How to Escape the Poverty Trap for Good

How to Escape the Poverty Trap for GoodWhether you’re new to adulting or have a few decades of work experience under your belt, financial security is something we all long for, in one way or another.

But the grim reality is that people who come from financially disadvantaged backgrounds have a much tougher time getting there than others.

Many of them are genuinely willing to do whatever it takes to improve their circumstances and escape beyond the clutches of poverty, but find it hard going.

For them, climbing out of financial hardship is like walking up an incredibly steep mountain during an avalanche. Tons of efforts went in, only to end up right back where they started – at the bottom of the mountain.

I guess that’s why it’s called the poverty trap.

But if a secured financial future for you and your future generations is what you’re striving for, I’m pleased to tell you there’s a way out.

What Is the Poverty Trap?

A poverty trap is exactly what it sounds like – a situation of constant scrimping and living paycheck-to-paycheck that you don’t see a way out of.

As we all know, it’s much easier to acquire more wealth if you’re already wealthy. But for the vast majority of people who’re literally starting out with $0, any attempt at making financial progress is met with endless obstacles.

Although the absence of economic means is the core of the issue, high cost of education and health care, rising costs of living, limited earning potential, dwindling or inadequate social aid are often to blame as well. Circumstantial factors like disability, single parenthood, health issues, and the lack of familial support also play a role.

All of these factors either place a low ceiling on how much a person could earn in a lifetime, or burden them with extra expenses, or both.

As a result, people in poverty are unable to amass the steadily growing levels of capital they need to get out of the woods for good, nor the resources to access this capital.

That means upward mobility is almost out of reach, and the lack of opportunities and resources make it harder for the next generations to climb up the ladder of prosperity too.

This creates a cycle of insufficiency, and hence, the poverty trap. 

How to Escape the Poverty Trap for Good

When you’re putting out one financial fire after another and never seem to catch a break, it’s hard to focus on building and following through on a longer-term financial plan to break out of the perpetual cycle of poverty.

But hey, if you’re actively searching for a solution, you have a decent chance of succeeding.

Here’s what you can do:

Obtain an Education

Education is key to advancing in life. The direct link between education attainment and earning potential has been solidly established for most parts of the world.

And by education, I am not just talking about getting a formal education from a reputable college.

While acquiring a diploma could unlock high-earning career paths, it doesn’t always make financial sense to set aside a couple of years for a fancy degree.

So don’t overlook any opportunities for growth and development of marketable skills – books, on-the-job training, seminars, and online courses. There is no shortage of resources that can teach you anything from coding, to affiliate marketing, to SEO.

If a 180-degree career change is what you’re after, I recommend you to follow these steps:

  1. Do some research into high paying jobs in your area (or online, if you’re not against working remotely). Find out the average salaries and requirements for these jobs.
  2. Give each of these jobs a rating based on how much you think you’d enjoy them.
  3. Give each of these jobs a rating based on how tough it would be to get these jobs (being a doctor is cool, but becoming a web developer takes much less time and effort).
  4. Now ask yourself: Do you have existing expertise, work experience or contacts that might give you a leg up in getting any of these jobs?
  5. Make your ideal career choice based on the information from steps 1 to 4. It should be one that you like and would excel in, and pays reasonably well.
  6. Acquire the necessary education and skills to launch your new career.

Become Financially Literate

Once you start earning a decent salary, learning how to effectively manage your money becomes your top priority.

You might be asking, isn’t it enough that I make a lot of money?

A good income is a good starting point, but you also need to add financial literacy to your repertoire of life skills.

Financial literacy is the understanding of basic personal finance concepts like how credit cards work, how to save and invest, what is compound interest, etc. It’s a necessary step in laying a solid groundwork for success.

Without it, the financial decisions you make can still harm your financial success.

I mean, I’m sure we’ve all heard stories of high-earners who filed for bankruptcy due to poorly made financial choices.

Once you become financially literate, you will gain confidence and know exactly what to do to not only preserve but also amplify your hard-earned dollars.

You could learn financial literacy by reading books, taking classes, and browsing personal finance sites like this one.

Defeat the Poverty Mindset

Acquiring knowledge is easy. Completely changing your mentality feels like an impossible mission.

You might have heard of “scarcity mindset”. It’s the belief that money and things are hard to come by. It’s when people constantly find themselves thinking in terms of “I will never” rather than “let me figure out a way to”. So they get comfortable with the status quo, try to survive within it, and never challenge it.

Undoubtedly, maintaining a scarcity mindset limits your ability to act in your best interest, and is essentially admitting defeat – if you think you can’t, then you won’t.

More often than not, it’s these mistaken beliefs that keep pulling people back into poverty. After all, you can’t break out of something that you wholeheartedly believe is where you belong.

So you need to confront your poverty mindset, understand it, and challenge it.

You can find a way to make ends meet.

You will be able to afford a vacation.

You’re not doomed to be poor.

Like I’ve mentioned, changing your entire way of thinking is not going to be easy, but you can’t reach great success without taking this step.

Once you get through this hurdle, sky is the limit.

Upgrade Your Money Habits

In digging yourself out of a povery trap, you can’t afford any major financial setbacks, so let’s make sure your financial habits aren’t going to lead you ashtray.

This is a loaded topic that I can dedicate a whole book exploring, but here are the most important points that you need to remember:

  • Always spend less than you earn
  • Build an emergency fund that you only access for true emergencies
  • Unless it’s a matter of life or death, never take on debt for something that doesn’t make money
  • Challenge yourself to save as much as you can without depriving yourself the basics in life
  • Free yourself of unhealthy and expensive vices (gambling, severe addictions, etc)

Start a Virtuous Cycle of Investment

To supercharge the growth of your money, you can’t avoid investing. But you also don’t need to be Warren Buffet to become a successful investor.

Let me take the pressure off of you: if you could grow your investments by 5% a year, it’s good enough.  

At that rate, if you invest $100 a week, you will have $254,215.69 after 25 years.

The best part is, getting a yearly investment return of 5% is really not that hard.

Take SPY – an ETF (exchange-traded fund) that tracks the S&P 500 stock market index – as an example. Its average annual rate of return has been 10% to 11% since inception (of course, some years were terrific, and others were terrible).

Robo-advisors even automate the investing process so the average investor could earn a decent return without ever learning the nitty-gritty of investing in the stock market.

As you receive interest and dividends on your investments, plough these right back into your portfolio to take advantage of compounding and start your own virtuous cycle of investment.

Find a Mentor

The best advice and support often come from people who’ve already done what you want to do.

They’ve been where you are. They understand your plight. And they have escaped the poverty trap.

If you manage to find a mentor who’s willing to give you some pointers, build a relationship with them that’s mutually beneficial.

Understand that their knowledge is as valuable to you as their time is to them.

I’ve had people come to me for advice from time to time, which makes me happy because I do enjoy helping others.

Unfortunately, 9 times out of 10, their question is some variation of “here’s my problem, now tell me everything I need to know and do, including tips for this other thing I might want to try in the future!”

In other words, they’re asking me, the potential advice giver, to do all the thinking and to hand them the perfect 1,500-word solution on a silver platter. As much as I want to, I simply don’t have the time to accommodate each request.

And your mentor is in the same boat.

If you want to seek their expertise, present your problem in one of these formats:

  • “Here’s my problem, and here’s my solution. What do you think?”
  • “Do you think doing XYZ is a good idea for me?”
  • “Does XYZ work this way?”

In other words, come prepared with potential solutions, ask specific questions that could lead to more nuanced discussions. Trust me, you will get a lot more out of these conversations than you otherwise would.

Last but not least, mentors are not in the business of giving endless free advice. So don’t forget to be helpful in return. You don’t need to offer anything extravagant. Lending an empathetic ear goes a long way.  

Don’t Ever Stop Reaching

When the going gets tough (and it will), stop to take a breather, but always keep your eye on the end goal.

Somewhere along this journey, you might look up and see that everyone is out partying and going on vacations, and wonder why you are hustling like there’s no tomorrow.

Don’t you deserve to enjoy life too?

Of course you do. That’s why you’re trying to escape the poverty trap in the first place.

You’re not doing this for others. You’re doing it for the future you.

Never being satisfied with your own progress is what sets you apart. This is your super power.

And don’t worry, if you keep charging on, you will enjoy life like no one else in due time.

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Category: GeneralMoney For Beginners

One comment

  1. One thing I’ve noticed, especially with friends who moved to the US from other countries and cultures, is the expectation that they constantly send back money to their families overseas. They also tend to be very generous with their less fortunate friends here and those tendencies combined make it difficult to save money. It is hard to tell a friend they shouldn’t help their loved ones out especially when they are viewed as being “rich” by the people they left behind but it is a real problem when it comes to becoming financially stable.

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Article by: Flora Pang

Flora Pang aspires to become someone who plant trees in their spare time, write thank-you notes to strangers, and perform CPRs on unsuspecting elders. But until then, blogging about personal finance remains her only way of contributing to society. You can catch her rambling about money on Facebook, Twitter, Instagram, and (to a lesser extent) Pinterest.