“Being poor” can mean having an income that falls below the poverty line. In that case, you may need to take advantage of assistance programs, improve your education, and find better work. “Being poor” can also mean feeling poor because you can’t seem to avoid spending every cent you make, aren’t saving or investing, and are piling on debt. In that case, you need to learn better money management skills so you can live within your means and save for the future.
Are you genuinely poor, or do you just feel poor? If you have no job and are barely able to survive, that’s real poverty. If you feel poor because all your money gets spent, that’ a different situation. This article will give you some tips for raising yourself out of genuine poverty, plus an eight-step program to improve your lot if, though you don’t fall below the poverty line, you feel poor.
What does being poor mean?
The United States Department of Health and Human Services defines poverty as living below certain income levels. For a single person, the threshold in 2022 was $13,590. For a family of four, the line is drawn at $27,750. If you live in the U.S. and fall below these thresholds, you are officially poor.
How can you escape from poverty?
Although there isn’t a one-route-fits-all path out of poverty, there are general principles that work for most people. This article provides two principles (don’t be afraid to accept help and develop monetizable skills) and eight steps you can start taking today to work your way out of poverty. These steps also apply to people who are not technically poor but certainly feel poor and would like to improve their financial situation.
Take advantage of assistance programs
Failing to accept free help that’s offered will not help you get out of poverty. Don’t be ashamed about accepting help. Providing a safety net for those who want to work themselves out of a difficult situation is the purpose of these programs. Note that some programs may include “perverse incentives” that could encourage behaviors that keep recipients poor. If you use one of these program, take care not to let the “perverse incentives” of a badly designed program derail your journey out of poverty.
Government assistance programs
The most plentiful programs, and probably the easiest to learn about, are run by the federal government. State and local government may also have assistance programs. Consider using resources like Findhelp.org and Benefits.gov to find the resources available in your area. As you raise yourself out of poverty, you will just make your task harder if you fail to take advantage of government programs you qualify for.
The poverty guidelines described above are among the criteria used to determine eligibility for these programs. If you are poor according to those guidelines, you almost certainly qualify for some assistance.
As already noted, state and local programs will require you to do local research. So let’s look at some federal programs.
Key federal assistance programs
Here are some assistance programs offered by the federal government. By covering expenses you would otherwise have to cover yourself, these programs can help you use more of your income to ensure a richer future.
- Medicaid: can provide coverage for medical expenses
- Supplemental Nutrition Assistance Program (SNAP): can help cover food costs
- Low Income Home Energy Assistance Program: can help cover utility costs and related expenses
- Health Insurance Premium Tax Credits: can make health coverage more affordable if you’re not poor enough for Medicaid
- Federal Student Aid: can help you fund an education with grants and guaranteed loans
This list of programs is not exhaustive, but it will get you started.
Private assistance programs
Private nonprofits, from churches to secular social service organizations, offer various types of help. Examples include food pantries, regular food giveaways, and direct monetary assistance.
You will need to research what resources are available in your area. Sometimes the office tasked with handling many government benefits, such as a Health and Human Services (HHS) office, will maintain a list of nongovernmental resources for those in need. Local public libraries may also have such a list, or have a reference librarian who can give you some guidance. A local church known for its charitable work may also be able to tell you about many local resources, in addition to possibly assisting you directly.
Get the right education
In addition to taking advantage of any assistance programs you qualify for, you should get the right education. To do this correctly, you must know your objective and pick a target job before you choose your education program.
Know your objective
Formal education leading to a college degree has often been seen as essential to getting ahead in life. But whether this is the right choice for you depends on what skills and experience you already have, what your aptitudes are, and what sorts of work you have or can acquire an interest in.
As someone seeking to rise out of poverty, your objective in obtaining a good education is to acquire the knowledge and skills you need to land a better job.
Pick a job first
Research what careers are available and what different jobs pay. The U.S. Bureau of Labor Statistics maintains the Occupational Outlook Handbook. It allows you to search for different jobs, learn what skills and education they require, and find out what they pay.
Pay varies from city to city and between states. Do an online search for “BLS Occupational Employment and Wage Statistics.” Include the name of your city or metro area. You should get a list of many professions in your local area and what those jobs pay.
You will discover that many jobs that pay well do not require a college education. Many of these are trades, like plumbers and electricians. The skills you need can be learned at trade school and through apprenticeship programs. If one of these is a job you could learn to like, give it serious consideration before committing to the more expensive and longer education needed for jobs requiring a degree.
Eight steps to stop feeling poor
Either you were never poor, or you were poor and have risen out of poverty. Yet, though you are not living in poverty, you, well, feel poor. You are struggling financially and living paycheck to paycheck.
Does it help to know you are not alone? According to a 2022 joint survey by PYMNTS.com and LendingClub, 64% of Americans are living paycheck to paycheck.
How can you get out of this situation? Here are eight steps to build wealth and stop feeling poor.
Step 1: Set incremental and achievable goals working toward an ultimate objective
When you’re feeling poor, setting a goal of “financial independence” seems grandiose. It’s also vague. To start with, you should focus on setting realistic, incremental goals and establishing better habits.
Have a motivating ideal or ultimate goal
The ideal, of course, is to have enough money put aside so that working becomes a choice, not a necessity. Assets can produce a return. Stocks pay dividends. Bonds and CDs pay interest. Imagine getting to the point where you are “independently wealthy” and can live on the returns produced by your assets!
Set sensible, achievable goals on the way to that ideal
Now that you’ve imaged that, come back down to earth and make some incremental goals. If the only goal you set is the far-off ideal of work-optional independent wealth, you will not make progress. Keep the ideal in the back of your mind as a motivator, but set goals you can reach. Then, when you reach them, set higher goals. Or, better yet, set a whole sequence of goals leading from where you are now to where you want to end up.
An example of a sensible initial goal would be to go from spending every cent you earn every month to saving some set percentage of your income without fail. What could you manage while your income is what it is? 20%? 30%? The more the better, but be realistic.
Step 2: Create a budget, categorize spending, and find places to cut
Why are you barely making ends meet? The only way to figure this out is to keep track of your spending and see where the money is going. Once you know what you’re spending your money on, you need to take control by creating a budget.
To get started, you need to track all your expenses and categorize them. Ask yourself which of your expenses are essential (mandatory student loan payments, rent, utilities) and which are optional (streaming-movie services, fine dining). Then ask yourself which expenses you can reduce or eliminate, and how.
Could you spend less on rent?
Though rent is an essential expense if you don’t own a home, it may not be essential to spend as much as you’re spending. A traditional yardstick of the maximum you should spend on rent is 30% of your gross income. If you spend much more, you should consider finding a cheaper place, or sharing living accommodations.
Could you spend less on variable expenses?
You have variable expenses like your wireless bill and other subscription services. The cost for these can add up quickly! How many of your subscriptions are truly essential? Can you get a better deal on the essential ones with a new provider? If so, and if your current provider won’t match the competing rate, make the move.
Could you spend less on discretionary expenses and food?
You have discretionary expenses, such as buying new clothes and eating in restaurants. If you think these expenses are essential to a happy life, don’t eliminate them entirely. But do cut back. For instance, eating and entertaining friends at home is cheaper than treating the same friends to dinner at a restaurant.
Also consider whether your food spending needs to be as high as it is. A diet with rice, beans, and potatoes as its staples costs less than a diet of caviar, grass-fed beef, and precut, pre-washed organic salads. Checking sales ads and choosing products before you shop can be cheaper than just going to your favorite supermarket and seeing what you find.
Could you spend less servicing debt?
You have debt-related expenses. A good example is your credit card bill. Look at the interest rates you are paying. As of July 2022, the average is nearly 21%! Try to pay down your credit card debt as soon as you can. The easiest way to get a 21% return on your money is to stop paying your lender 21% to put off paying back money you’ve already spent. If your debts are wildly out of hand, don’t be afraid to seek help.
Step 3: Create a road map to get out of debt
Debt used to buy something that will appreciate in value by more than the debt’s interest rate is good debt. It can be taken on in good conscience and paid off over a longer time. If you save up enough money for a down payment and buy your first house using a mortgage, that’s an example of good debt. Every time you send in your monthly mortgage payment, part of your payment reduces the outstanding loan principal, building equity, which is real wealth.
Other types of debt are bad debt. It is often associated with impulse spending. Paying 21% to your credit card company is probably an example of bad debt. Bad debt should be eliminated as quickly as possible.
All outstanding debt means money going out to service that debt. This means less money to save and invest. Have a plan to reduce debt, starting with paying off bills with the highest interest rates.
Step 4: Pay yourself first by creating a savings plan
To stop feeling poor, you need to start saving money. Everyone needs an emergency fund. According to a January 2022 CNBC report, 56% of Americans could not cover a $1,000 emergency expense from savings.
Start with an emergency fund
Set aside cash for emergencies. Experts recommend enough to replace three to six months of your current income. Years ago, it was called a “Rainy Day Fund.” This money might live in a bank money market fund. If you suddenly lose your job or your car dies, you’ll need ready cash to fix the problem. This money comes from your take-home pay.
Add saving for retirement
Saving for retirement is another important step. If you work for an employer with a retirement plan and employer matching, start using it. Often, it is a 401(k) plan to which you contribute pretax dollars. Companies usually match your contribution up to a certain amount. Although called retirement savings, these funds can be accessed or borrowed against in certain circumstances.
Savings beyond your emergency fund should be invested
When talking about saving, people often have savings accounts or certificates of deposit in mind. But stocks offer the potential for much greater gains over time. Bonds can also be a worthwhile investment. Also note that these kinds of investment will probably be available in your 401(k) plan, if you have one.
Step 5: Start investing for the long term
As just noted, investing should be part of your savings plan once you’ve gotten your emergency fund in place. Investing for the long term is an indispensable step in moving toward financial independence.
If you cannot invest for retirement through an employer’s retirement plan, consider a self-directed IRA that lets you choose how to direct the money you deposit. Since you can withdraw up to $10,000 from an IRA to make a down payment on your first home, an IRA can help you prepare for the largest investment most people make.
Speculate to accumulate?
Some people who invest in the stock market quote this expression as justification. It suggests actively trading the stocks of risky companies that could go broke in a year but tell a great story about insane future growth. Investing doesn’t have to be like that. Stocks are just ownership shares in a company, and many companies are solid, stable entities unlikely to go broke but very likely to grow.
Though stocks will always go up and down in price in the short term, the well-established, long-term trend is up. If you invest in good companies rather than bet on hot tips, and you diversify your portfolio across sectors and types of businesses, your risk of losing your shirt should be very low.
If reading investment articles here and studying some investment books by proven professionals isn’t enough to put your mind at ease, consider consulting a professional when you can afford it. You can find an independent financial services professional through the National Association of Personal Financial Advisors. If you have friends that use such advisors, ask for recommendations.
Step 6: Determine if you should stay at your current job
You were feeling poor because you were living paycheck to paycheck with your current job. Perhaps your income is not large enough. According to the U.S. Bureau of Labor Statistics, the 12-month real average weekly earnings from June 2021 to June 2022 decreased by 3.6%. Wage increases for current employees tend to be lower than for new hires — this is called pay compression.
To avoid losing spending power, your salary needs to increase at least as much as the rate of inflation each year. Does your current job let you do that? If not, and if the current job market is hot with “We are hiring” signs everywhere, it makes sense to discretely test the market to see if your skills and experience will command a higher salary elsewhere.
Step 7: Develop at least one additional income source
Many Americans hold more than one job. You might have friends who sell on eBay. As of February 2022, eBay had over 19 million sellers in 180 countries, with 1.5 billion active listings. Selling your unwanted stuff on eBay, on another auction site, or by sending it to a brick-and-mortar auction house, can be a way to bring in extra money.
There are other ways to make money besides selling stuff stored in your garage. Examples include
- Driving for Uber or Lyft in your spare time
- Becoming a delivery driver for DoorDash
- Selling arts or crafts on Etsy
- Selling services on Upwork
Step 8: Monitor your journey to financial independence
You started off feeling poor. Now you have restructured your financial life and focused on savings. You have cut your expenses, paid down credit card debt, and considered changing employers to get a bump up in pay.
All you have to do now is keep working your plan, making and achieving realistic incremental goals that move you in the direction of eventual financial independence. With patience and persistence, you should one day wake up and realize that, far from feeling poor, you now feel rich!
Which age group has the lowest levels of poverty?
According to Statista, men 75 years and older have the lowest level of poverty.
Why do poor people stay poor?
A 2021 MIT study identifies two reasons. The first is personal factors like ability, talent, and motivation. The second is external factors called “poverty traps” —essentially getting stuck in low-earning jobs after being born poor.
Is it OK to be poor?
Since you’re reading an article about how to stop being poor, you already know the answer. For you, being poor is not OK.
In principle, the American legal system treats all people as equal. But we all know that different people have different aptitudes and encounter different opportunities. If you find out what you’re good at, enhance your employability with education and by honing your aptitudes into skills, then work your way into a suitable occupation, you should not have to stay poor.
- In the U.S., one is officially poor if one earns less than a threshold income set by the government.
- People living paycheck to paycheck can feel poor.
- Things that can help you climb out of poverty include education and government and private assistance programs.
- The feeling of being poor can be addressed by getting expenses under control and building up savings.
View Article Sources
- 56% of Americans can’t cover a $1,000 emergency expense with savings — CNBC
- 64% of Consumers Lived Paycheck to Paycheck in January, up From 61% a Month Earlier — PYMNTS.com
- As inflation heats up, 64% of Americans are now living paycheck to paycheck — CNBC
- How much of your monthly income should go to rent? — Chase
- Low Income Home Energy Assistance Program (LIHEAP) — Benefits.gov
- NAPFA Home Page — National Association of Personal Financial Advisors
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- Poverty, Child Rearing, and Government Incentives — Mises Institute
- Supplemental Nutrition Assistance Program (SNAP) — Benefits.gov
- eBay Revenue and Usage Statistics (2022) — Business of Apps
- Federal Student Aid Home Page — Federal Student Aid
- HHS Poverty Guidelines for 2022 and 2021 — Office of the Assistant Secretary for Planning and Evaluation
- Many employees could be in for pay hikes of 5% or more in 2022 — CNBC
- May 2021 Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates: Philadelphia-Camden-Wilmington, PA-NJ-DE-MD — U.S. Bureau of Labor Statistics
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- Premium tax credit — HealthCare.gov
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- How To Become A Millionaire? 10 Powerful Tips From Those Who Made It — SuperMoney
- Top 11 Side Jobs to Make Some Extra Money — SuperMoney
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon. Bryce spent twenty years with a major financial services firm as a successful financial advisor. He has been published in 40+ metro market editions of American City Business Journals, Accountingweb, NAIFA’s Advisor Today, The Register, LifeHealthPro, Round the Table, the Financial Times site Financial Advisor IQ and Horsesmouth.com.