome to use cash vs credit or debit; risk of losing money.

4. 50/30/20. 50% of your income goes to needs, 30% to wants, and 20% toward debt and savings.

  • Pros: simple and easy to follow.
  • Cons: doesn’t allocate very much toward debt and savings, which means reaching goals could take longer than you would like. May be difficult for some to separate “wants” versus “needs”.

6. Cut expenses and fine-tune your finances

Your budget will help you spend less by cutting out impulse buys and unnecessary spending. At the same time, you also need to make sure you’re getting the biggest bang for your buck when you do spend. That means shopping around for things like insurance and internet service for lower rates, avoiding fees whenever possible, and taking advantage of cash back apps. Here are a few specific tips for fine tuning your finances:

  • Consider switching to a low cost cell phone provider such as Ting (we pay an average of $60 a month for 4 phones).
  • Switch to a high-yield savings account. NerdWallet offers a great side-by-side comparison of various accounts and their rates, updated frequently.
  • Use Rakuten (formerly Ebates) when shopping online to get cash back – no strings attached.

7. Track your spending

In addition to spending less, you need to continually track your spending. This may seem like overkill – budget and track my spending? – but it’s super important. Many people who are struggling financially don’t want to look at their money. This is a mistake. Looking at your money every day is necessary because it keeps you accountable to yourself. It also helps ensure that your spending remains value-based and goal driven.

I highly recommend using Personal Capital or Mint for tracking your spending. Both are completely free and work to simplify your finances by pulling all of your account information into one place. This makes it easy to quickly scan transactions, check account balances, and see how your net worth has changed from one month to the next. (Both offer free budgeting tools as well.)

As you look at your transactions and as you consider new purchases, ask yourself the following questions:

  • How did/does this benefit me and how will it benefit me in the future?
  • Did/does it give me a sense of satisfaction and peace of mind?
  • Did/do I want this more than other purchases I could make instead?
  • Did/do I want this more than the goals I set?
  • Did/does this add value to my life and increase my well-being?

By checking in with yourself before and after you make purchasing decisions, you can better see how your spending is either serving or not serving you. This will help you break the cycle of wasteful spending and allow you to save more of your hard-earned money.

8. Get a side hustle (or two)

At some point it may no longer be feasible to continue cutting expenses in order to save or pay off debt. Instead, you’ll need to focus on making more money. Luckily, we live in the age of the side hustle and there are countless opportunities to earn money outside of your regular 9-5 job. Many side hustles don’t require any specialized skills, but those that do will likely pay more.

The list of possibilities is practically endless. Here are just a few ideas to get you started:

  • Sign up with Rover to walk dogs or pet sit
  • Tutor or teach a class
  • Cut grass, snow-blow or shovel, or offer seasonal yard cleanup
  • Drive for Uber or Lyft
  • Babysit
  • Clean or organize houses
  • Offer resume or other writing services
  • Offer editing or proofreading services
  • Get paid to walk or exercise using an app like Achievement
  • Start a blog (this can be very effective in the long run but it’s not a get-rich-quick scheme)

9. Eliminate your debt

If you have debt outside of a mortgage, you need to do everything within your power to eliminate it. Depending on the type of debt you have, this may be more or less difficult but it isn’t impossible. There are plenty of stories online of people who have overcome six-figures worth of debt in relatively short periods of time by drastically changing their spending habits and increasing their income in a variety of ways.

There are two basic methods for paying off debt: the debt snowball and the debt avalanche. With both methods you will pay the minimum balance due to all of your accounts, however:

  • With the debt snowball, you’ll list your debts in order, from smallest to largest balance. Any extra money you have will go toward your smallest balance first until it’s paid off.
  • With the debt avalanche, you’ll list your debts in order of interest rate, from highest to lowest. Then you’ll put any extra money toward the account with the highest interest rate, paying off your most expensive debt first.

You repeat this each month until all your debts are paid off. From a mathematical standpoint, the debt avalanche is the better of the two methods since paying off debts with the highest interest rates first saves the most money overall. That said, both methods work. What’s most important is that you choose one and stick with it.

10. Don’t waste time

Our actions build our days and our days build our lives. Therefore, even the small decisions we make about how we spend our time are much more meaningful than we often realize.

Tom Corley did a study on the different habits of our country’s rich and poor. In fact, he wrote an entire book on the subject. In an article he also wrote, he summarized his findings – including one that I found especially intriguing.

Poor people have big TV’s. Rich people have big libraries.

Jim Rohn

He found that “two-thirds of wealthy people watch less than an hour of TV a day and almost that many – 63  percent – spend less than an hour a day on the internet unless it is job-related.” In addition, the study showed that “successful people use their free time engaged in personal development, networking, volunteering, working side jobs or side businesses, or pursuing some goal that will lead to rewards down the road. But 77 percent of those struggling financially spend an hour or more a day watching TV, and 74 percent spend an hour or more a day using the internet recreationally.”

Instead of zoning out to the tv every evening, find ways to be more productive. Learn a new skill that can be translated into a side hustle. Read up on financial topics you don’t understand – yet. Pick up a second job. Whatever you do, don’t sit around waiting for something better to come along – you’ll need to go out and make that thing happen.

why am I poor?

Questions? Advice to share? Let me know in the comments!

Comments (1)

Lots of great information regardless of where you are with your money. Love the line “Our actions build our days and our days build our lives.” Words to live by.

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