Before I got a grip on my finances, I was up to my eyeballs in debt and living paycheck to paycheck. Besides having no money management skills, I didn’t understand why I struggled financially. After getting out of my rut, I identified three key things that held me back. Knowing what keeps you poor sheds light on the mistakes you’ve been making and helps you get back on track.
Cars
My car expenses were about 30% of my income. You’d think I realised that was one of the problems. Nope. I kept my car until it eventually got repossessed because I had no money to pay for it. The really bad part was that I was living in it on the street. When it got towed away, I was devastated.
But I’m not the only one who hadn’t realised that cars are a major deterrent to reaching financial freedom.
The average car payment in America in 2022 was $500 for a used vehicle and $700 for a new vehicle. Keep in mind that doesn’t include gas, repairs, maintenance and licensing. All those expenses combined make up about 30% of the average American’s income, just like it did mine.
For many people, not having a car expense means no longer living paycheck to paycheck and having savings.
That’s one of the reasons car owners may want to consider getting rid of their vehicles if possible. And it’s definitely possible if you work remotely or your city offers public transportation—those two scenarios apply to numerous car owners.
My car was repossessed in 2017, and I haven’t replaced it since. I’ve got the money to buy a new car but, more importantly, I’ve got the wisdom to know that not having car expenses helped me to pay off $40,000 of debt and eventually save up $50,000.
Just think about it—not having car expenses will enable you to dedicate several hundred dollars per month to consumer debt.
Even though my car was repossessed, I still owed the vehicle finance balance. I paid that first because not having that payment enabled me to dedicate that significant amount to my smallest debt.
Credit Cards
I don’t want to hear stories about how your credit card purchases make sense because the companies offer you points. What nonsense.
Spending is psychological. The problem with using your credit card for purchases is that you don’t see the physical money leaving your hand. If you did, chances are high that your spending pain button would be pressed. I found out about my spending pain button when I paid my rent for the first time with cash.
I was gobsmacked at the amount of money I parted with each month for an expense that provided no equity.
It feels easy to put expenses on a card. And adding several a day is a breeze. I mean, why not, right? You’ll pay the balance at the end of the month, so there won’t be any interest charged. Yeah, right. I doubt it.
The problem with credit card debt is that you can roll it over to the next month if you somehow end up not having money to pay it because you’ve exhausted your funds on other expenses, like most people in debt.
What’s worse than having a credit card? Having two credit cards.
I think it’s hysterical that some people are using one credit card to pay off another. If that isn’t a sign you need to live below your means, then I don’t know what is.
After I paid off my credit card, I closed my account and cut up the card.
Student loans
You’re kidding only yourself if you think that going to an expensive university increases your chances of having a high-paying job. It guarantees nothing except a financial burden if you take out a student loan.
I’ve got two finance degrees and have had numerous employers. Not one employer questioned me about the university I attended—it wasn’t one of the top schools in the world.
Having debt after you graduate sets you back financially a lot.
Instead of taking on student loans, you can graduate without debt or enter your desired field without having a tertiary education. How?
Take two or even three years after you graduate high school to work full-time. It doesn’t even need to be in a field you plan to study. As long it’s bringing you an income while you live with your parents to avoid paying rent. The point is to save up a significant amount of money during those three years to fund your education.
Even if you don’t end up having all the funds after three years of full-time work, you can supplement the shortfall by working weekends while you study.
You might be thinking, ‘But working for three years before eventually enrolling to study will set me back from my peers who will study immediately after graduating high school.’
Wrong.
Your peers are likely going to take out student loans, which will require them, most probably, to work for 10 years after graduating just to pay them off. You’re going to graduate without student loans.
The other option is to avoid a tertiary education by enrolling in an internship program. You can proposition a mentor to work for them for three months to gain knowledge. In exchange, you provide a free service. If they’re happy with your contribution after three months, you can renegotiate the agreement to receive payment.
You can do this whether you want to become an accountant, teacher or numerous other professions.
CHECK OUT MY NEW BOOK — From Homeless to Debtless with Savings
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