By Robert Alan Stewart
Struggling financially? A lot of people are even though they give everyone the impression that they have it all made. They are working, live in a nice house and drive a nice car but are living from payday to payday. Here are 8 major causes of poverty.
Living beyond your means
There is no getting away from it. If you spend more money than you earn then you must be getting your extra money from somewhere and that almost always means borrowed money, also called buying on credit. There is a cost to all of this and it is called interest. If you are in the habit of buying stuff on credit then the interest you are paying during your lifetime will add up to a fortune. The interest is sometimes called dead money because you have nothing to show for all of the interest you are paying.
Think of what you could have spent with all of that interest. It is almost too painful to even think about but if you are to avoid poverty then you need to pull your head out of the sand and face the facts; your financial future depends on it.
Keeping up with the Joneses
Some people try to keep up with their peers with whatever they are spending their money on. It’s a compulsion that will cost you plenty. Living up to some kind of self image will severely dent your finances and will prove costly by the time you stop working. You may think your peers are doing well financially to afford this stuff or even think they have done well for themselves but what you don’t know may surprise you. That they may be up to their eyeballs in debt. Even if they are living within their means to finance their lifestyle it does not mean you have to keep up with them.
Don’t be a people pleaser and live up to other people’s expectations, live according to what is the right course of action for your own circumstances and you will be far happier.
Consumer debt or dumb debt as it is often called is purchasing stuff with borrowed money. It is spending tomorrow’s income today. Debtors are usually oblivious to what is happening to the so-called stuff they bought on credit; that their newly acquired possessions are worth less the minute they have bought it. A crucial factor which needs to be observed is this; The money owing on the item is always more than what the item is worth. No one so many people are caught up in the debt-poverty cycle and it is not just those on lower-incomes; in fact people on a middle -income are prone to this trap.
Commercialism during the 20th century has brought a lot of prosperity; it has provided jobs and created countless businesses but there is another side to it. The first world poverty which is caused by an insatiable appetite for things. People are not content with just stuff they need but keep wanting more. This all has to be paid for, it is money that could have been used to build a financial base for their future.
Addictions are very expensive; just ask any smoker. One does not need to be a mathematician to calculate how much cigarette smokers are paying for their addictions. It is estimated at over $100 NZ per week. That equates to five grand per year and fifty grand per decade. No wonder many smokers are broke. It is the same with those who are addicted to alcohol and the pokies.
Financial illiteracy is the major cause of financial poverty and it is not only those with low incomes who are financially illiterate; people on a high income can also be guilty of this. You hear stories of successful sports people who earned millions during their heyday but are broke years after their retirement. It is important to save and invest your money during your best earning years to set you up for when you are no longer earning as much.
Not taking responsibility for your own finances is irresponsibility. They will come up with all kinds of excuses why they have not joined kiwisaver or are not contributing. Excuses such as, “You can’t take it all with you,” “I might die before retirement,” or “I’m only young.” People who are irresponsible with their finances tend to be irresponsible in other areas of their lives as well. Making commitments whether it is in a relationship, owning a house or car, or saving for your retirement takes responsibility and that is what separates the men from the boys.
There is no doubt that bad company is a major reason why so many people are living in poverty. It has been said, “You are the average of the five people you spend most of your time with,” so it pays to examine who you are hanging out with and ask whether their attitudes and opinions on finance are influencing your money habits. In order to grow you need people to help and encourage you. This sometimes means separating from bad company. Some find that hard but in the long run it is all worth it.
Robert Alan Stewart is based in Greymouth, New Zealand. His main interests are horse racing, farming, and writing.