The Cycle of Poverty: Why Do Some People Stay Poor

Why are some people always poor?

In the recent past, lots of research has been carried out around this question, with researchers seeking to understand why some people are extremely poor, while others seem to have more than enough?

One such study found that one of the main reasons people stay poor was mainly due to differences in fundamentals such as effort, determination, and intelligence - the three basic ingredients of success. 

At first glance, this might sound too ‘sciency.’ However, it all boils down to the little things you do every day with the intention of improving your financial situation - things like choosing to cut down on impulse buying and instead choosing to invest the money in the stock market. 

While some people are stuck in poverty due to unfavorable circumstances (such as differences in opportunities that stem from access to wealth), the majority of people are in the poverty cycle due to a culmination of various wrong financial decisions they make every day. 

This article lists some of the most common reasons you might be stuck in poverty (and what to do to get out).  

You Are Not Making Saving a Priority

Many people assume that you have to earn a certain amount before you can start saving. 

However, regardless of how much or how little income you earn or what stage of life you are in, it is critical to prioritise saving. The sooner you begin saving money in life, the more financially secure your future will be. Your mind will be at ease if you have a financial strategy in place for the future.

It's not the amount that matters but the habit. You wake up every day and brush your teeth. It is a non-negotiable for you before you start your day. So why not apply the same habit in saving?

It's all about priorities, and if you're not making saving a priority, it will be challenging to save regardless of how much money you make. 

Also read: 11 Ways to Save Money Without Driving Yourself Crazy

You Always Spend More Than You Make

We are currently living in a ‘spendy’ world. The ‘retail’ has officially won the ‘mind game’ and now, all everyone is thinking about is buying the latest, newest merchandise. 

In addition, social media today doesn’t make the situation easier. It's easy to be swayed by flashy lives (or the illusion of it). This can make you want to compete to match up with your peers even if you are not in the same earning bracket. You see people showing off flashy cars, new iPhones, dreamy vacations, and you want to be like them. 

You do not want to be left out. You feel like you are missing out on great experiences. So you start spending the little that you have to earn these experiences. You spend more than you have and even get into debt to maintain this lifestyle.

If this is you, it's time to take a hard look at your spending. Cut off any unnecessary items from your budget and start saving. For instance, if you take taxis when you can comfortably use public transport, you are just making a dent in your budget with no backup plan.

Also read: What Your Budget ‘Should’ Look Like on a Ksh50K Salary (50/30/20 Rule)

You Lost Track of Your Finances. 

The foundation of good budgeting is tracking expenses. You are not likely to have an air-tight budget if you can not remember what happened to the Ksh10,000 you received from the sale you made last week. Did you spend it on groceries, or did you spend half of it when you went to ‘dunda’ last weekend? 

Tracking your expenditure regularly gives you an accurate picture of where your money is going so you can make a better plan of where you’d like it to go instead. So ensure you record every single coin. Thankfully, there are hundreds of apps on your phone or computer that can help you keep track of your expenses. 

Financial literacy is an integral part of success. When you know how to take care of the little you have, you will appreciate its value and do more to increase it.

Also read: Is Your Budget Failing? 5 Ways to Fix It.

You're Investing in Stuff Instead of Yourself.

Why do millionaires always talk about investing in yourself? What does it even mean? 

Most poor people do nothing to help themselves get out of the cycle of poverty. If you're investing in stuff — buying nice clothes and cars — instead of yourself, you're investing in something that will lose value over time.

If you want to make more money, you have to plan how to make more money. If you want to save more money, you have to plan how to save more money. All this requires a good understanding of money. It requires a great deal of financial self-awareness. 

So one of the most important steps (if not the most important) to get you out of poverty is to invest in yourself. Invest in your education. Invest in bettering yourself first before you can better your life. 

Read as if your life depends on it - because it does. Learn everything you can about money. This way, you will progress financially and, soon, you will be able to afford anything you want without too much struggle. 

Also read: Money, Wastage & Me: Regrets, Lessons From 10 Years of Employment.

You Don't Have a Money Plan

Do you have a future financial plan? Or do you just go with the flow?

The truth is, there is a huge difference between the person who works with a plan and a person who lives as life presents itself. Lack of planning may not be why you're stuck in poverty, but it can certainly keep you there. 

To get out of poverty, a person needs to have an elaborate future financial plan. Draw and follow realistic short-term and long-term financial goals. What do you want to achieve today? Next week? Next month? What about 5 years from today?

You need to envision your future self and draw a realistic pathway to getting to that person. This gives you the motivation to do better. 

Many poor people won't even make a budget because they fear what others think of them. 

But a budget is essential to getting out of debt, building wealth, and even achieving happiness. You have to envision where you see yourself in five years. Do you plan to be doing the same things? If not, start making short-term and long-term goals now.

You Don't Separate Wants from Needs

In economics, the difference between a need and a want is described as: 

A need is an essential requirement or a necessity, whereas a want is a desire. The fulfillment of needs is essential for one’s survival, whereas fulfillment of wants is not essential for one’s survival.

For instance, you can't survive without food, shelter, or clothing. However, your monthly internet subscription and cable television are nice but aren't necessarily needed for survival.

Some people are stuck in the mentality that money is for spending. But to build financial freedom, you need to learn to spend money on things that add value to your life instead of just buying whatever pleases your eye. 

You Focus on Depreciating Assets

Rich people tend to spend money on tools that make them more money in the future. These are appreciating assets, like land or stocks. 

On the other hand, poor people want simple joy from depreciating assets such as cars and highly-priced cell phones. These things depreciate every passing month. You spend a lot of money on them but won't reap any financial benefits.

So why buy them? You need to shift your focus to increasing returns on the money you have.

Also read: Bad Spending Habits That Are Making You Poor: How to Break the Cycle

You are Unwilling to Make Any Sacrifices

Have you heard of this saying: 

"If you are afraid of getting a four-year degree because you will be 40 by the time you finish, you will still be 40 in four years even if you don't get that degree." 

Most things in life need a little bit of sacrifice. For example, you are not likely to get fit if you do not sacrifice hours and hours for working out. 

When you make sacrifices, you either end up with success or lessons. If you don't make any sacrifices, you remain stagnant, and that opportunity may never come again.

The comfort zone is a familiar place, but it is not the final destination. There are two types of people in this world: those who are actively working towards getting rich and those who just want to be rich. 

Also Read: Six Sacrifices You Need to Make to Escape Poverty

WRAPPING UP

As much as there might be other factors contributing to being poor, your money mindset is the main contributing factor to whether you will be financially successful or not. 

To be successful, you must be willing to take the necessary steps, however small, to pull yourself out of your current situation.

Also Read: Money Mindset: How a Scarcity Mentality is Making You Poor