Just because you don't make a lot of money, doesn't mean you can't save some. Technically, my income is below the poverty line in Canada, and by 'technically', I mean it is. If you're like me (no special skills, suck at math/ science and socially awkward) you have to go the extra mile to save and do what others are afraid, scared or mostly embarrassed to do. First, lets be clear, if you don't have a job and don't want to work at all then sorry, I can't help you. You must have at least some motivation to work, and if you don't, you could never accomplish the 5 steps anyway.
1. No Debt - If you're poor (like me), and you have debt, or worse, high interest credit card debt, it is virtually impossible to get ahead. Even if you save and are good enough to get a decent return in stocks, the 20% interest on credit card debt effectively cancels out any returns, and you are still in the hole. So pay off your debt, or never go into debt.
2. Set Achievable Goals - If you're poor, the savings process starts off very slow and can be frustrating when you're trying hard to save but have very little to show for it. You must start small; save $50-100 per pay check and build up from there. One of my favorite small goals is to not spend more then $5 a day on discretionary items including food. Some days I go way over but if you are trying hard, you will save extra.
3. Think Long Term - Investing is a marathon not a sprint. The money that you save should be put away until you are financially secure. Being a long term investor sounds easy, yet when you wake up one day and all your investments are down and doom and gloom is preached on the television, the easy thing to do is sell. Not to mention, the iPad you always wanted just went on sale. Will you cave and spend? (Wait, iPads never go on sale)
4. Think and Act Independently - I find this the hardest thing to do for most people. Generally, people are slaves to society and what other people deem as normal. In my late teens, early 20s, friends of mine would spend a lot of money partying/ drinking, going shopping or collecting DVDs. You must create your own path. If you want to get ahead financially, and you're poor (like me), you simply can't afford to do the above things frequently. Otherwise you'll just be like everyone else; even more poor and in debt.
5. Consolidate Your Expenses - If you're poor, and you just make enough to cover rent, you have to decrease your fixed expenses if you want to get ahead. The easiest way to do this is to find roommates to move in with, or downsize your living space. Maybe there's a nice basement apt in a neighbourhood that has some character (ghetto) that will cut your rent bill in half. If you took on too big a mortgage, admit your mistake and sell your house to downsize. As a renter, go the roommate route or find a significant other to split rent. Id recommend moving back with parents as a very last resort b/c it's not worth going into debt if your just getting by.
Maybe there should be a number 6, embrace thrift. We don't need 95% of what we buy. If you spend $20 a day on any number of things, that's $7300 a yr, a decent amount to begin saving. The more thrifty I get, I realize how society shapes us to consume things we don't need. As a teenager, I use to feel sad after I bought an expensive pair of shoes because I knew I didn't need them and they wouldn't make me any happier. All that was left was a whole in my wallet and empty feelings. Remember that feeling, because you don't have to feel like that again if you take control and act independently. (see #4)
Any questions, email me personally. I'm John, my passion in life is teaching about saving, investing and stocks. Glad to answer questions or chat. john@riseofamillionaire.com
John Laframboise is founder and author at http://www.riseofamillionaire.com/, a personal finance Blog that follows his progress to become a millionaire. John has held positions within the Canadian banking industry and has a Bachelor of Commerce from the University of Windsor in Canada.
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