Lessons from being Poor

“Poverty consist in feeling poor.” - Ralph Waldo Emerson

Reuters reports that one in 10 Americans (32.2 Million) are now receiving food stamps. An all time high. For many people this will be a new experience – coping with being poor. Sadly it’s much easier to become poor than it is to become rich.

Spending is easy! I knew one family with an adult daughter who had no intention of ever paying off her credit cards. It was free money to her. Another person once told me that "poor people" need budgets. My retort was that without a budget even the rich will become poor. It is not uncommon for lottery winners, celebrities (Michael Jackson), and sports stars to spend their way into bankruptcy.

What happens when the money runs out? I’ve written before about how the poor times of the Great Depression affected my grandparents. My Mother’s parents became pack rats. Nothing was ever wasted or thrown away. My Father’s parents became minimalists; living a simple, uncluttered life with long-lasting, quality belongings.

Successful SciFi author, John Scalzi, recently wrote about how Having Been Poor impacts his buying habits today even when he has money.

1. “I tend to save a lot more of my income than most people I know, so that if the bottom drops out of my life, I have a cushion.” Scalzi saves 20% vs the average of 4%.
2. “I’m notably debt-adverse. Having seen first-hand how debt screws with people.” He uses primarily an American Express card that requires full payment each month.
3. “We don’t get fancy with the debt we do have, namely our mortgages.” He has a simple 30-year fixed-rate mortgage.
4. “I buy for value over flash.” Scalzi expects his car to last 12 years. After purchasing a new computer, the old one goes to his daughter. He’s annoyed that a cell phone or blackberry will only last 2 years.
5. “You’re also not going to be seeing me spend conspicuously.” Before buying something he asks himself, “why are you spending money on that?” If there is no better answer than “it looks pretty,” he tends not to buy it.

Bottom Line
Scalzi sums up what he learned from being poor as “Don’t buy what you can’t afford, don’t buy what you don’t have use for and have enough on hand for when life whacks you upside the head.”

PBS Celebrity & Financial Advisor Suze Orman is also urging people to SAVE money. "If you have an unpaid credit card balance [and] not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can," Orman said on the Oprah show.

Yes debt is bad. It should be avoided when possible or paid off ASAP. But in today's economy you might lose your job tomorrow and you will need an emergency nest egg to cover 8 months of bills. Don't count on your credit cards to carry you through unemployment. You might max them out and then what have you got?