Why Being Poor Is More Expensive: A Path To Building Wealth
You’ve probably heard the phrase, “The rich get richer, and the poor get poorer.” It’s a harsh reality that’s rooted in straightforward financial truths. Here is why being poor is more expensive and how you can start on the path to building wealth.
The Hidden Costs Of Poverty
One of the most frustrating things about being poor is that you often pay more for the same things that wealthier people get for less. Why is this?
Higher Interest Rates
When you don’t have much money, your credit score often suffers. A lower credit score means you pay significantly higher interest rates. You end up paying more on credit cards, loans, and certain types of insurance. When you are behind on paying your credit card, student loans, or car loan, you pay way more interest than someone with a better credit score.
Fees, Fees, And More Fees
Have you ever been hit with an overdraft fee because you were a few bucks short in your bank account? Paying fees can become a vicious cycle. Those fees can further push you into debt if you're already low on funds. And don't get me started on payday loans or buy now, pay later, which come with astronomical interest rates and fees that can trap you in debt.
Society designs many debt traps to ensnare you. Why? The design of the debt-based financial system keeps you in debt.
Poor Quality Products
When you’re on a tight budget, buying the cheapest option is tempting. Poor quality products often wear out faster. You replace them more frequently.
A pair of shoes that break into pieces after a few months. A car that breaks down constantly. A computer that continually freezes. You end up spending more in the long run by purchasing cheap products.
Limited Access To Healthy Food
Healthy food can be expensive. Fresh meat, vegetables, and fruit are more expensive than prepared and processed food. Purchasing cheaper and less nutritious food can lead to more health problems later in your lifetime.
The Financial Trap Of Wasting Money On Useless Things
Every dollar counts. Wasting money on things that lose value is a surefire way to end up in a financial rut. Here are some common financial traps that you may waste your money on.
Impulse Buys
It’s easy to fall into the trap of impulse buying. You might think, “It’s just a small purchase. What’s the harm?” But those small purchases add up. Every small purchase leaves you with less money.
You could direct the money from those small purchases to things that matter. That money could go toward paying your rent, building an emergency fund, or investing.
Trying To Keep Up
There's a lot of social pressure to have the latest gadgets, fashion, or even to "keep up appearances." But when you're spending money to look rich rather than to become wealthy, you're setting yourself back. You're only hurting yourself by trying to keep up with the Joneses.
Many items lose value the minute you buy them. What is the financial result for you? You have less money in your bank account.
Buying On Credit
Credit cards are another financial debt trap. When you buy something on credit, especially if you’re only making the minimum payments, you pay far more than the item is worth due to interest.
Credit cards can rapidly spiral out of control. You then bury yourself in debt.
Lottery Tickets And Gambling
It's easy to see the appeal of wanting to win big. Gambling and playing the lottery are statistically losing propositions. The house designs the games to favor the house rules.
The odds are overwhelmingly against you. You could save or invest money rather than spend money on these "get-rich-quick" schemes.
Steps To Build Wealth
How can you break free from the cycle of poverty and start building wealth? It’s not easy, but it’s possible.
Educate Yourself About Money
The first step is understanding how money works. Learn the basics of personal finance: budgeting, saving, investing, and credit management is crucial. Many free resources are online: blogs, YouTube channels, and other social media content. You can even find free courses that can teach you everything you need to know to master the essentials of personal finance!
Live Below Your Means
Living below your means is easier said than done. Being frugal is critical to building wealth. It is about being smart about your everyday spending.
Always look for ways to reduce costs, whether cooking at home, canceling unused subscriptions, or finding more affordable housing.
Create A Budget And Stick To It
A budget is your financial roadmap. A budget shows you where you are spending your money. It helps you identify problem areas where you can cut back.
Start by tracking your expenses in connection to your monthly income. Doing this for the first month will help you better understand where you spend money. You can then continue to whittle away at wasteful spending each following month.
You can then create a budget that prioritizes essentials (like rent, utilities, and groceries). Set aside monthly money to pay off debts, save, and invest.
There are free and premium budgeting apps and tools. These budgeting tools can help you stay on track with your budget.
Build An Emergency Fund
An emergency fund is your personal safety net that can help you avoid debt when unexpected expenses arise. Start small. Aim for $500 to $1,000.
You can then continue to grow your rainy day fund. You will have more money saved for an emergency than most Americans.
Once you’ve built up a little cushion, continue adding to it until you have three to six months’ worth of expenses saved. Before you know it, you will have a rainy-day fund. It can help you to sleep better at night.
High-interest debt is a significant financial barrier to building wealth. Credit card debt is one common type of debt for many Americans. Focus on paying off your highest-interest debt first. Make the minimum payments on your other debts. If you can pay off more debt in one month, do it!
Pay Off High-Interest Debt
High-interest debt is a significant financial barrier to building wealth. Credit card debt is one common type of debt for many Americans. Focus on paying off your highest-interest debt first. Make the minimum payments on your other debts. If you can pay off more debt in one month, do it!
Eliminate your highest-interest debt payments first. Paying off your high debt payment first is known as the debt avalanche method.
Start Investing
Investing is one of the most effective ways to build wealth over time. You don’t need a lot of money to get started. Thanks to technology, apps allow you to invest with as little as a few dollars. If your employer offers you financial benefits, you can contribute to an employer-matching 401(k). You can also invest in an IRA.
Focus On Growing Your Income
Increasing your yearly income can significantly impact your ability to build wealth. How can you increase your income?
You could ask for a raise, find a better-paying job, learn in-demand skills, start a side hustle, or start a business. The goal is to increase your income while keeping your expenses low. There are always opportunities to grow your income.
Start Your Own Business
Are you entrepreneurial? Consider starting your own business. There are many reasons to start your own business. First, you can start out being self-employed and work for yourself. Second, once you master a skill and understand your niche and customers, you can create products and services that cater to them. You can then create multiple streams of income under your business.
Network And Learn From Others
Surround yourself with people who practice sound financial habits. Networking with financially successful people can give you insights into how they manage their money. You may find a mentor who can guide you along your financial journey.
Many books, channels, and podcasts also feature interviews with successful people who share their strategies and tips. You can learn from them. You can then apply their knowledge to help you build wealth.
Be Patient And Persistent
Wealth building takes time, patience, discipline, understanding, and persistence. You will experience setbacks along the way. The key is to keep moving forward.
Celebrate your progress, no matter how small. Stay focused on your long-term financial goals.
Summary
There is no doubt about it. Being poor is expensive. It is not just in terms of money, but also the stress and limitations being poor impose on your life. The great news is that with the proper knowledge and tools, you can take control of your financial future and build a life of wealth and security.
James Bollen is the author of Thriving Solo: How to Flourish and Live Your Perfect Life (Without A Soulmate). It is now available in paperback and Kindle on Amazon.
The views expressed in this article are the author's opinions and views and do not reflect the views of Secure Single. It is intended for informational and educational purposes only. Secure Single does not give health, medical, relationship, travel, or financial advice. Secure Single does not provide advice of any kind. Always consult and speak with a professional.