I hope these lessons serve as both education for anyone wondering just how people become and stay poor and homeless and as insight into\u00a0how to prevent the misery that often accompanies homelessness.<\/p>\n
5 Critical Financial Lessons We Can Learn From Poverty\u00a0& Homelessness<\/h2>\n#1. An Inability to Manage Money Results in a Total Loss of Decision Making Power<\/h3>\n
The\u00a0poor and homeless often have remarkably little decision-making power over things that most Americans consider basics of life. Often, the church or organization that houses these folks determines what they eat, where they sleep, how they get around, how their children play and learn, and what they do for fun.<\/p>\n
Related:<\/strong> Teaching Kids to Be Entrepreneurs is Key to Addressing the Wealth Gap: Here\u2019s Why<\/a><\/em><\/p>\n In the cases that I’ve dealt with to date, the folks who wield this power are generally good folks with big hearts and have their guests\u2019 best interests at heart. Unfortunately, their guests are likely the lucky few. From the stories I’ve heard, I can only imagine the lives of the millions of other folks with similarly poor financial situations who have instead given up their control to less benign benefactors. In many cases, these \u201cbenefactors\u201d can be abusive significant others or criminals.<\/p>\n The moral: Failure with money management results in a lack of control over one\u2019s life and decisions. If nothing else, respect money\u2019s power to allow choice in the most fundamental of life decisions. Giving up that power is a terrible gamble.<\/p>\n The folks in the shelters that I talk to are often there because of a long chain of “bad luck\u201d and \u201cunfairness.” Typical examples of this include hospital bills, layoffs, pregnancies, legal troubles, and other similar unexpected expenses. This bad luck, sometimes coupled with a \u201ccruel\u201d landlord, boss, or creditor, is what often pushes people over the edge into homelessness.<\/p>\n The problem with the \u201cbad luck\u201d mentality here is that those who have savings or a strong financial foundation are barely impacted by the “bad luck” described above\u2014or don\u2019t notice it at all. For example, because I’m a big\u00a0saver, a $500 plumbing bill simply delays my next investment. On the other hand, a similar $500 bill for someone living paycheck to paycheck could result in a situation where they are unable to make their rent or mortgage payment. Coupled with car breaking down the next month, these disasters can lead to foreclosure or eviction and spiral out of control very quickly. The same “bad luck” can result in very different outcomes depending on the history of your financial decisions.<\/p>\n For those with poor financial habits, a ruined credit report, and no savings, these kinds of events are total disasters. Irregular expenses of any kind result in an inability to pay the rent, pay for food, or pay off debts. In a vicious cycle, each unexpected expense further cuts away at their credit scores and reduces their ability to make critical payments, making them more and more vulnerable to the next unlucky event.<\/p>\n It\u2019s not that the poor are somehow unluckier than the rest of us, it\u2019s that financial habits result in an\u00a0inability to handle<\/em> bad luck when it pops up.<\/p>\n The moral: Be financially ready to handle bad luck. If we aren\u2019t, the question isn\u2019t \u201cif,\u201d it\u2019s \u201cwhen\u201d an irregular expense will cause extreme stress and pressure on our lives. On the other hand, if we are financially prepared, disasters will be few and far between\u2014and hardly noticed.<\/p>\n After boring folks with lessons on \u201csavings\u201d and \u201ccredit repair,\u201d one day, I decided to switch tactics and talk about the topic of debt.<\/p>\n To my surprise, every single person in the room owed a significant amount (more than $10,000) to someone else. When I touched on the concept of bankruptcy and how it can eliminate debts, everyone in the room began paying rapt attention (a stark contrast to the usual state of affairs!).<\/p>\n Now, I immediately regretted even mentioning bankruptcy and made it very clear that in most cases bankruptcy is a terrible path that brings misery and years of pain with it. But their interest was telling; the poor and homeless often have seemingly insurmountable debts to overcome. As I delved deeper into debt reduction, I learned something amazing.<\/p>\n Related:<\/strong> Income Inequality: Are the Wealthy Superior People or is the System Unfair?<\/a><\/em><\/p>\n Because of their debts, the poor and homeless often are afraid<\/em> to have any official documented financial presence at all, for fear their creditors can come after them. Almost half of the people I’ve worked with don\u2019t even have bank accounts for this reason.<\/p>\n Try for a moment to put yourself in the shoes of one of the folks I worked with.<\/p>\n You\u2019ve never had a job paying more than $10 an hour, you’ve had a couple of run-ins with the law, you’ve never had a bank account, and to top it all off, you had a medical emergency resulting in a $25,000 hospital bill in your hometown of Alabama.\u00a0<\/em><\/p>\n Broke, still sick, and in debt, you run away to Colorado to escape your creditors, including a family member that you can\u2019t bear to be around any longer because you\u00a0couldn\u2019t pay them back for helping with your hospital bill. You are afraid to seek a\u00a0\u201creal\u201d job, open a bank account, apply for credit, or do anything other than work for cash and spend everything you earn before \u201cthey\u201d come after you.<\/em><\/p>\n Because of your fear, you have no ability to earn a sustainable income, and you have no vehicle through which to accumulate wealth even if you could earn a high wage. Every time you are confronted with an issue that requires more cash than you have on hand, you are forced to once again relocate or default on your payment, creating more creditors and more weighty debts.<\/em><\/p>\n The folks that I work with often have at least one or two debts that seem insurmountable to them. It is these massive debts that they think will follow them for the rest of their lives that spark the chain reaction for many of the other poor financial decisions that follow. They simply don\u2019t bother to address any new financial problems that come up and have no desire to open a bank account, let alone begin investing. They think that the moment they do anything like that, their creditors will snatch the money away.<\/p>\n It\u2019s this mentality that seems to drive the poor and homeless to years of bad decisions and procrastination with their debts. Their attention and interest only seem to come to life when they begin to understand and believe<\/em> that they can reduce their debts and repair their lives. Insurmountable debt, by contrast, leaves them feeling hopeless.<\/p>\n The moral: First, it is imperative to avoid large debts at all costs\u2014either through an emergency fund or proper insurance. Second, in the rare event that one of these types of debts is unavoidable, it is imperative that the debt problem be tackled head on. Procrastinating or avoiding the problem leads only to misery and despair.<\/p>\n Even the broke and homeless are spending money foolishly. I know that I, like every other human being out there, make foolish purchases with money that would be put to better use investing. This is true for the wealthiest people on the planet, and, as I\u2019ve discovered, the poorest.<\/p>\n As part of every lesson plan, we go through our weekly expenses over the past seven days. Every single time, there are meals, entertainment, or vices purchased\u2014all avoidable expenses. I have yet to meet the homeless and unemployed man or woman who\u00a0is unable to sock away at least $25 per week by trimming the fat out of their budget.<\/p>\n The moral: Savings aren\u2019t impossible for anyone. Those earning an income above at or above the minimum wage are earning far more than the folks I work with and have no excuse not to begin building wealth for themselves.<\/p>\n My financial problems are pretty good right now, as should be the case for most who are striving for and progressing towards financial freedom. I\u2019m not worried about where I\u2019m going to sleep or what I\u2019m going to eat. I\u2019m motivated by the promise of a better life, not the fear of sleeping on the street or having to pay for old debts.<\/p>\n I\u2019m lucky\u2014I had college paid for by loving parents, and I caught the money bug early in my working life while still debt free. I believe that I am doing everything in my power to build a strong foundation for the rest of my life. If you are spending your time reading articles like this one on the topic of personal finance, then I\u2019ll bet that things are comfortable or progressing for you as well.<\/p>\n Not being able to find a suitable rental property to purchase in your town is a\u00a0great<\/em>\u00a0problem. That means that things are going well. The inability to decide which stocks are the best investments is another excellent<\/em> problem to have. The same goes for deciding when and if to start your next entrepreneurial endeavor. Just take a minute and be thankful that due to your knowledge and comfort with financial matters, you have money problems like those<\/em>.<\/p>\n It could be a lot worse.<\/p>\n The moral: Be thankful for the financial problems that you have as an investor and pay it forward. I like to do this by educating the poor and homeless, children in school, or anyone else that wants to improve their finances. Just get out there and help others.<\/p>\n Related:<\/strong> How to Get Out of Debt: 5 Steps Toward Healthier Money Habits<\/a><\/em><\/p>\n I hope that these lessons motivate others to take control of their finances and encourage those already in great shape to help others do the same. I have a very different view of charity than some in that I do not believe in supporting the poor and homeless financially with my dollars, but rather through education and inspiration with my time.<\/p>\n If you are interested in working with the charity that I discuss in the article, you can learn more here<\/a>.<\/p>\n I also would like to see more resources for charities or non-profits where investors may go to volunteer in an educational manner. If you know of any organizations that perform this kind of work, please let me know by leaving a link and comment below.<\/p>\n Looking to set yourself up for life as early as possible and enjoy time\u00a0on your terms? Scott Trench’s new book <\/em>Set for Life,\u00a0is now available<\/a>! Whether you’d like to “retire” from wage-paying work, become less dependent on your demanding nine-to-five, or simply spend time doing what you love, <\/em>Set for Life will give you a plan to get there. This isn\u2019t about saving up a nest egg. It\u2019s not about setting aside money for a \u201crainy day.”\u00a0<\/span><\/em>Set for Life<\/span> is an actionable guide that helps\u00a0readers build the accessible wealth\u00a0they need to achieve early financial freedom.<\/span><\/em><\/p>\n![\"homeless\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/08\/homeless-poor.jpg\" "\\"\\"")
<\/a><\/p>\n#2. Financial Mismanagement Creates Unlucky People<\/h3>\n
#3. Bad Debts Present the Ultimate Mental Barrier to Wealth Creation<\/h3>\n
![\"homeless-financial\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/08\/homeless.jpg\" "\\"\\"")
<\/a><\/p>\n#4. Everyone Can Save,\u00a0Even the Homeless<\/h3>\n
![\"help-homeless\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/08\/help-homeless.jpg\" "\\"\\"")
<\/a><\/p>\n#5. The Rest of Us Have Pretty Darn Good Problems<\/h3>\n
Conclusion<\/h2>\n
![\"\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/08\/sfl_blog_image_v2.jpg\" "\\"\\"")
<\/a><\/p>\n