Why people are still poor

I recently read the book “Rich Dad, Poor Dad” (borrowed it from the library, being a cheapass). It really opened my eyes. Robert Kiyosaki doesn’t blame anyone for anything; he simply tries to educate the poor to become rich, or at least have enough income to live a good life.

Sadly, only 1 out of 1000 will follow his advice and make serious adjustments to their finances. Americans on average borrow 2% more than they earn! Why the hell would normal people buy new stereos or MP3 players on credit, when they can’t even repay it back? Yet this is what normal people do.
Before reading Rich Dad Poor Dad, I spent 80% of my income on instant gratification (restaurants, new mobile phone, other stuff teenagers buy), saved 10%, and used 10% to pay for my school books.

Since I read and understood the book, I spent 80% of my income on investment and business (currently negotiating with banks for mortgage for an investment property, set up business which is making enough passive income to support me), 10% on school books, and only 10% for instant gratification.

Yet one of my friends earns almost double my income. He recently blew $1000 on a new mobile phone, $400 on new clothes, and $5000 on a vacation to Europe. He is “poor”, yet his parents are well off with a solid income.
I’m not communist, but I believe that if we were all to seriously review our financial situation, and the financial situation of the rich, we would find completely different habits. When I worked for a local property investor, to my surprise I discovered when she was younger, she never had any “luxury” items! No cars, boats, etc despite a high income. Her first luxury car was brought when she was 30, and with a property income of over $100,000. I was shocked! I didn’t understand then how anyone could survive without the luxuries of new mobile phones, computer games, or other instant entertainment.
Its sad that our consumer society wants nothing more than instant gratification. What is more sad is that people are becoming poor because of it. When was the last time you ate out? How much did your mobile phone cost? How much internet fees do you incur? Phone calls? How much do your clothes make?

And the big question: how much of your income do you spend on smart investments, excluding bank deposit and fund management?

By the way, do you know if you saved $20 a day (when you grow up and start working) then put it into property, you will be a millionaire within 37 years? Amazing isn’t it, yet people are still so poor. $20 a day can be saved by not buying any luxury goods, not buying a new watch, buying clothes at discount sales and avoiding brand names, not eating out (making your own food), cutting back on all soft drinks (which is bad for you anyway), and limiting entertainment to one night per week. Its achieveable.

Of course with 2% inflation the million dollars winds up being ~500k. Nice, don’t’ get me wrong, but still not a million dollars.

Personally, I never really learned any money management skills from anyone, and I doubt many in the US or Canada do either. Aside from the Mom and Dad bit about avoiding debt like the plague. Which, now that I think about it, covers credit cards, being house poor and luxury items.

Is this a debate topic or a manifesto?

Property investments must be carefully researched and even then, there is a considerable risk element involved.

Also, your $20/day works out to $7,300/year. For an average someone’s after tax income, this would be an incredible burden. Yet I suppose it is achievable if someone foregoes “luxuries” and the like - such as marriage, having children, etc. But the economy survives and grows due to consumer spending. And the population sustains itself by people having families. The balance between those who choose a life of incredible patience (37 years) for a measly million dollars (inflation will eat away at that - would you rather have $1 million living in 1966 or $1 million living in 2003), those who choose to live within their means, and those who take on the risk of over-extending themselves seems to be working relatively well.

BTW Sinful, people are anxiously awaiting your replies back in your other thread.

If everyone suddenly saved $20 a day and stopped buying luxury goods, new watches and clothes, and eating out for dinner, the rich of today would be the poor of tomorrow.

Most rich are not independent, no matter how much they think they are. If people stopped buying newspapers or subscribing to cable or wasting electricity by watching the local news(because remember, these things are luxuries), then media honchos would be broke-ass losers. If people put all of their money in investments but stopped drinking soda or buying name-brand cereal or stopped blowing their noses with Kleenex instead of toliet paper, then somebody’s CEO is going to be jumping out of a window.

Capitalism and thrift do not go hand-in-hand. When Bush cut everyone those wonderful $300 checks that time, he urged us to spend that money, not to save it. Why? Because our economy ceases to function when people use common sense. Bush would rather we donate our $300 to society in the form of a brand new appliance than to lock that money away for the future benefit of ourselves and our children.

So on an individual level, you’re right: save that money and you will reap the benefits. But don’t spread that advice around too much. The savers and investors–just like the CEOs and the media honchos–benefit by keeping this advice on the down-low.

I’m glad you’ve figured out the secret to wealth. Now come back when you are a single mother, when you’ve been unemployed, when you have a health problem that wipes out your savings and when.

This kind of talk coming from an apparent college student who apparently doesn’t have to pay rent and has enough money to be buying property doesn’t hold a lot of weight. The middle class may be spending their money willy-nilly, but the poor arn’t.

I’ve got a budget of $20.00 a week for food, entertainment and travel. How exactly do you expect me to save $20.00 a day? If I had $20.00 a day I wouldn’t be bitching about being poor! I guess I could do it if I didn’t have to pay rent (which takes us 80% of my income) but then I’d be homeless and that’d bring along a whole different set of problems.

For somebody making minimum wage, $20.00 -after taxes- is four hours of work. That is half their day. I’d pretty much assume they need that money. Rent may be free to you, but it’s not to the rest of us. We’ve got bills to pay, kids to feed, tuition checks to write, holey underwear to replace and yet another round of dried beans, peanut butter and top raman to buy. The poor arn’t buying thousand dollar cell phones, they are scaping by to meet their bare neccesitites. You simply have no freaking clue what the real world is like. It’s not so simple when nobody is paying your bills.

The only shocking thing here, folks, is that there are actual adults that still hold this view. They never think to ask where they got their college tuitions, their social connections that net them nice jobs, their first cars so they could drive to said job, their home where they could cook and shower and all the other advantages that come from entering adulthood in a reasonable well-off family.

Apart the fact that if everybody invested 80% of his income (or…let’s just say 80% of the part of their income which issn’t semt on absolutely necessary goods, like food, shelter, etc…) , the whole economy would collapse, they would be soon unemployed and without any income at all to spend or invest…

I would point out that “gratifications” is what makes life pleasant. Sure, you can live eating only noodles and never spend a dime on anything gratyfying, and I did (but out of necessity, not by conscious decision) and 37 years later, you’d be “sort of” rich. Assuming you begin doing this around 20, you’re affluent at retirment age. Your health isn’t as good as it used to be. The major part of your life is behind you. It was never a very pleasant life, since you deprived yourself of everything you would have enjoyed.

But…yes…for the years you still have to live, you probably (assuming your investments were wise, and a large part of them weren’t, in , say, Enron stocks, of course, in which case, you’re screwed) will have a pretty confortable life.
Hmmm…Am I going to buy in this scheme? Don’t think so…
Anyway, nope…not everybody can do this and become a millionaire (I’m assuming millionaire in dollars worth more than monopoly money). You won’t be able to invest most of your money with any serious perspective of getting a significant return if everybody is trying to do the same thing at the same time, and nobody is buying anything anymore. If you invest you’re money, in, say, property, it will soon be worth nothing, because nobody will want to buy it (they all are saving money). If you invest in a business, this business will go broke, because nobody will buy its products, etc…

Finally, may I point out that a lot of poor people already live without going out, without buying expensive watches, and stereos, and cars, without eating out, without travelling in Europe, etc…? And still have no money left at the end of the month to invest in anything?

You’re talking about investing “only” 20 /day. There has been a period in my life when I would have have been mighty pleased to have a *total income* of 20 /day. And most certainly plenty of other posters could rely.

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That is the answer. If you are still unclear, try this exercise:

Find out how much minimum wage is in your area. From that figure out how much monthly income a minimum-wage worker would get.

Subtract taxes.

Find out how much the cheapest bachelor apartment is in your area and subtract that. What you have left is how much that worker has to spend on “luxuries”.

From that subtract your $20/day for “investment”.

Now, how much is left to buy food/clothing/transportation/insurance etc for the worker and his/her hypothetical family? What if the worker had other costs, like an illness requiring prescription meds, or glasses, or mobility devices? Or wanted a place to live that is not the cheapest in the area?

E.g. in Toronto, the minimum wage is $6.85 per hour. Working 40 hours a week, your monthly gross income would be $1096 or thereabouts. Assume a 20% tax rate (what I paid when I made minimum wage) and you get $877/month.

Rents vary but you can’t really get a single room downtown in a shared house for less than $600/mo or so. I haven’t seen a bachelor for less than $800 and those aren’t bachelors I’d recommend living in.

(Notes: living not downtown will cost you $100/mo (to start) to get yourself to your job, unless it is really close. And living in a shared house is not an option for many people, eg those with families.)

Leaving a grand total of $77 per MONTH for all the other little luxuries like food and transportation and clothing.

Geez louise, man, everyone does NOT have the same lifestyle you do.

I gotta ask, how old is the OP? The implication seems to be he/she is still in college.

Do you pay for where you live, rent or mortgage payments? Utilities and such, like water and sewer service?
Car/Health/Other Insurance?
Various property taxes, including car tags and such?
Do you have children?

Gah, I’m having trouble not coming to the conclusion that the OP hasn’t the faintest clue what it costs to live in the “real world.”

Also, if you really want your eyes opened, ask yourself this: you say “restaurants, new mobile phone, other stuff teenagers buy”… how many teenagers do you think there are in the world that have the luxury of even choosing to buy things like new cell phones?

The other shocking thing is that the poor really don’t understand why other people aren’t that way.

Paid for it myself.

Actually, I got my first “nice” (read, enough to move me up into the lower middle class) job on my own. None of my family lived in the same city where I started my career.

Didn’t have a car until I got married. I took the bus.

My family did not buy my house. Nor did they pay my rent on my apartment.

Rich people should have realistic ideas about how poor people live. Poor people should have realistic ideas about rich people live.

To assume that every middle- and upper-class person had it handed to them on a silver platter by Daddy is a serious mistake.

Look, we are all sorry that you are poor, sven, but not all of us spent a fortune on studying films in college. Some of us actually have saleable skills. Those that don’t, tend to earn less than those that do.

This is rather different from being born with a silver spoon in your mouth.

Regards,
Shodan

I believe it’s witnessing :wink: …and as such, totally appropriate in this forum…

His advice is good advice for people in his situation. I love the types of responses on this board. You never know what ppl will throw at you.

BTW, I am not in his situation… I used to be, but i squandered it.

Shodan You’re barking up the wrong tree.
Sven was only pointing out that some people just don’t have $20 a week to put away in savings.

Obviously, someone who thinks they do and that that’s the answer to poverty, needs a reality fix.

Damn, I would love to only have 10 percent of my income go for bills.

Maybe, but several posters, me included, are under the impression that the OP might be in this situation, given that apparently, as a teenager, he’s in a position to choose between buying expensive goods or investing 20 $/day…

even sven hasn’t been studying films all of her life. She was born broke, raised broke, and currently lives broke. But that does not mean she can’t one day be not-so-broke or even rich.

Those of us who are not broke, especially those of us who were born broke, should thank God that we were blessed with the luck that helped us to get out of poverty. What’s missing in Sinful’s “advice” is the importance of luck. I can do the right thing and put all of my money in good-sounding investments, but if a bunch of white-collar thieves mug me ala Enron, my “wisdom” comes out to naught. If I save my $20 a day, then I get laid off of my job, and then flounder in a piss-poor market for a year or so, I’ll be glad I saved my $20, but I can kiss my “riches” goodbye.

A combination of financial decisions and bad/good luck is what makes a person rich or poor. Because no one knows just how much “good luck” has come their way or how much “bad luck” has faced others, no one has the right to judge another person based strictly on financial statements.

Ran some numbers
$20/day 365 days a year @ 6.5% rate of return
36 Years to reach $1 Million

Now if Sinful actually meant $20 a week
$20/week 4 weeks per month (yeah I know) @ 6.5%
66 Years to reach $1 Million

Oh dear, he did say $20 a DAY!!!

For some reason i’m ashamed to say this, but i’m a college student. Costs for the above are thus

rent - $460 (i have a roommate to share that 460 with)
water, sewer & property tax - included in the rent
car - $160 a month
health insurance - none, i have a discount dental & prescription plan though.
car insurance - averages to $120 a month

When my brother was in graduate school in Ohio he & his wife survived on 1100 a month post tax income. They made 1800 a month and saved $4500 in 6 months. They still had a clean 2 bedroom apartment, furniture, 2 cars they had to pay for the payments of and insurance to (a geo & hyundai), cable tv, food, internet, etc. I think in San Francisco, where they worked for the ‘living wage’, it came out to be about $10.50 an hour, $21k a year.

Many people here who will say ‘it takes 50k a year to live’ or something to that effect probably managed to survive on 12k a year back in college (assuming you have no dependents, major medical problems, or major expenses outside of food, shelter & transportation). Sinful is just pointing out that saving money will provide you will a better lifestyle later than spending it will provide you with a better lifestyle today.

Even for all of Even Svens talk, she manages to survive (barely, with little food and no medical attention) on $900 a month or so. If she ever ends up living outside of California, where real estate is lower, that number could come down and she would have enough left over to get better food & better (although not complete) healthcare. people are just pointing out that if she made $2000 a month post tax she would be able to save alot of her income.

No one is arguing that saving money if you can is bad or even that a little self denial for future payoff is bad. We’re saying that the idea of the working poor setting aside $7300 a year to get a 1 Million dollar payoff when they hit +50 is completely out to lunch and avoids the realities of the situation.