How to get out of the Poverty Trap

According to a common saying in finance, poor people believe money is for spending, middle-class people believe money is for saving, and rich people believe money is for investing. Hence, to move up the financial ladder, it is necessary to stop thinking about spending and start thinking about how to save and invest your money. Here are some suggestions for getting on the right track to financial freedom.

1. Avoid resignation.

It’s easy to become resigned to poverty. Having an extra five bucks in your pocket won’t get you out of your paycheck to paycheck lifestyle, so why bother brown bagging it and saying “no” to a lunch out, right? Wrong.

It’s not just the big splurges that make a difference in our finances. Small daily choices like cranking up the thermostat, buying a snack at the vending machine, or spending money on a movie rental all add up over time. By developing good financial habits and cutting out these small expenditures, you can have substantially more savings each year. It’s important to have faith in the idea that small acts really do add up!

2. Make saving money automatic.

Have your paycheck directly deposited in the bank, and be sure to split it between checking and savings. You may not be able to allocate much toward savings, but tucking away even a few dollars a month will help. If you make a mental rule that your savings account is only for true, dire emergencies, such as unexpected medical bills, then that money will be safe when you need it.

3. Think in terms of “hours,” not dollars.

If you earn an hourly wage, this will be easy. If you are salaried, then divide your weekly pay by the number of hours you actually work each week. Next time you think about purchasing something, don’t just consider the cost in dollar amount, but think about the time it took you to earn that amount. For example, a $1000 TV is equivalent to 142 hours of work for someone who earns $7.00/hour. This mental trick will help you decide whether new purchases are really worth the cost.

4. Realize that sometimes “spending” is really investing.

Paying for a tune-up on your car, a timely home repair, or a dental cleaning can save you thousands of dollars in the long run. Take good care of your home, your car, and and your health even if means shelling out a little more money at the moment. Paying for a replacement auto part, a home repair, or a medical service may feel like “spending” but it is really investing.

Sometimes items you purchase can also be investments. Do you eat microwave popcorn several times a week? A cheap home popcorn popper may be a good investment for you since you can buy the corn and oil for a tiny fraction of what you were spending on microwave popcorn. Other- potentially!- money-saving investments include a smoothie maker, a bread maker, and a cheese grater.

Note that kitchen gadgets will only save you money if you frequently use them to make cheap versions of the products you buy. Decide for yourself if you’re willing to put in a little extra work along with your financial investment.

5. Manage your debt.
Paying off debt is always good, but be sure to prioritize. High-interest debt, such as credit card debt, needs to be paid off first. You may even be able to consolidate your debt for a lower overall rate or settle out of debt by paying a fraction of the balance in a lump sum. Do your research and decide how to best get out of your debt situation.

6. Invest in the right education.

Not all education is personally or professionally rewarding. If you take out a loan to attend college without knowing what it is you want to do, your chances of success are slim. On the other hand, if you choose a career path you will honestly enjoy, then you have a good chance of surmounting the challenges you will face.

Picking the right career field is only half the battle, however. When it comes to choosing the right education, be sure to shop around for the best deal, just as you would if purchasing a car or home. Private colleges and career schools will generally offer you the same course of study you could get at a community college, but for many times the price! A public college or university is almost always the wisest choice, because public institutions of higher learning offer the best value in terms of educational rigor and price.