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For many of us, debt is a way of life. According to Debt.org, the average American household carries $8,398 in credit card debt. For many of us, we learned debt and poor financial management from our parents. Breaking that cycle is easier said than done.
Debt and shoestring budgets, of course, affect more than just your ability to save money. Significant financial strain can leave a brand across every area of your life.
Being “poor” is, more often than you’d think, simply a set of bad habits that can be relearned. With some basic tools and a little self-discipline, you can rise above the strain of living paycheck-to-paycheck.
If you’re ready to change the way you handle money, our guide will give you the framework for healthy financial habits and teach you how to stop being poor.
The first step to getting your finances under control is to start budgeting. Many people find the concept of budgeting to be overwhelming, but the practice on its own is actually quite simple.
You can start budgeting with just a pen and paper. You can also take advantage of the powerful tools and apps available. Many of these can be used at no cost to you.
Check out budgeting apps for our list of the year’s top budgeting apps. These apps will help you connect with your finances and start building a more stable future.
1. Getting Started with a Budget
To get started with any budget, you will first need to list all your sources of income. For salaries, this should be the figure that you take home after taxes and automatic contributions.
Be realistic when it comes to how much you typically earn. Don’t set up your budget based on a paystub from a month in which you’ve done lots of overtime or received an unexpected bonus.
If you’re freelancing or self-employed, use your average monthly income to calculate your budget.
2. Define Your Cost Centers and Learn How to Stop Being Poor.
Learning how to stop being poor is actually a simple equation. Spend less than you make.
Your next step is to list your essential expenses. You will need to jot down your rent, costs of your utilities, loan payments, insurance, and other bills that absolutely must be paid each month. These are your essentials.
Once you’ve listed the foundational expenses of your lifestyle, you can consider your other, more flexible expenses. Go grab your most recent bank and credit card statements and start dividing your payments into categories.
Look for patterns in your spending. Try to come up with 5-10 broad categories that will cover all of your expenses.
Your primary goal with this exercise is to determine whether or not your spending exceeds your income and identify any costs centers you might have been unaware of.
Now that you have an idea of where your money is going, start looking at what nonessential items you can cut out.
This could include overpayments on your cell phone bill for data you don’t use. Expensive insurance payments that could be easily renegotiated, gym memberships you don’t use, app subscriptions you don’t need.
If you’ve scanned your statements and found that every time you work late, you drop $20 on drive-through dinners, you could easily be throwing a significant portion of your income out the window.
You might be surprised to find out just how much you can save when you cut out unnecessary spending. Even something as simple as buying a coffee on your way to work every day could add up to hundreds of dollars each year.
You might discover that you can save money without compromising your lifestyle. Can you walk to work? Could you pack your lunch? Can you brew your morning coffee instead of using a Keurig pod?
Find your savings opportunities and commit to making better financial choices. If you’ve resolved to make some changes and learn how to stop being poor, cutting costs like these can be empowering.
4. Slash Expenses with Big Changes and Figure Out How to Stop Being Poor
Learning how to stop being poor means that you will need to start making changes to the way you live. CNBC has reported that nearly 25% of Americans are going into debt paying for basic necessities.
If you’re like many millennials, you’re probably looking at your nonessential expenses and realizing you don’t actually have much wiggle room. If that’s the case, getting out of debt will require some major lifestyle changes.
Consider downsizing your apartment, taking on a part-time job, or even selling your car to save on the skyrocketing costs of owning a vehicle.
NerdWallet suggests that it costs over $700 a month just to own the average car. And, that doesn’t include major repair costs or increasing insurance prices. Selling your car could free up a huge portion of your monthly income.
Services like Turo.com offer alternatives to owning a car that can come in handy when you need transportation. Turo sets users up with an awesome car-sharing network at prices that beat rental car agencies every time.
Even if you spend an average of $35 a day on a car and rent 18 days out of a month, you’d still be saving money over the average cost of car ownership.
Does your car sit in the driveway most days? You can also use Turo to make your car work for you. You can rent your car out to users of Turo and earn a little cash on the side.
If you’ve started budgeting, but you’re still struggling to make ends meet, the problem probably extends to your income.
If you’re under-employed like the nearly 22 million Americans that PayScale found to be holding a job that uses doesn’t require their experience or education, it’s likely that your income is not sufficient to cover the costs of your basic lifestyle.
This can be particularly problematic if you live in an area where rents are high, but wages are low. In this case, you will need to look for ways to increase or supplement your existing income.
The first thing to investigate is how you could potentially earn more from your current job. According to Forbes, there are some simple ways that you can make more money just by opening the line of communication at your current workplace.
You will need to be proactive by asking for a raise and inquiring about promotions. But there is a strong likelihood that, if you bring value to your employer, they will be willing to scale up your pay—to a degree—to keep you.
If earning more in your current job is just not an option, you’ll need to get creative. If you’ve come this far and are still trying to figure out how to stop being poor, get ready to join the nearly 1 in 3 Americans with a side hustle.
There are lots of digital communities, apps, and websites dedicated to earning a part-time income. Check out some of the most popular side hustles in America.
If you have a hobby that you’re passionate about, think about turning that into an income stream. Take your talents and turn them into revenue by accepting freelance work, becoming a YouTube content creator, or starting and monetizing a blog.
There are a ton of resources out there on starting your own business or side-hustle. There are even whole Facebook groups dedicated to monetizing your passion and earning your first $1,000 in just 30 days. Do some research, and find something that interests you.
The next step in the journey to figuring out how to stop being poor is to stop creating debt. Now that you have a budget in place and you’re trying to maximize your income, it is crucial that you keep track of your spending and refuse to add to your debt.
According to Due.com, you may be able to negotiate with your credit card companies to land a better interest rate.
Lower interest rates mean that you can pay the same amount on your monthly balance that you are now, but a larger portion of that payment will go to your principal balance.
Of course, to make progress in paying off what you owe, you need to stop taking on more debt. Don’t make purchases on credit, and don’t open any new cards or take out new loans.
Be sure that you’re paying all of your bills on time to avoid incurring penalties and fees that will add to your debt.
Start Paying Off Debt
Once you stop adding to your debt and sticking to your budget, your bank balance will start giving you the freedom to pay more than just the minimum balance on loans and credit cards.
Many lenders will agree to payment plans to help you tackle your debt. This might involve a reduced interest rate or even freezing the interest so you can pay off more from the balance.
Call your lenders and discuss your options, then create a payment strategy and stick to it.
Once your debt is being at least maintained at the current level, you can start to prioritize your savings. Following the rules that govern how to stop being poor, can be hard. But with a little planning, it can be accomplished.
Even devoting a small percentage of your income to savings each month can make an impact. It will start to add up before you realize it.
Set up a separate bank account for your savings. You can create an automated rule through your online banking platform that will transfer a set amount of money to your savings whenever your paycheck hits your account.
You need to be realistic about how much you save, so you’re not forced to dip into your savings at the end of the month. Ideally, you should be saving 20 percent of your income each month.
In the early days of trying to stop being constantly broke, however, this may not be possible.
Although many of us have grown up with a taste for consumerism, if you want to stop feeling broke, learn to value experiences rather than objects.
There are lots of activities and experiences that are either free or cost very little. Many will offer up that same high you get when you run through Target.
During the holidays, try making DIY gifts or giving vouchers for things like babysitting or helping around the house. Presents like these cost you nothing and encourage you to spend more time with your loved ones.
Learning how to stop being poor might feel like an impossible task, but if you take it step-by-step, you can get control of your finances.
By being realistic about your spending and sticking to a budget, you’ll be able to make the money you do have stretch farther.
Use the freedom your budget affords you to pay off debts and start saving money so that you can make better financial choices and work your way up to a better quality of life.