Personal Finance

How to Get Out of Poverty and Stay Out

(This is written for those who are able to work.)

It can be easy to make money, but it is harder to keep it.
The following steps are designed to give you a simple process to build wealth and not have to rely on debt, financial institutions, friends, family, or government:

1. Work
In most cases, receiving income requires providing a good or service of value. There are many creative ways to earn a living or extra income nowadays with all of the gig jobs that exist now such as Uber, Lyft, Grubhub, DoorDash, Postmates, Shipt, etc.

2. File your tax returns
People leave a lot of money on the table by working and not filing their tax returns. Some tax credits you may be able to receive as a worker are the Earned Income Tax Credit (EITC) and the Retirement Savings Contributions Credit (Saver’s Credit).

3. Figure out what your goals are
Your decisions should always go back to this question: Will doing this help me achieve my goals?

4. Create a spending plan (or budget)
And stick to it. By limiting your spending based on your goals, you will actually be more able to reach them.

5. Build up an emergency fund
If you have high-interest debt (anything with an interest rate of 5% or higher), build up a small emergency fund of about 1 month of expenses, then pay off the debt. After that, build up the rest of the emergency fund.

6. Continue paying off high-interest debt before interest is charged
As of Q2 2020, new credit cards have an average APR of 17.89% (source: WalletHub). This is almost double the average annual return of the S&P 500 over the last 30 years.

7. Invest using a diversified proven system
This is wise for many reasons:
1. Our money can earn money for us.
2. We reduce unsystematic risk by diversifying.
3. Using a pre-determined system of investing prevents us from making trades based on emotions and market-timing.

8. Own property
This comes down to the rent vs. buy decision. A rule of thumb is if you are going to live somewhere for less than 3 years, you should rent. If you plan to live somewhere for longer than 3 years, buy. I tend to lean toward buying over renting, in order to pay toward ownership.

9. Seek counsel.
Make sure you run things by multiple wise advisors who you trust; don’t make decisions in isolation.
If you have an addiction related to money, seek help. We all face difficulties in this life and we all need help almost all the time.

See also:
How to Be Your Own Financial Planner (Basics)
Pro Tips: Red Flags to Look for in an “Investment”

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