financial problems

How to Avoid ‘Poor People Problems’: Don’t Be Too Cheap

November 1, 2016 By Mary Grace 1 Comment

Saving can be hard. However, there is a cost to being poor and those poorly thought out ‘quick saves’ can end up costing you in the long run. Things like paying attention to flat prices, instead of price per ounce or actual value will cost big in the long-run. There’s a lot of things people do to try and make their homes more cost efficient (which end up being crazy) and ways people try to skirt around the cost of survival that can bite them in the butt. There are ways you can avoid what we will refer to in this article as “poor people problems.”

How to Avoid ‘Poor People Problems’

If you’re like many people, you’ve probably seen the show Extreme Cheapskates. It’s a reality show about people who will go above and beyond the extra mile to be economical. The show takes a moment to describe the person’s complex solution that takes time out of their day and how much it’s going to save them. Then the show freeze-frames and breaks down how their complex cheapskate solution is actually costing them money. There are many “real life” situations like this. Many people often think they are being thrifty, tricky or get so wrapped up in saving money that they are actually losing out on cash. There is a point where being cheap can actually hurt your finances.

Buy Things in Bulk

There are a number of people that say buying things in bulk will not help you save money. However, buying things in bulk will actually help you avoid “poor people problems.” There is something many people refer to as the “poor people tax.” This means that you don’t have the personal income to make purchases that will save you money in the long run. You might have gone to your local Costco and purchased enough toilet paper to last you and your family until your untimely death. Even then, they could wrap your corpse like a mummy and toilet paper the street in memoriam. But poor people often don’t have the starting capital to purchase in bulk, they may not even be able to get to those bulk super stores because of public transit limitations. Let alone buying and transporting those cheaper bulk goods to their home, most people don’t even have five hundred bucks sitting around to make a huge purchase (or even the place to store a lifetime of toilet paper).

Just going to the grocery store rather than the corner shop, or buying beans and rice in bulk can save you big time. You don’t need a car to buy foods with a long shelf life in bulk, and twenty pounds of bulk beans (a near super food!) is only fifteen bucks. If you on’t have internet to make such complex orders the library has free internet and computers to use, there’s probably one near you! Buying in bulk, healthy, sustainable food, that lasts for a long time (like brown rice) is one way to save on food costs and avoid the “poor people” tax.

Avoid Poor People Problems: Pay Off Debt

Another way to get ahead is to pay off any debts as quickly as possible. Even something seemingly small and ignorable like student loan debt builds up really quickly. It’s really smart to jump on any debt before you end up paying on it for years. The average student in 2015 graduated with $35,000 in loans. That’s more than the average yearly wage of a college aged American. It will take a while to pay that off.

Debt is a large contributor to the “poor people tax” referenced above. It can account for $800-900 dollars a year for a $22K-a-year worker trying to avoid the bank because of previous debts and that’s not even the cost of paying on debt. The average American family pays $6,000 in interest every year. Six. Grand. That’s so much money to be just spent on interest! Opting out of this as quickly as possible could mean a five day vacation to Disneyland for you, your significant other and your two children. The cost of being poor isn’t just in inaccessible cheap goods. It’s in bank availability. It’s in job insecurity, higher potential for property damage and just the cost of paying on interest.

Lower Housing Costs

Housing is one of the most important resources for survival. Trying to save on your housing is reasonable, but taking it to an extreme will cost you more in the long-run. Even something small, like a remodel could end up running up costs when the sink is a little too big for the countertops. Taking advice (or advantage of low-cost designers) might seem time taking, or counter-intuitive to your thrifty nature, but will save in the long run. Cheap roofs leak, but the lowest cost roof for the best quality (even if it is an ugly metal one) will save you a lot of money. And that’s advice you probably have to ask for. Even small fixes like your bathroom sink or a belt replacement on the car, are worth it to take it to a professional. Sure you could figure it out, but unless you’re a trained mechanic, you’re probably going to break it a thousand different ways from Sunday.

These three areas are only three of many ways you can avoid “poor people problems.” Although becoming poor or facing financial hardship can be inevitable, focusing on saving money in small areas can help you in the long run. Not only will you be prepared if financial hardship comes your way but you will also have experience cutting costs if you’re ever forced to in the future.

How do you use being cheap or cutting costs to what the author refers to as “poor people problems?”

Photos: jenny downing and theilr

Think Positive, Talk Positive

October 11, 2011 By Jennifer Derrick 3 Comments

When it comes to financial problems, a lot of people tell you to, “Think positive.” Heck, if you read and believe, “The Secret,” all you have to do to be rich is to think positively. There’s some validity in this advice (although simply thinking about how much money you want will probably never make you rich). If you think positively you’re able to see the good in bad situations. Even when your finances are a mess, thinking positively may mean that you can see the light at the end of the tunnel. Positive thoughts can keep you working toward your goals even when it seems hopeless.

On the other side of the coin are the people who tell you that it doesn’t matter how you think inside your own head. What matters is what you say to those around you. The theory goes that you can privately think things are a mess, but you never let others see how bad it is. You talk up your successes and keep your failures private. By talking a good game, you make good things happen (that’s the theory, anyway). If you’re outright lying, though, in your effort to be so positive, you’re going to create more problems.

I think the best advice lies in combining the two. You want to both think and talk positively. Whether you’re trying to dig yourself out of deep hole or save for a great vacation, you never want to get mired in defeatism and negativity. You can’t afford to be giving yourself or others conflicting messages, either. If you’re telling yourself positive things but speaking only in negative terms, you’re going to create a problem for yourself. The same is true if you’re speaking positively but thinking negatively. The best you can hope for in either case is a neutral attitude. To succeed financially you need to be completely positive.

Here are some potential problems that can crop up if you allow yourself to become negative or beat yourself up either verbally or non-verbally.

You get sick more often: People who are negative get sick more often than optimistic people. Prolonged negativity can even lead to depression. When you’re sick you can’t work or do much of anything else. You have no energy or ability to do anything to get your finances in order. When you’re well it’s much easier to do what needs to be done.

People like you more: No, you’re not looking to be the popular kid in school. Positive people are just easier to be around. If you’re looking for a job or promotion, the person who talks positively is an easier hire than the person who hates everything and everyone. A positive person likely gets out more and goes to more networking events where they might meet people who can help them start that business or find a job. Furthermore, their positive energy makes people want to help them. Most people just want to get away from a chronically negative person.

What you say in your head often becomes what happens: If you’re trying to keep your negativity all in your head while talking a good game, be aware that thoughts tend to be more powerful than speech. If you think it you’re likely to believe it. Simply saying something doesn’t make it true. You want to think positively so that your positive thoughts generate positive speech. Then your whole attitude is one of optimism and positivity.

Honesty is important: You may tell your family that you’re financially fine, that things are great, and you’re a big success. That’s a great attitude but if it’s not true and you’re the only one worrying about how bad things really are, you’re creating problems for yourself. How does your spouse know to stop spending so much unless you tell the truth? How do your kids know that they can’t ask for everything under the sun? You can talk a great game but at some point you have to be honest. Optimistic, but honest.

You may spend more, not less: This one is a corollary to number 4, above. The problem with talking positively when things aren’t really great is that it can lead to extra spending as you try to maintain the image that your mouth is creating. If everything is so great, you don’t want people to see you can’t really afford lunch out so you go out, knowing in your head that you can’t afford it.

You probably won’t get rich just by talking and thinking positively; there’s usually actual work involved. However, you do make it easier to get your finances together when you stay positive. You make it easier for others to want to help you. You make it easier to help yourself because you retain the energy necessary to do what needs to be done. You make it easier for your family to get on board because they know the truth of the situation and can stop undermining you. When you’re trying to get your finances in order, create a completely positive outlook that combines both positive (honest, but positive) speech and positive thoughts.

We Create Many of Our Own Financial Problems

January 13, 2011 By Jennifer Derrick 6 Comments

A coworker came to me moaning about her debt level the other day. Her New Year’s resolution is to get out of debt and she wanted to know where to start. I asked her what kind of debt she had. Car loans? Student loans? Credit cards? Almost all of the debt she had was from simple overspending on stuff she couldn’t afford. Expensive cars, trips, meals out, clothes, and electronics made up most of the credit card debt. She said, “I don’t know how we got into this mess. We don’t do anything that out of the ordinary. Everyone has this stuff.”

Now, I don’t know exactly what she and her husband make, but knowing their occupations I’m betting it’s not much above $70K combined. That’s a good income, but not high enough to afford four trips to deluxe resorts every year, a new Coach purse every two months, a new Jaguar, and three new TV’s in a year. (Those are the highlights of the debt load.) When I gently tried to tell her that she had caused this problem, she got offended. I told her that finance is pretty simple. What comes in needs to be more than what goes out and, in her case, she could totally control that. She was spending way more than was coming in and, to get out of debt, that would have to stop. It would be wise to look at at debt repayment calculator and see where things stood. She has enough income to live well on in this area, just not extravagantly.

“But I can’t vacation without staying a deluxe resort,” she said. “I’m not comfortable in a Hampton Inn or whatever.”

“Then you don’t vacation,” I told her. “Or certainly not as often. You can’t afford it,” I said.

“And the electronics. I have to have the latest cell phone for work.”

“Really?” I asked. “Does your current phone make calls? Can you check email as you need to?”

“Yeah.”

“Then your current phone is fine. Anything else is just a prettier package.”

“But the car. I need to impress clients,” she said.

“A Jaguar is certainly impressive. But other cars are just as nice as long as they are clean and well maintained. Or you could have bought a used Jag.”

We went on like this for a while with her offering up “reasons” why she had to spend all of that money. What it all boiled down to is that she preferred and wanted certain things, not that she needed them. She had created her own financial mess through her choices.

People make their own financial problems in different ways. People choose to smoke or overeat and cause their own health problems and the resulting expenses. People insist on having an enormous house or expensive car and then scream foul when the resulting payments drag them under. Even seemingly small decisions like eating out every day or buying new clothes every week can eventually add up to big financial problems. In the end, no one forced you to do any of this. You did it to yourself, just like my coworker created her own problems.

Certainly some financial problems are unavoidable. However, the vast majority of our financial “problems” stem directly from our poor decisions. This isn’t a fun way to look at it. After all, who wants to admit that they’ve messed up or caused their own hardships. It’s far easier to find someone else to blame. But when you get right down to it, no one forced you to vacation in deluxe resorts or buy all that junk you couldn’t afford. No one forced you to eat out every day or smoke and ruin your health. When it comes to fixing your finances, often the first thing you have to is look the mirror and ask yourself how you caused the problem. Once you know that, you can begin to correct the problems.

Dave Ramsey Financial Peace University: Week 3

March 4, 2010 By Maggie Ellis 10 Comments

This is a series of posts about what you will find in Dave Ramsey’s Financial Peace University course. This is week three (week one and week two)

The lesson for this week was cash flow planning, also known as budgeting. You could see everybody approaching this lesson with trepidation. Not only does it mean more work, but it means finally revealing the true depth of their financial problems. Many people have avoided this because they just don’t want to know how bad it is. I sympathize. When we were first getting serious about money, we sat down to make out our budget and had one of the least fun evenings of our lives. We weren’t in bad shape, but it was a pain to dig out the bills, receipts, and ledgers for everything related to our household. You don’t realize how much is going on until you lay it all out and try to make some sort of order out of the chaos. I can honestly say I wasn’t looking forward to doing it again as part of this class. However, I vowed to suck it up and do the activities as if I’d never budgeted before.

The main idea is that we are to create a zero based budget. This means that every dollar is accounted for and “spent,” even if that “spending” is really putting money into savings. At the end of the month, my take home pay should all be allocated to categories and spent. Nothing should be left floating in the ether. Any extra money that you find in the budget is to be applied to the baby step that you are working on, whether it’s paying down debt, building an emergency fund, or saving for retirement. The point is to make sure that every penny of your money is working for you in the best way.

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Dave Ramsey Financial Peace University: Week One

Dave Ramsey Financial Peace University: Week Two

Dave Ramsey Financial Peace University: Week Three

Dave Ramsey Financial Peace University: Week Four

Dave Ramsey Financial Peace University: Week Five

Dave Ramsey Financial Peace University: Week Six

Dave Ramsey Financial Peace University: Week Seven

Dave Ramsey Financial Peace University: Week Eight

Dave Ramsey Financial Peace University: Week Nine

Dave Ramsey Financial Peace University: Week Ten

When I flip to the back of the workbook, I am pleased to see that the budget forms are comprehensive. There’s not much left out and everything gets broken down into monthly expenses to keep you from being surprised by big, irregular expenses like taxes, insurance, and Christmas. My big gripe with the budget sheets is that Dave wants us to put giving first. Giving it the first line item on the budget sheet. That should be the first thing you “pay” each month and then everything else gets paid after the giving is taken out.

I understand his point, from a Christian perspective, but I simply cannot get my head around someone in deep financial crisis giving away ten percent of their income when they are having trouble paying the mortgage or utilities. I think ten percent off the top is a fine and wonderful goal to aim for once your finances are under control, but I don’t think it should be part of a beginning budget for people in crisis.

Dave wants us to give off the top, but then turns around in the lecture and contradicts himself when he talks about the “four walls of the home.” These are the things he says we need to pay (in order) when living in crisis mode: Food, shelter, utilities, and clothing and transportation. There’s no mention here of giving off the top. I find the four walls theory to be more appropriate for someone in danger of losing it all. Too many people these days are confused and paying credit cards or giving to charity before paying their mortgages. If you’re in crisis, you need to sustain yourself first. Everyone else can take a number and get paid later, including the charities.

Dave does a good job of showing why budgets often don’t work: You don’t actually live the plan, you leave out important things (whether intentionally or unintentionally), or you use it to control another person. He then points out that budgets are not as restrictive as they seem at first. A budget is less about telling you what you can’t do and more about telling you what you can do. There is no rule that you can’t spend on eating out, as long as you have the money to do so. A budget shows you where your money is going and tells you if there is any (and how much) left over to eat out (or buy a DVD, or travel, or whatever else you want to do). If you have the money, you can do whatever you want. There are no absolute “cant’s” in a budget, which is what most people believe. You can save for and prioritize anything you want, once your basic needs are met and your debt is under control.

Near the end of the class, Dave hits upon the most important reason to budget. We all work too hard to end up with nothing in our golden years. By creating and sticking to a budget, we can direct our money to the places where it will do us the most good, both short and long term. Without some sort of plan (budget), you’re likely to end up at retirement age with nothing saved, too much debt, and no idea what to do next. This is advice I can get behind. I don’t want to work for forty years and end up with nothing. I found this class to be the best and most practical, so far. This is the reason why so many people are here: To get control of their money so they have more freedom. A realistic budget is the first step and, for the most part, Dave’s budget system is a good one.

Dave also wants us to start using the envelope system. This is not for bills that are automatically drafted or normally paid by check, like utility bills and the mortgage. Envelopes are for things that you typically pay cash (or use the debit card) for like groceries, clothes, and dining out. The idea is that you set aside the budgeted amount of money for each category in cash in a separate envelope each month. When the cash is gone, the spending in that category is over for the month. If you’ve budgeted $300 for groceries, you pay cash from that envelope each time you go to the store. When you reach $300, you’re going to have to live off of what’s already in your pantry.

I get the idea of this. Envelopes keep you from overspending and they force you to budget a realistic amount for your purchases. It’s one thing to say, “I only spend $200 on groceries each month,” and another to discover that the $200 is only one trip. A couple of months of eating weird meals you’ve scraped together from the pantry will force you to budget a more honest amount for food.

I will try this system because we’re supposed to, but I confess it makes me uneasy. For one thing, I’m not thrilled about keeping that kind of money, in cash, in the house every month. I don’t live in a high crime area, but anything can happen and I’d hate to lose $1,000 in monthly expenses in cash. For another, I use my credit cards for many of my expenses to get the rewards points, then pay them off every month. This totally goes against all of Dave’s advice, but I find those rewards programs to be valuable to me. I understand that those with credit card problems should not live this way, but for me it makes sense. I’m not thrilled about giving up my rewards for a couple of months while I try this system. But, who knows? I could love it, so I’ll figure out my expenses and give it a try.

When we got to small group, most people were looking shell-shocked. They were thumbing through the workbook and looking at the forms we have to fill out this week. I heard some grumbling that they didn’t have the time for this. I’ll admit it: The forms seem intimidating at first, but really they’re easy to use; much easier than some forms and software I’ve seen. Once everyone settled down, they expressed their fear of budgets. Some have tried and failed in the past (like diets). Some have found it too restrictive. One man said that the one time he tried a budget it ended up in disaster because he allowed himself no fun whatsoever, which ended up in an unplanned binge trip to Vegas with his buddies that set him back about $3,000 in credit card debt. After that he never tried budgeting again.

Others took the opposing view and said that they’ve found budgets empowering, but they’ve just not been able to stay on one because of weak willpower or an uncooperative spouse. The wife of the man I mentioned last week (who was proud of his financial mess), looked significantly at her husband when this was mentioned and I chuckled. Many people just didn’t want to talk about it at all. It will be interesting to see, next week, once the forms are all filled out, if anyone feels any differently.

Homework roundup: I met my goal of the $1000 emergency fund when my tax refund came in this week. The $800 put me over the top. I’m not the only one in my group who used their tax refund to make the baby emergency fund. Several people reported using their refunds to make the fund, and several more will do so when the returns come in. I will say this: Had it not been tax season, that $1,000 would have taken me a lot longer to come up with. Last week I was only up to $135. This week I got $100 from some side work that I did and a rebate check for $50 from the insurance company, plus the refund. Since I was pretending that I had no extra money in my budget, the emergency fund money was going to have to come from “found” money or other outside sources. Without the tax refund, I think it would have taken me about six weeks of side work and selling things to come up with the money. It’s definitely not as easy as it seems to scrape $1,000 together if you have nothing in your budget to work with. You’re definitely going to have to make some hard choices about what to sell, whether to get a part time job, or which services to drop.

We were also instructed to fill out our complete budgets and spending plans. As expected, this wasn’t fun. It was time consuming, too, even though I’ve done it before. I did not consult the budget that we use now, instead opting to do Dave’s zero based budget from scratch. After I got everything entered, I found that I had about $1,000 per month unaccounted for in my favor. About $100 of that went away after I realized that Dave’s plan makes no provision for pets, which we have. I still have about $900 per month that I can’t explain. No matter what I do, I cannot get my budget to zero. There is $900 somewhere that we are not spending or saving. If this is true, then I need to be transferring another $900 per month into savings. Either that or I need to be having a whole lot more fun each month.

I’ve got to do some more research to find out if this is true, or a math error on my part. I’ll pull my old budget and compare and see where I’ve gone wrong. Hopefully it’s true that things have changed somehow and I have a spare $900 each month, but I suspect math error or there’s something I’m not thinking of. If I can’t find the error, I’ll try moving $900 a month into savings and see if I run out of money. Cross your fingers and I’ll keep you posted.

Next: Dave Ramsey Financial Peace University: Week Four