Why You Feel Poor – And the 3 Step Answer

by Neal Frankle, CFP ®

Do you feel poor ? If so, you aren’t alone. The average American’s net worth has declined by 35% to $66,740 from 2005 to 2010. Not surprisingly, over that time period the average stock market portfolio and home equity value declined by about a third.

To make matters a little worse, the loss in average family net worth accelerated from 2007 through 2010. According to the Federal Reserve, that period saw a decline of about 40%.

If you look at the big picture, the average American is back where he/she was in 1984 according to the Brookings Institute. The means everything you’ve worked for and saved over the last 28 years is gone. No wonder you feel poor.

The Problem with Feeling Poor

When you feel poor you don’t feel as good about yourself as you otherwise could. This has a direct impact on your financial life too. Often, we spend money foolishly if we feel badly – just to get a temporary “hit” and feel better. There is no doubt about it. Feeling poor infects most areas of your life and makes it much harder to live a full and joyful life. That’s a shame – especially because it is almost completely avoidable.

The Phony Solution

Some people might suggest that the solution to this problem is to simply ignore the reality and focus on more cheery aspects of your life. I couldn’t disagree more. While I love the idea of living in gratitude, you are too smart for anyone to try to tell you to ignore facts. It simply won’t work. Instead, I want you to focus on a different set of financial facts – those that you have some control over.

The Real Solution to Feeling Poor

As is most often the case, the solution to almost any problem is action. You can’t do anything about the past. You can’t do anything about what has occurred in the real estate and equity markets over the last 5 to 7 years either. But you can take a lot of action to counter the poverty feeling. In fact, if you take action on the following steps, you’ll actually not only feel better. You’ll also be taking great strides toward building your wealth. Let’s get to work:

1. Lay Down Tracks

If you want to stop feeling poor, create wealth and feel great about your financial situation, there is no more important step than to track where you are financially. You should use both a daily tracking system (like YNAB) and my “5 minute a month system” to know what it costs you to live on average each month.

This first step will put you back in control over your financial life. Without doing this, you’re going to feel (and possibly be) poor for years to come. Don’t accept that. Get on it.

2. Create A Plan

Now that you know what you spend on average each month, compare it to your monthly income. Are you spending more than is coming in? If so, you are spending too much. Don’t make excuses for yourself. There is almost never a good reason to spend more than you earn. If your spending is out of line, look at every single thing you spent money on over the last 90 days. Could you live without it? If so, good. Start doing so. Do you need to start a new career or part time job? Get going today. No more excuses.

And even if you do earn more than you spend, could you spend less and save more? There is no greater way to feel (and be) wealthy than to see your savings and investments grow. Get out your sharpest pencil and get rid of any spending that is discretionary and /or start that second job. Don’t overthink. This is a time for massive action. Get going.

3. Pump Up The Volume

Now that you’ve turned your ship in the right direction, involve your entire family. Explain what you’ve done and why. Next, explain the sweet result. This should be an empowering conversation for everyone in your household. Get everyone on the same page and get everyone involved in the solution. No hall passes for anyone.

4. Rinse and Repeat

Once you have taken the 3 steps above, take a breather to celebrate your success – and to make sure you are still on track. Over time, your enthusiasm will wane. That is why it’s so important to go back over these 3 steps every 6 months.

When you do it’s a win-win. You’ll discover one of two things. Either you’ll realize that indeed you are doing everything possible to build your wealth or you’ll uncover new ways to grow your wealth even more.

Feeling poor is only a malady for those who refuse to take action today. If you want to sit and lament the past, nobody is going to stop you. But if you decide to do that, realize it’s your choice.

Many of us may have a lower net worth than we did 5 or 7 years ago. But that’s no reason to feel poor – especially if you put all your energy into building wealth.

What have you done to stop feeling poor?

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{ 8 comments… read them below or add one }

Jerry March 10, 2013 at 5:02 AM

I think creating a plan is insurance you move forward. Not having one leads to apathy and that helps no one.

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Suzanne November 6, 2012 at 11:20 AM

Feeling poor translates to discouraged. That is not a place anyone can stay and be successful. I love your “take charge” attitude and the steps you lay out here. Too many people I speak with today don’t have an “expense” problem – they have an “income” problem, so getting a second job or additional way to bring in more income is a good answer.

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Neal Frankle November 6, 2012 at 12:58 PM

Your clients are fortunate to have you in their corner. Thanks for the kind words!

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Will (Wise Bread) November 4, 2012 at 9:34 PM

Great insights Neal. The part about laying down tracks is especially important. A lot of people feel daunted by this step because they think it will have involve complicated math or excel worksheet wizardry. Frankly any start is better than no start, and just the process of rolling up your sleeves to do some analysis will help you feel in control of your financial destiny.

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Neal Frankle November 4, 2012 at 9:50 PM

Will…I completely agree and thank you for highlighting this. I think Churchill said – “The best thing to do is the right thing. The second best thing you can do is the wrong thing. The worst thing to do is nothing”.

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Bill November 2, 2012 at 11:07 AM

I was in high school in 1984. Didn’t own much other than a bad haircut!

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maria@moneyprinciple November 1, 2012 at 1:29 PM

I don’t really agree that building wealth helps much the FEELING of being poor. This is because most of the time our situation and our feelings about it are not aligned. For me, three things worked: a) to realise that I am not poor (here comparison can help whether to others less fortunate than you could have to what you need to have); b) relaising that ‘poor’ is a limiting mindset whereby ‘broke’ is a better action one; and c) setting my ‘enough’ – in other words when I am going to stop FEELING poor. Worked like a dream. And our situation has improved dramatically as well.

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Neal Frankle November 1, 2012 at 2:29 PM

Valid and important. You demonstrate the importance of not feeling poor and it worked so I’m delighted. Sounds like you got into significant action and that is what it’s all about.

My experience was building wealth actually did wonders. Since I knew I was doing my best, I was focused on that and stopped feeling sorry for myself. I suppose different strokes….

Thanks!

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