It seems that many Americans are not experts when it comes to managing their finances, and they often end up broke month after month. The cycle of overspending leaves people poor, even if their income puts them well above the poverty line. A household bringing in $75,000 a year or more is considered higher-income, yet a third of those households are living paycheck to paycheck, according to a 2016 survey from SunTrust Banks. Where is all the money going? That’s what we intend to find out, in this episode of The Infographics Show: Why are you poor?
Ok, so you might have a good job and be bringing in a monthly paycheck, but then your bank balance is still in the red at the end of each month. It’s not an uncommon theme, and from what we’ve discovered, there are many reasons people find themselves stuck in this frustrating economic cycle. By researching what the financial experts are saying, including feedback from interviews by GoBankingRates, who spoke to a number of personal finance experts, we’ve brought you our list of 10 reasons why you’re still feeling poor when you really shouldn’t be.
Let’s take a look.
10. You’re not making savings a priority
Whether you’re saving for a house, for that new car, or simply for your retirement, you will never reach your goal unless you make savings a priority. Many people think that putting small amounts away will never really add up, but it does, and when it comes to savings, putting that little bit away each paycheck will eventually become the larger amount you’d planned on. Personal finance expert Philip Taylor of PT Money, tells us that “When you get paid, make sure you are saving those first few dollars for your future. Do it automatically each pay period, and you’re more likely to stick with it. You get ahead financially by making savings a priority.”
9. You want that brand new car
Yep, we all like a nice new shiny car but according to an article by insurance broker Trusted Choice, your brand new car can lose up to 11% of it’s value the moment you drive it off the lot. In 2015 the average cost of a new car was $33,560. And you stand to lose $3,691 by the time you get home and park it in your driveway for the first time. Let’s say you purchased that car brand new and drove it for 10,000 miles. You are paying $3.36 per mile, plus taking a hit on the value for depreciation. Now let’s say you buy a 5 year old used car for $10,000 and drive it for that same 10,000 miles. Those miles only cost you $1.00 each, and it holds its value a lot better.
8. You do not set financial goals
You can have all the conviction in the world, but if you do not have solid goals outlining how much you want to earn & save, and how you intend to get there, you’re probably relying on luck to shift from poverty to prosperity. Writing these goals down is a good start. If you have goals that are set too high or maybe set too low, you will be either discouraged or bored, so set realistic goals on your finance and investment ideas.
If a goal feels too big, start by breaking things down. For example, maybe you need to save up at least $6,000 within 6 months. Focus on the $1,000 you need to put away every month, instead of the end goal. Setting goals and investing wisely is easy, in the words of Warren Buffett, “You don’t have to be a genius to invest well”. If you’re not doing this today, you may be closer to the poverty line than you should be.
7. You don’t have a budget
A Gallup poll tells us that as many as 68% of Americans do not have a budget. If you also don’t have one, then start with a basic budget using the 50…20…30 rule. 50% of your net income on housing, food, transportation costs and utility bills, 20% into savings or paying off debt, and 30% to spend on yourself. It’s important to remember that this is based on your net income – your income after tax.
Don’t make budgeting decisions on your total pay or you’ll be very disappointed when taxes start being deducted and you wonder why you’re still struggling to make ends meet. “No matter how rich or poor you are, a budget is almost always a necessity because it can help you figure out where your money problems are and what you can do to improve your financial situation.” said Michelle Schroeder-Gardner, personal finance blogger at Making Sense of Cents.
6. You treat yourself too often
For some of us the 50…20…30 rule can sometimes look more like 50…0…60 because you’re maxing out spending on essentials, saving nothing, and accumulating debt with additional spending. Whether it’s eating out, buying new clothes, or taking too many short vacation breaks, it doesn’t matter. It takes discipline and lifestyle changes to correct overspending habits. If you’re in this zone and you don’t make the necessary corrections, you may keep finding yourself out of cash.
5. You’re investing in stuff instead of yourself
Julie Rains, personal finance writer and founder of Investing to Thrive, says that economic disadvantages play a big part in why some people are poor, but that’s not the only thing holding people back. “Others might find themselves in crises because they have repeatedly underinvested in areas with long-term benefits, such as professional career and education, savings, and investments. Yet they overinvest in other areas, such as luxury products and upscale housing.”
4. You’re ignoring those big debts
Avoiding bills creates bigger debt. It’s obvious right? But when debt is accumulating, it’s easy to become anxious and continue to ignore the issue. Failing to manage your debts only makes them worse, according to Robert Farrington, founder of The College Investor. “A lot of young adults are burdened by student loans and other debt, yet they don’t realize there are a lot of options out there for them. For example, for student loans, there are tons of programs that can help with lower payments and even forgiveness. But you have to take positive action and seek out these programs.”
3. You feel powerless to fix things
When the debts are piling up and you are in the middle of financial hardship, it can make you feel powerless to do anything to change it. But giving in to those feelings will only hurt you, said AJ Smith, vice president of content strategy and managing editor of SmartAsset. “By getting accurate, unbiased knowledge and advice, people can feel empowered and confident in their personal finance decisions,” Smith said. “They can then take steps to make a better financial future.”
2. You prioritize today’s happiness over tomorrow’s financial freedom
According to Luke Landes, a speaker and personal finance writer at Consumerism Commentary, “People who should be in good financial shape may not be, often because the decisions they make aren’t aligned with their future financial needs. Making conscious decisions that require some thought about the future isn’t as satisfying in the moment as choosing something that they perceive to have an immediate positive effect on happiness.” So if you want to have a decent bank balance, it’s time to look at the long term picture, not simply splash out and enjoy today.
1. There’s nothing set aside for that rainy day
We’ve all heard the expression, ‘something saved for a rainy day’ but how many of us have that something extra, tucked away in our bank account? Jeff Rose, founder of GoodFinancialCents.com, listed his top four biggest ways people hurt themselves financially. They were 1. “Not knowing how much debt they really have and how much interest they are paying. 2. Not having nearly enough cash savings in emergency funds. 3. Not recognizing they need to save for retirement. And 4. Being oblivious to what is going on with their credit history. Check how you stack up against these four principles.
Well, that’s our top 10 tips on why your bank account might still have less in it, than it should have. But, we’d love to hear from you! Do you constantly feel poor even though you have a reasonable income? Why do you think that is? Let us know in the comments! Also, be sure to check out our other video called American Behaviors Considered Rude In Other Countries! Thanks for watching, and, as always, don’t forget to like, share, and subscribe. See you next time!