Why You Will Always Be Poor

It’s clear that many Americans aren’t experts in managing their finances and droves and droves are going broke with each passing month. The overspending cycle makes them poor, despite their income level being above the poverty line. One-third of high-income households – people who rake in about $75k and above a year – these people live from paycheck to paycheck according to a survey by SunTrust Banks, Inc.

There are also other factors like average per household credit card debt that’s about $16,000 and poor savings too – about 73% of people have less than $1k in savings. This raises the question – Why do good income-earning people go broke regularly go broke?

We talked to around 23 personal experts in finance to ask the question – What’s the main reason people become poor or burdened by financial hardship? Read on to find out the problems that make people go broke and what you can do to get out of such a situation.

If you always find yourself broke, it’s to ask why – and know how to remedy it.

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1. YOU ARE STUCK IN DEBT QUICKSAND

Kristin Wong of Brokepedia says that when you’re broke, it isn’t hard to be in a debt trap because it’s a time when you’re desperate. You fall for payday loans, debt settlement scams, and even using your credit card all the time. Because you’re stressed, it’s easy to make these rash decisions, and these are usually the reasons why people are broke.

2. YOU IGNORE HUGE DEBTS

When you don’t have cash, overdue notices and bills can give you a bad case of anxiety. But skirting the problem and managing your debt is only going to make it worse according to the founder of The College Investor, Robert Farrington.

Many young adults have tons of student loans and many other types of debt, but what they don’t know is they have a lot of options. Example is how there are tons of programs for student loans that can lower their payments and can even go for forgiveness. But you’ll have to seek out these programs and take action.

3. YOU FEEL LIKE YOU HAVE NO POWER

When you’re broke or in a financial crisis, it has a way of making you feel powerless to change anything. But when you give in to this feeling of helplessness, it’s only going to hurt you.

When you get accurate and no-bias knowledge, you feel empowered and unafraid in making smart finance decisions. This is the start of your journey towards a great financial future.

4. YOU DON’T LEARN ABOUT PERSONAL FINANCE

A lot of people don’t have cash because they can’t be bothered to learn about personal finance. One of the dangers of debt is the compound interest that goes with it that goes against you instead of work for you like investments do.

You should shift the psychology from spending money to make you happy now to how you can use that money to buy you financial freedom in your future. When you make that shift, you can overcome hardships easily.

5. YOU FAIL TO PAY YOURSELF

One of the reasons people become poor is they don’t pay themselves. When you pay yourself, you put a portion of your paycheck in your savings account before covering your expenses. Another reason people are poor is they pay with credit.

6. YOU PRIORITIZE YOUR HAPPINESS FIRST BEFORE YOUR FINANCIAL NEEDS

Poverty is proven to be generational. You’re probably poor just because your family tree has always been poor. This is one of the worst environments to make progress.

People who ought to be in a great financial shape aren’t simply because their decisions aren’t based on making a bright financial future. When you make conscious decisions that need you to think of your future, it isn’t as satisfying as choosing immediate happiness.

7. YOU DON’T HAVE AN EMERGENCY FUND

Jeff Rose, the founder of the website goodfinancialcents.com says the top 4 ways people financially hurt themselves are: (1) They don’t know how much debt they have and their interest, (2) They don’t have enough cash in their emergency fund, (3) They don’t recognize the need to save for their retirement, and (4) They’re oblivious to what’s happening in their credit history. It can be as simple as asking for a free credit report to check if all the info is correct.

8. YOU DON’T PUT A PRIORITY ON SAVINGS

Philip Taylor of PT Money says that in his life, the biggest financial stagnation he experienced was he wasn’t paying himself first, even with a nice-paying job. He says that when you get your salary, you have to make sure you’re saving those dollars for the future.

Automatically do so each salary day and you’re likely to keep the habit. You’re going to get financially ahead by making your savings a top priority.

9. YOU FAIL TO CORRECT YOUR FINANCES

There’s always a better or cheaper way to do something, but you have to always question and challenge the way you go about things. Use your critical thinking skills and creativity to find and implement cost-effective alternatives to your decisions. Whether negotiating insurance rates, planning a vacation, or switching banks.

10. YOU SPEND WAY TOO MUCH ON HOUSING

It’s probably time to move to a smaller place. One of the biggest reasons people are struggling financially is they spend too much cash on rent or mortgage. Andy Josuweit, the CEO of Student Loan Hero, says that after he lived in NYC for a few years, he met dozens of people who were “house poor”

These people make above-average salaries but spend way too much on rent. As a general rule, keep your housing costs under 20% of your salary, rather than the 28% or 30% that banks allow.

11. YOU FAIL TO MAKE A MONEY PLAN

One of the main reasons people stay poor is because they don’t have a money plan. It’s easy to hope there’s going to be money left over at month’s end, but a lot of times, our spending behavior impedes that.

To combat this behavior and stop bad spending ways, go for automatic bill payments, savings, and investing as soon as your salary comes. It will cushion the blow when an emergency happens and you’ll have money saved up for retirement.

12. YOU DON’T KNOW WHAT YOU’RE SPENDING ON

The biggest thing that keeps people in the paycheck-to-paycheck trap is the absence of a budget. If you don’t know what you’re spending on, you won’t be able to go in the direction you want. This goes for saving up for an emergency fund, keeping up with rent, paying your mortgage, taking care of retirement savings, or having cash for your vacation.

When you’re aware you have enough money for your needs and wants – as well as taking care of emergencies – you can sleep tight at night.

13. YOU DON’T SEGREGATE YOUR NEEDS FROM YOUR WANTS

Generally, people have a hard time knowing their needs from their wants. They always say they need the things they buy which causes them to think they have to spend money.

You might “need” a car to commute, but you only “want” that luxury model. This kind of mentality is keeping us financially down.

14. YOU DON’T HAVE COLLEGE DEGREES OR ANY FORMAL TRAINING

Sometimes it’s just your circumstances that go against you. Many people aren’t in high-paying jobs because of limited opportunity or time to get training to get them the best job.

15. YOU INVEST IN THINGS RATHER THAN YOURSELF

Economic disadvantages have a big role in the reason why people remain poor, but it’s not the only thing. Many people find themselves in a crisis because they repeatedly make the wrong investment choices. They don’t go for long-term investments like your education or professional career, investments, savings. Instead we extend ourselves to such things as upscale housing and luxury products.

16. YOU ALWAYS TRY GET RICH QUICK SCHEMES

Many of us look for quick and easy ways out of being poor. Whether it’s a job, a business idea, or a hot stock, many of us go for the idea that we can get enormous wealth in a day.

Unfortunately, it doesn’t happen this way. You have to work hard to be rich. We see rich people now saying they got lucky or became so without putting in the work. But we don’t see what happens behind the curtain, and how much they actually work to get to their level.

17. YOU’RE NOT STICKING TO A BUDGET

To have a budget is basic finance management, but many people still overlook this. They end up in poverty because they don’t think they need one.

No matter where you are in the economic bracket, a budget is necessary because it helps you figure out your money problems and the steps you can take to improve your situation.

18. YOU’RE CONSTANTLY A STEP BEHIND YOUR BANK ACCOUNT

To not plan ahead is one of the main reasons people are broke. When you don’t keep track of due dates and late fees, as well as failing to plan trips and not accounting for withdrawals and deposits, you put yourself in a dire financial situation.

Initially, it’s not about having enough money. It’s being so bad at planning and missing opportunities. These little things kill a budget.

19. YOU BUY ASSETS THAT DEPRECIATE

One of the reasons people become poor is they focus so much on purchasing depreciating assets like ATVs, boats, cars, and things like these. Because of this, what’s left is a limited amount of resources to accumulate wealth, trapping us in a paycheck to paycheck life.

How do we fix this problem? Turn your focus on buying assets that appreciate like real estate or stocks which are only going to grow over time and give us resources so we don’t live in poverty any more.

20. YOU’RE NOT WILLING TO SACRIFICE

One of the primary reasons people become poor is some form of financial hardship because of bad behavior. Money smarts is only 20% head knowledge. The rest lies in your actions to win, and most aren’t ready to sacrifice for it.

21. YOU TRY TO HAVE IT ALL

People go broke because they desire too many things all at once. This is the main case for many recent college grads who go from living on ramen and peanuts to getting a great paycheck but still can’t afford the new car, the new house, the holidays abroad, or nights out. This becomes dangerous when you use your credit card to fund these purchases. It can seriously cripple your financial future.

Rather than trying to have it all, the advice is to pick one major “want” to focus on and leave the rest for your future when you finally have enough savings and get that promotion. If you live just one or more years like a college student while you save your paychecks can really help tremendously.

22. YOU PAY TOO MUCH FOR YOUR MOBILE PHONE

According to Lance Cothern of Money Manifesto, one of the top reasons people go broke is because they buy cell phones they can’t afford. Rather than go for top-of-the-line phones and expensive data plans, stick to cheap phone carriers that have great rate plans, low-cost phones, and no contracts so you won’t be pressured to keep upgrading each year.

Now, you can easily get phone plans with $10 a month with taxes for a simple unlimited text and call plan if you look hard enough. This definitely trumps $100 a month with costly upgrade fees just to get the latest iPhone.

23. YOU SPEND MORE THAN YOU EARN

The root cause of going broke is almost always the same for everyone – they spend more than they earn. This may be the only cause of bankruptcy.

The good news is you can solve this problem from two sides of the equation. Spend less so you can live in your means and work more so you can have economic breathing room.