Poverty is not something you can run away from. No matter how fast you run, no matter how hard you fight, no matter how high you climb.
Poverty will ALWAYS be faster.
Poverty will ALWAYS be stronger.
Poverty will always find you.
If your frame of mind is that of “escaping” from poverty, you will never get away. Instead of running FROM poverty, you need to find something you can run TOWARDS. Some goal, some dream, some aspiration you can see getting closer and closer every day rather than a dark past that never goes away. The truth is, even once you find yourself financially stable, the memories of poverty will still be there, biting at your heels like like rabid wolves. As time goes by those wolves will become Chihuahuas, but they will always be there.
That is why you cannot run FROM poverty. Running from something implies you’re always looking back, always worried, always afraid you won’t make it. Running TO something means you’re facing forward, you’re focused on the path ahead, you’re always making progress.
Someone posted a question earlier about how to “escape” poverty and I wrote this post as a reply. But before I hit send – I thought about it. No, I don’t want to feed that mentality that poverty is something that should, or even could be escaped.
The goal isn’t simply to not-be poor. The goal is to be financially stable. The goal is to be comfortable. The goal is to have freedom, to have options. The goal is to save enough for that 30 day vacation in Guatemala, the goal is to own that new Tesla (without financing!), the goal is to build that perfect house on the hill. Stability, Comfort, Freedom, Saving, Owning, Building, these are the goals! Not running away. Not escaping.
So I decided to make this it’s own post, complete with pictures and all that fancy stuff. If there is interest, I will make another very detailed, very exampled post next Saturday about the next set of topics in achieving the dream.
In the interest of full disclosure: You can see I have included some real numbers here from my actual life. One could easily deduce from what I've shared here that I am NOT in poverty, and therefor do not belong in this sub. But I would like to point out that almost 35% of my income comes from overtime. It comes from spending long hours every week at work rather than doing the things I love. I've been doing this for two years already. This is not something I can continue forever. This is something I'm doing while I have to, so that I can build a future where it's not necessary. I also included my real life budget. You can do the math yourself and see that if I did not work overtime I would have about $400 a month extra. Now I know that $400 is a lot more than most people here have, but it's certainly not financially stable. At that rate it would have taken me over a year to build a 3 month emergency fund. And what if my AC goes out? What if my transmission fails? What if any combination of events causes me to spend it? I'm supposed to just hope that nothing bad will happen for the next 15 months while I rebuild? No, instead I chose to give up a lot of other things in my life and work like crazy in order to provide short term stability for my family in the form of higher paychecks, and long term stability from a high savings rate and investments. I'm not here to brag, I'm not here to shame, I'm just trying to do my best to share the information that I found incredibly helpful on my journey so far. My pre-overtime income is about $28,000 a year. With overtime it's approx. $43,000. These numbers are after tax. I have a household size of two. I am the only income.
Series 1 -Tracking and Budgets
Step one is tracking. You can’t shoot something until you aim at it.
You want to track your expenses and your income every month for 3 months. There are a number of apps available to help you do this (I prefer personal capital), but I advise you to make your own list of categories first in a spread sheet or on a piece of paper. Below is a snippet from my excel sheet showing how I track my paychecks and how I categorize my expenses:
Once you have your own categories, create them in the expense tracking app of your choice. These all have their own categories automatically, but it’s just much easier to make new ones to match yours. Plus some are just plain useless, like “general merchandise,” what the heck is that? You don’t just “generally” purchase something, everything has a purpose. Give it one.
You might notice that I do not have a line item in my budget for saving. That is because my saving is automatic. Part of my check goes immediately to my IRA, and the rest goes into my bank account. From there, a portion gets automatically moved into savings. Another portion gets moved into an account that I use only for bills, and the remaining amount is enough to cover the mortgage every month. Because my savings is automatic and set up BEFORE I even see the money, I don’t include it in my budget.
Step two is budgeting. Once you have a feel for your monthly expenses, it’s time to set some rules. A budget isn’t a tool that magically frees up money – it’s a template, a guide, something to help you CONTROL your spending and give you freedom. It’s a set of rules that you design for yourself about where your money is going to go. This way you aren’t “surprised” when a bill hits and your account gets overdrawn. It won’t get overdrawn, because you had a plan for it and you made sure the money was there ahead of time.
Tips for making a budget/reducing expenses
When creating your first budget it’s important to BE REALISTIC about it. Let’s say you finish your tracking and, like me, you look at it and go “WHOA THAT’S A LOT OF MONEY ON ALCOHOL!” Be realistic. Just because you type a $0 in the budget doesn’t mean you’re suddenly going to stop drinking. It doesn’t mean you’re suddenly gonna stop buying new shoes or dresses. It doesn’t mean you’re never going to eat out again. If you aren’t realistic, it doesn’t matter what number you put there because it’s never going to be right. Be realistic. If you want to make changes, make them slowly. But make sure you have a REASON to change. Simply making a change because you think it’s too much money is often not enough. You have to actually believe that you aren’t getting value from the expense to stick to a budget cut long term. In fact, your first budget will probably just be the average of the 3 months of expenses you just tracked. And that’s perfectly fine.
But once you have a budget, what the heck are you supposed to do with it? If it’s not going to save you any money then what’s the point in even doing one? I’m glad you asked!
The budget is your cheat sheet for the month. It let’s you see into the future, to see things coming before they hit your bank account. Once you know how much you spend on everything, you can start planning ahead of time! If you know you spend $2,000 a month, then you also know that you need to take $500 a week and put it aside. If you do that faithfully, automatically, every week, then you will understand why there is a budget.
The average American spends almost 75% of their income in only 3 categories
What are the first things people bring up when you ask about saving money? Cutting Netflix/Hulu/HBO/Disney+? No more lattes? No more video games? If you look at the chart above, you’ll see that those types of spending only make up 27% of the average person’s budget. Movies, tv services, internet, entertainment, clothing, shopping, healthcare, gift giving – ALL of those expenses add up to only 27% And what are the other 3?
Yes that’s right. These three things alone add up to 73% of the average household expenses! Why would you waste your time making a bunch of comparatively large changes (cutting out Netflix is a 100% change in your Netflix expense) to the smallest part of your budget, when you could make just 2 or 3 small changes to the largest expenses you have and reach the same effect?
The “unspent” category represents the approx. 8% of the average Ameican’s income that is not spent on goods or services. This does not mean the average American is saving 8% a year, because included in this category is interest paid on car loans and other consumer debt.
Changes you make to Housing, Transportation and Food are 131% more effective than changes you make to any other spending. This is simply due to the fact that they’re the largest dollar value expenses you have each month – and they ARE monthly, recurring expenses. You can’t just not-have a house like you can a latte, you can’t just not put gas in your car or stop paying your insurance. You can’t cut out eating completely like it’s a subscription service. Because they are so large, even the smallest changes have massive effects. If you pay $1,000 a month in rent, and you make a 1% change, that’s the same effect as canceling Hulu. Why cancel Hulu? You love Hulu!
Your first priority should be to attack your Holy Trinity of monthly expenses. This takes time. You can’t just break your lease or sell your house and move tomorrow. You can’t pay off your car or trade it for something cheaper today. But that doesn’t mean they aren’t THE MOST IMPORTANT expenses you have, and you HAVE to get them under control.
Survey time. Of the following two options, which one do you think hurts less? Which one do you think is more sustainable long term? Which one do you think provides a better quality of life?
A 10% change to Housing/Transportation/Food
Slashing your entertainment and fun money by 25%
In addition to being more effective, they’re also easier to make! Avoiding Starbucks, staying home instead of going out, reading a book because you cut out your tv, these are daily battles. Every day you will have to tell yourself “no.” When you move to a cheaper place, you only do it one time. If you’re renting, that’s twelve months of worry-free savings. If you’re a home owner, that’s up to (but hopefully not) 30 solid years of automatic savings! And you only had to make the choice ONE TIME! Same with your car, buy it in cash, or finance the cheapest one you can (instead of the one you “deserve”) and your savings are guaranteed each month without having to lift a finger. AND you can still party on the weekends! You get the maximum effect on your savings with the least amount of disruption to your quality of life.
So what’s your number? What percentage of your income every month goes to Housing, Transportation and Food? Answer below