Is your family so poor that you are always afraid of inviting people over? Are you facing financial stress, living paycheck to paycheck, and ashamed of yourself that no matter how hard you try, your financial situation never gets better? Have you ever wondered why your family is so poor in the first place? In this article, I listed the seven possible reasons you are poor and tips to lift your family out of poverty.
Being poor is one of the worst experiences of human existence. Poverty makes it harder to afford basic needs such as food and shelter. While there are many reasons why you are always struggling financially, the honest answer to why your family lives below the poverty line might surprise you, as you will see in this article.
It does not mean your fate is sealed, even if you are poor. No matter your age, education level, or experience, you can lift yourself out of poverty and live the life you always dreamed of. All it takes is choosing to make a positive change in your life, setting up unbreakable goals, and being bold and disciplined enough to achieve them.
The following are the real reasons your family is so poor and tips to break the poverty cycle.
Without further ado, let’s get started.
1. You lack of financial education
The primary reason your family is so poor is the lack of financial literacy. I must remind you that financial literacy has nothing to do with your education level. Millions of people are sitting on college and master’s degrees or PhDs and still live paycheck to paycheck. Your level of education or career has nothing to do with your current money problems.
Financial education focuses more on effectively using your financial skills, such as budgeting, investing, saving, paying off debt, and keeping up with other personal finance aspects. Your family is impoverished because everyone in your family thinks that money is designed to be spent to fulfill your desires. Many people call this You Only Live Once(YOLO). No one in your family knows any better because good financial habits are never part of your family’s conversations. Parents never talk about money, so kids never learn anything until they are drowning in debt. No one knows how to manage the money that comes into your family.
It’s challenging to break free from the cycle of poverty without a solid understanding of how to manage your finances and create diversified income streams. You cannot avoid financial traps such as bad debt because you don’t know how. You will remain poor if your family never talks about budgeting, building wealth, or investing. Sometimes, poverty is passed on for generations because no one in your family gets the financial education needed to escape poverty.
If you are ready to escape poverty and become rich like everyone else, here is a step-by-step guide.
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2. Your family is so poor because you don’t set financial goals
Every success in life requires goals and the willingness to pursue them. There is no other way around it and no shortcuts. Poverty is not different. The lack of financial goals always leads to overspending, lack of direction, and bad money habits. Your family is so poor because you lack financial goals. You know your family is poor, but you don’t have goals to lift yourselves out of poverty.
All you do is complain about how you are always hungry, you don’t make enough money, you pay too much tax, how the rich are stealing your money, etc. You are probably living on food stamps or other government assistance programs because you have not decided to establish goals.
Your family’s financial situation cannot quickly improve without clear and achievable financial goals. That is why you are living paycheck to paycheck lifestyle. Goals motivate you to keep going when things are tough and guide you through your spending, saving, and investing decisions.
The difference between your family and a wealthy family is that rich families always set their goals and spend their lives chasing them. Goals are what keep you going and fighting through hard times. You need financial goals to save money and invest when everyone is spending. Goals give you a reason to hustle.
To prevent your family from being so poor, start setting up financial goals and start allocating money towards those goals.
Some important financial goals you should have include, but are not limited to, paying off your debt, saving for retirement, creating an emergency fund, saving for a house down payment, building good credit, creating a budget, etc.
Related: 10 Best Saving goals You can start today
3. Overspending is keeping your family poor
While you might think that your family is so poor due to not making enough money, the opposite is also true. Your family is so poor not because you don’t make enough money but because you spend too much. This is true for millions of families around the country.
Your family may not live within its means, which justifies why you don’t have any money at the end of each month. Overspending on unnecessary items while neglecting crucial financial responsibilities can rapidly drain your resources, leaving nothing for savings or investing. Some habits that lead to overspending are impulse shopping, buying design-name products, trying to impress people, driving expensive cars, and living in expensive homes. In other words, your family is so poor because you live above your means.
To lower your expenses, it is best to establish a family budget and cut down on costs. Here are 20 ways to reduce expenses and boost your savings. You can also use the 50-30-20 budgeting rule to take control of your finances and boost your savings.
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4. Lack of investments and streams of income
Investing is often regarded as a game of the rich. What is true is that rich people were once poor and worked tirelessly just like you. Yes, some inherit a significant amount of wealth. But, most millionaires and billionaires are self-made. They did not have money and accumulated wealth through different financial strategies such as investing, starting businesses, and hustling through life.
If your family is so poor that you cannot even afford food, you are pretty much in the same spot where rich people used to be. All you have to do is transition from poverty to riches, and you can do that by following proven financial strategies that wealthy people use to get rich and stay rich, such as investing.
If you never invested before, it might be challenging to get started. The following is a guide to investing money when you are poor.
The most effective way to grow wealth
One of the most effective financial strategies that millionaires use to build wealth is investing. You don’t have to be rich to invest money; starting small is always the best way to start investing, especially when your family is poor. Investments provide an opportunity for your money to work for you and produce a passive income.
Investing when poor is often challenging. Most people have limited knowledge and cannot afford to take more risks. That does not mean you cannot invest. Since your family is so poor, you need to start investing in low-risk investing options.
- Start with fixed-income assets such as high-yield savings accounts, CDs, bonds, and T-bills. These investments pay a fixed interest, and some come with insurance. For example, money in your deposit account will be insured up to $250,000 per depositor and per account category if your institution is a member of FDIC.
- Also, learn the basics of investing to help you make an informed decision and avoid financial mishaps. Here is a list of personal finance terms you can start with to sharpen your financial knowledge. After learning the basics of investing, buy low-cost index funds, growth stocks, and dividend stocks.
- You must also take advantage of retirement savings accounts such as 401(k) plans as you get tax benefits and free money through your employer match.
- Opening an IRA, contributing to an HSA account, and buying long-term investments are great ways to escape poverty when your family is poor.
Extra investing resources.
5. You have too much debt
High amounts of debt, especially high-interest credit card debt or loans, can easily hinder your family’s financial growth. Not only does this debt eat into your income, but it also negatively affects your credit score, making it harder to access credit. Check out the six factors affecting your credit score.
Debt is what is currently keeping thousands of families in prolonged poverty. Your family is probably struggling with expensive mortgages, car loans, student loans, high-interest credit cards, and personal loans. Most of these debts come with high interest, making it harder to keep up with your monthly payments. By spending all your wages towards debt payments, you never get a chance to boost your retirement savings or invest in your future, which keeps your family so poor for a long time.
If your family is struggling with excessive debt, aggressively paying off these debts will be the only path to getting out of poverty. You must stop borrowing and establish a debt management plan. Check out this list of the 19 best debt management strategies to help pay off debt fast.
What is the best way to pay off debt?
The most effective way to pay off debt and lift your family out of poverty, especially when living paycheck to paycheck, is to use the Debt Snowball strategy. With this strategy, you organize your debts from the smallest to the largest and pay them off in that order. This strategy will be your best choice as it lets you eliminate smaller debts first and gives you a sense of accomplishment.
The debt avalanche method is another strategy to quickly pay off your debt and escape poverty. This debt payment plan allows you to pay off your debts, starting with debts that have the highest interest. With this strategy, you organize your debts from the highest interest to the lowest and pay them off in that order. While this strategy might not be the easiest way to pay off, it is undoubtedly the best way to take control of your debt and improve your finances, as it prevents your debt from growing exponentially.
Here are a few more tips to pay off debt and get your family out of poverty.
- 6 practical ways to pay off credit card debt
- 6 practical ways to pay off revolving debt fast
- How to pay off your mortgage faster?
6. Lack of emergency savings
Your family is so poor because you faced an emergency such as an expensive medical bill, a job loss, or an immediate home improvement without emergency savings to offset these costs. Millions of people don’t understand the importance of having an emergency fund. What is true is that an emergency fund is one of the single most important measures to protect yourself from long-term financial hardships due to emergencies.
An emergency fund can mean the difference between staying in your home and becoming homeless. If you did not know it, some of the homeless people you see in your neighborhood used to have six-figure incomes and lived in stable homes. So, what changed? All it takes to lose it all is a single financial emergency. Without an emergency fund, any unexpected expense can spell an economic disaster. This will trigger a borrowing and debt accumulation cycle that is hard to pay off.
Check out this quick and easy guide to building an emergency fund and tips to save the right amount.
Related: 4 ways to save for emergency fund fast
You can become homeless due to a lack of an emergency fund
Let me explain this point with an example.
For example, let’s assume you just lost your job while still owing the bank $350,000 in mortgage and have no emergency fund. The lack of emergency funds means you will fall behind on your monthly payment and soon default on your loan. After 120 days without securing another job or making a successful payment, your mortgage servicer will initiate a foreclosure. If you have done your homework, foreclosure means you get kicked out of the house. So, now you don’t have a job and no place to sleep. You can’t even get an apartment if you don’t have a job. You head straight to the streets and become homeless like everyone else.
That is why having an emergency fund is critical for anyone wanting to control their finances and escape poverty. If you had an emergency fund, you could use those funds to pay off your mortgage while looking for another job. That is how you protect yourself and loved ones in the face of financial challenges.
How much should you save in your emergency fund? While no exact value is needed for your emergency savings, you should save at least 3 to 6 months of your monthly expenses in an emergency account. For example, if your monthly expenses are $3,000, you should save between $9,000 and $18,000 in your emergency account.
Related posts: Should you invest your emergency fund for better returns?
7. Poor money habits are keeping your family poor
The funny thing about money is that it has no emotions and only stays where it is welcome and treated right. Poor people usually have bad money habits, which justifies why they are always so poor and living paycheck to paycheck. Your family is inadequate because you probably gamble, spend extravagantly, never budget, engage in impulse purchases, buy expensive stuff, drink daily, drive sports cars, live in expensive homes, etc. While these financial habits might sound OK, they keep your family so poor that you are even afraid of inviting people over. Bad money management leads to chronic poverty and long-term financial struggles.
That is a fact.
The lack of discipline can lead to overspending, under-saving, and recurring debt. Bad financial habits also lead to excessive borrowing, further exacerbating your financial situation. Your family is probably one of those who spend every penny they make, max out their credit cards, and still borrow more from friends and family members. What is true about money is the more money you spend, the higher the chance you struggle financially. The more money you borrow, the longer your family stays in extreme poverty.
If your family is so poor that you can’t afford essential means, it is time to improve your money habits. Start with a simple budget and try to save some of your wages for long-term financial goals such as emergency funds, retirement savings, a house down payment, travel, investing, etc.
Even if you are saving 1% of your wages, it will make the difference. Remember, it is all about developing new habits and eliminating old ones. Once new habits are established, you can always increase your saving rate. If you are trying to save money but don’t know how, use the 50-30-20 budget rule, especially when you are getting started.
What to do if your parents are poor?
Not everyone is born with a silver spoon. Some people are born in extreme poverty, and a few can break out. The good news is that your parent’s financial situations do not dictate your future. However, if you choose not to do anything about it, you will end up like them. But, if you want to carve your destiny and lift yourself out of poverty, here is a strategy for you.
- Educate yourself. Knowledge is one of the most powerful tools for achieving financial success. You don’t need to go to school to learn this. Self-education always works fine. Learn about personal finance, budgeting, saving, investing, and avoiding bad debt.
- Develop a strong mindset. There will be obstacles, and many people will discourage you. You will also doubt yourself and think about quitting, and the thoughts of giving up will visit your mind. However, if you are optimistic and know what you want, you will endure all the pain.
- Establish unbreakable goals. Create a plan for your life and write down your goals. What do you want to achieve? Make them clear, concrete, and realistic, then create a step-by-step plan to achieve them.
- Work hard and be disciplined. Success doesn’t come overnight; it takes time, effort, and perseverance. Be consistent with your effort; you will start seeing results over time.
- Network and create valuable relationships. The people you hang out with will largely determine your success. Surround yourself with positive, hardworking people who inspire you.
- Establish multiple streams of income. Don’t rely on one job or source of income. Start a side business, invest, or find other ways to increase your revenue.
- Create a budget. Managing your finances wisely is key to breaking out of poverty. This includes budgeting, saving, and investing.
Why are some people financially irresponsible?
While there are many reasons some people are financially irresponsible, the main factors come down to their behaviors, emotions, and decision-making abilities. For example, some people think money is meant to be spent even if it means living paycheck to paycheck. For others, what they desire overrides their moral and conscious decisions. Immediate gratification becomes the greatest killer of financial dreams for millions of people. People don’t want to invest money and wait 10-20 years to grow. They want to spend it now.
Beyond these underlying factors, exposure to money and financial literacy, especially early on, can determine whether you become responsible. For example, millions act financially irresponsibly because they don’t know any better. No one ever told them how to make better financial decisions or manage their money. So, they spend everything.
Some people are also poor because they always try to impress their peers. People indulge in overspending and pick unwise investments to fit in or impress their friends. Other people may be financially irresponsible due to deeper emotional issues or harmful beliefs about money. They may use spending as a coping mechanism for stress or low self-esteem or hold subconscious beliefs that they are undeserving of financial stability.
