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Talking Money

The only money tree you will ever see.

On this blog we’re going to talk about money and money related topics. Most people earn money. All people spend money. Many people spend more than they earn and that’s where this blog enters the discourse. We will discuss topics like:

  • Income
  • Spending
  • Debt
  • Borrowing
  • Tracking expenses
  • Budgeting
  • Saving
  • Investing
  • Interest
  • Rate of return
  • Frugality
  • Thrift

The purpose of this blog is to educate. My objective is to provide you with the knowledge you need so you don’t make the mistakes I made over the years. While my parents managed their money well, they never taught me how to do the same. Hence, the only way I learned was through the experience of making bad financial decisions.

The principles I will present are based on my actual experience … not theory. Some concepts follow tradition and common sense. Others are contrary to what some financial “experts” advocate.

Other than spending less than you earn, there is no single way to attain financial stability and well-being. You will need to pick and choose the financial actions that are suitable for you based on your circumstances and objectives. I will present the basics. You will need to adjust and expand upon the basics to develop a personalized plan of action that fits your lifestyle and objectives.

It’s never too soon or too late to get on the right path to financial stability and success. I didn’t get my financial head on straight until I was in my early forties. I sincerely hope that you get on the right path sooner than I did.

Thank you for visiting my blog. You are always welcome to comment or ask questions in the comment sections provided. I look forward to reading your comments and shared experiences.


“The more your money works for you, the less you have to work for money.”
― Idowu Koyenikan


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  • You will never see any advertisements on this website.
  • I will not endorse or recommend any company, product or service.
  • Occasionally, a company, product or service will be mentioned in a published article. The company, product or service mentioned is for informational purposes only. In no way should you consider that an endorsement or recommendation.

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The Value of Money

What is the value of money?

That sounds like a very strange question, doesn’t it? Many people will respond that the value of money is based on the amount printed on a bill (paper money) or the amount minted on a coin.

Isn’t the real value of money based on how you use it and what you spend it on?

Let’s say that Joanne buys a blouse for $50 at a boutique. Amanda buys the same blouse on sale and a printed scarf for $45 at a different boutique down the street. It’s apparent that Amanda’s money has more value than Joanne’s because she got more for her money.

Money is nothing more than a means (tool) to have access to what you need or reasonably want. Understanding this truth is critical in realizing the importance money should have — or not have — in your life.

Another aspect to consider is that the value of money will depend on the stage of life you are in. Money is important to you as a young adult raising a family, buying a house and saving for your children’s education. During this stage of life, there never seems to be enough money. Hence, money is always on your mind.

Money will typically mean less to an elderly adult who is in the autumn of their life and are enjoying the fruit of having lived a frugal life in which wise spending and saving were an important part of their way of life. During this stage of life for the prudent person, money consumes very little of their concerns or attention.

Hence, the real value of money is having enough of it so you don’t have to worry about financial issues … ever. You can get to this point by:

  • Living a simple life
  • Frugally spending your money
  • Saving and investing faithfully and frequently
  • Being super stingy about taking on debt other than a mortgage

As a retired longtime saver, I spend very little time thinking about money. Money is simply the means to pay my frugal living expenses and health care. In fact, my retirement income is far more than I need to live on. As a result, over 30% of my retirement income is put into savings each month.

I wish that I had devoted far less time in my earning years worrying about money. I now see that there are many more important things in life than money.

My wife and I are American expats living in Ecuador, South America — a developing country. One of the life lessons we’ve learned here is that money has nothing to do with happiness. The peasants are among the happiest people you’ll find in the world. This truth humbles us frequently.

The Danger of Lifestyle Inflation

What is Lifestyle Inflation?

Lifestyle inflation is common as a person advances through their career. Lifestyle inflation is when the money you have to spend after paying all your bills for necessities increases as your income increases. In other words, you have more money left over after you pay the mortgage or rent, make your car payment, buy groceries, pay your utility bills and such.

As you earn more money, you have more money to buy the things and services you want that you could not buy when you were earning less. This could be a boat or motorcycle, a foreign vacation, a new wardrobe or taking an exotic cruise.

Lifestyle inflation can put you behind the 8-ball for the rest of your life if you allow it. It will prevent you from getting out of debt, saving for retirement, paying for college for your kids or being able to meet other financial goals. It’s also one of the biggest reasons many people live paycheck to paycheck — regardless of how large your paycheck is.

Entertainment is a good example. If you make $5,000 a month and set aside 5% for entertainment, that’s $250 a month. If you earn a promotion at work and are now making $6,000 a month, that 5% now equates to $300 a month — or $3,600 a year.

Needs versus Wants

It’s normal to want to celebrate a promotion or a raise, but it’s important to make sure not to celebrate by buying something that will increase your monthly expenses to the point of making the increase in your income moot.

As an example, you get a raise that increases their income by $500 a month and then immediately trade in your car (that is paid for) for a newer, fancier car, which results in a $600 monthly car payment.

Not only is your increase in income spent, but the amount of money available for all other expenses each month is less than it was before you got the raise. Sure, you may have a new car that you are proud of, but your financial well-being is worse than it was before you got the raise.

How to Avoid Lifestyle Inflation

Frugally celebrate a promotion or raise
If you earn a raise, you should celebrate — especially if it’s higher than the average raise of 2.9%. But to outsmart lifestyle inflation, you need to resist the urge to run to the store for that expensive thing you’ve had your eye on for the last two months. Instead, consider a small way to congratulate yourself, like a special night out with friends.

Create a new budget
Since your income has changed, you need to create a new monthly budget. Just because you will have more money to spend doesn’t mean you can quit tracking your expenses and following a budget. Savvy savers will save or invest half of the increase in their wages.

Emergency Fund
Due to the COVID-19 pandemic, I think everyone has learned the lesson of needing an emergency fund equivalent to 3 – 6 months of your living expenses. It’s even better and smarter to have 3 – 6 months of your net (bring home) income. After all, you need money for more than your basic necessities.

Avoid new debt
This might seem like common sense, but you will never get out of debt if you keep adding new debt to the pile … especially credit card debt. It’s been proven that consumers are willing to spend more money using a credit card than they would with cash.

Stopping the use of credit cards is entirely possible. A generation or so ago, our parents and grandparents lived without credit cards. Modern credit cards weren’t introduced in the U.S. until around 1950, which means that Boomers and their parents were raised on the philosophy that if you can’t afford to pay for it in cash right now, you wait until you can.

Don’t succumb to peer pressure
Peer pressure from coworkers, friends and family is a powerful incentive, but the perceived wealth of these people can be a far cry from the reality of their finances. The truth is that 8 out of 10 working Americans are living paycheck-to-paycheck regardless of their income. That’s a dramatically different reality from the impression they want others to believe.

How to spend your increase in income
So, how exactly should you spend your extra money after a promotion or raise? Depositing more money into your retirement account, paying off debts, or just saving some extra dollars towards a specific savings goal are financially wise approaches to take. 



My Other Websites

Life Under Change
Quotes that inspire, challenge and comfort us.

A Life Within (Blog)
Journal of a Highly Sensitive Introvert


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Coordinating Bills and Savings

Saving money in a week or a pay period when you also have bills due puts you between a rock and a hard place. Typically, you will pay the bills and not contribute any money to your savings.

After helping people budget, reduce their expenses and save money for 32 years; I learned that most people have their ‘big’ bills due between the 1st and 15th of the month. The first week of the month is especially brutal because that is usually when their mortgage or rent is due. For many people, this is also when their car payment is due.

What if you coordinated your bills and savings so that all bills get paid and the money you set aside for savings occurs progressively through the month so you don’t have to delay paying your bills or contributing to your savings?

The $5 / $10 / $15 / $20 Savings Plan

The whole idea is that you contribute less to your savings in the first part of the month when the bulk of your big bills are due, and you contribute more later in the month when you don’t have the obligation and pressure of your big bills. Here’s how contributions to your savings works:

  • Week 1 of the month – You contribute $5 daily to your savings or $35 for the week.
  • Week 2 of the month – You contribute $10 daily to your savings or $70 for the week.
  • Week 3 of the month – You contribute $15 daily to your savings or $105 for the week.
  • Week 4 of the month – You contribute $20 daily to your savings or $140 for the week.

Since there are 7 days in a week and most months have 30 or 31 days, there will be 2 or 3 days at the end of each month that you don’t need to make any contributions to your daily savings.

So, at the end of each month you will have saved $350. At the end of one year you will have saved $4,200!

Of course, you can choose the dollar amounts that suit your budget. You can also choose which weeks you contribute what amount. Example: You can switch Week 1 with Week 3 and so on.

You can also customize your savings plan to account for two paydays a month. All you have to do is to combine any two-week period into one. The monthly contributions to your savings will be the same.


Do you have a savings method that works for you? I’d really like to hear about it. Please use the Comment section at the bottom of this blog post to share your story.


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Buying a House During the COVID-19 Pandemic

This post is targeted to those residing in the United States.

If you have been wanting to buy a house, you are most likely asking what effect is the COVID-19 pandemic having on the real estate market? What about home values? What about interest rates? What about the process of securing a mortgage?

The first thing you need to know is that just about everything is different from what it was prior to the COVID-19 pandemic. The major changes are:

  • Interest rates are highly volatile and change frequently
  • Home selling prices are higher (sellers’ market due to low inventory)
  • The process of buying a home is taking longer

Forty plus percent of Americans are working from home. Rising home prices suggest that many who are working from home want a larger home to accommodate the new realities of working at home.

Keep in mind that the soaring market prices may be the result of misinformation, wrong assumptions and opportunism that aren’t based on actual market realities.

Concerning your personal interest, you don’t know for sure if working at home is for an extended period of time or permanent. With many businesses struggling to survive the pandemic, you don’t know for sure that you (and your position) will not be targeted for elimination.

You may come to regret buying when the inventory of houses on the market is low and selling prices are high. LendEDU, a financial information website, surveyed 1,000 mortgage holders in August of buyers who bought their home after March 2020. Many of them regretted their decision to take on a mortgage. This isn’t hard to understand having witnessed the financial devastation to many families and businesses.

Buying a house in a sellers’ market is not a smart financial decision. Many sellers are taking a once-in-a-lifetime opportunity to sell their home at an inflated price.


The Renting Advantage During This Uncertain Time

For many people, calling the landlord for repairs is a huge advantage. As a homeowner, you need to budget 2-4% of the home’s value for repairs and home maintenance. Additionally, you have to find a reputable company to do the repairs.

Many homeowners also get tired of having to mow the grass, trim the bushes and clean the gutters. They prefer to relax and socialize instead of being trapped at home doing chores.

Another advantage to renting during this time of economic uncertainty is that you don’t have to come up with a sizeable down payment. You may need a portion of this money for future financial needs if you lose your job due to the coronavirus pandemic.

If you do lose your job, it is a lot easier and simpler to move for a new job if you are a renter instead of owning a home that you have to sell.


If You Decide to Buy

If you are secure in your job and have 3-6 months of living expenses in an emergency fund beyond the money you have set aside for the down payment on a new home, then buying may be to your advantage if you’re able to purchase the house at a favorable price.

Be sure to start the process early. Start working with your lender long before you make an offer to purchase a home. The process takes longer than usual and you could end up losing the home of your dreams if you don’t get a jump start in the process.

My advice, however, is to wait on buying a home until the economy and the COVID-19 pandemic stabilize. There are too many unknowns and too many risks right now and all of these unknowns and risks are beyond your ability to control.


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Impulse Buying: Sleep On It

We’ve all heard that we should sleep on it when we are contemplating a major purchase. How many of us actually do it? What is considered a major purchase?

Whether we are in a financial bind or wanting to accumulate money, one of the actions we need to take is to spend less. One of the ways that will help us to spend less is to put a brake on buying costly products or services without really analyzing our actual need for it.

  • Is it a need or is it something that we merely want?
  • Will buying this product or service prevent me from paying my bills or not being able to save any money this month?
  • Will I need to purchase the product or service on credit?

The answers to these questions will be different for each of us because our incomes, living expenses and circumstances are different due to the amount of money we earn and the lifestyle we live. That being said, we still need to answer these three questions.

Impulse buying is very hard to overcome for many people who have not overcome that that silent voice in their head that says “buy me now” or you’re going to miss out on a great deal.

My wife and I have been married for 34 years. Our finances were tight when we married because both of us had just gone through a divorce. That prompted us to promise each other that we would:

  • Sleep on it if a purchase cost over $100.
  • We would talk it over and jointly decide on the purchase if it cost over $250.
  • We would never make a lifestyle purchase if we didn’t have the actual cash to pay for it.

We still follow this promise today … 34 years later.

Just this week I was contemplating on buying a service that cost $168. I slept on it overnight. I then slept on it for a second night. I woke up this morning knowing that I didn’t really need or sincerely want the service.

I overcame the impulse to buy. Many people would not have been so successful. A contributing factor in not being able to curb our impulse buying is advertising. It is estimated that U.S. companies spent $240.7 billion dollars on advertising in 2019. That is a lot of power we have to fight against to maintain our financial well-being. As we see around us every day, these companies are much better at getting us to spend our money than we are at not spending it. We have to realize the psychological manipulation that these companies utilize in their advertising to make us think that we need more, new or better to be happy.

I encourage you to overcome impulse buying. It’s your financial health that is at stake.


Please share your success in overcoming impulse buying. Please use the comment section below.


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Personal Bartering

Barter
To trade goods or services without the exchange of money.
— American Heritage® Dictionary

Many people are in a financial bind right now due to the global economies being nearly destroyed as a result of the COVID-19 pandemic. Millions of jobs have been lost … some temporarily, some permanently. Even for those who still have work, many are seeing their wages reduced. Money is tight and the immediate financial outlook doesn’t look very promising for the next year or so.

That being said, all of us still have a personal need for products and services. The reality is that many people don’t and won’t have the money to pay for the products and services they need. Forget about what is wanted. For many, life is down to fighting daily to meet their basic needs of food, shelter, medicines and other necessities. There are many articles to be found on the Internet that give good advice on how to:

  • Reduce your living expenses
  • Increase your income by taking a gig job or a second job, work longer hours or by starting your own micro-business
  • Sell unused or unneeded personal belongings
  • Move to a smaller, cheaper home

I have yet to read an article that mentions barter as way to get the products and services you need but don’t have the cash to pay for. Yet, barter has been around for centuries.

Selecting Services and Items to Barter

Consider your skills and talents
The most obvious bartering options is a service you already provide in your job, or have provided in the past. Everything from repairing small engines to making clothing alterations to baking goods can be offered in bartering. But, potential bartering partners need to know you have the skills and experience in which you are willing to offer in bartering. Showing examples (actual or photos) or other type of documentation of what you have done in the past will accomplish this important aspect of bartering.

Identify skills related to your hobbies
If you enjoy cooking and baking, you can offer people a home-cooked meal. Some art and craft items are in high demand, especially if you offer to create a piece customized to the interests of the bartering partner. If you can’t think of a good or service created by your hobby, ask family members or a close friend for suggestions.

Tip – Think about hobbies related to home upkeep or maintenance, such as gardening, cleaning out the gutters or repairing a sagging wood bookshelf.

Offer less specialized tasks that others dislike doing themselves
Many bartering trades involve pet sitting, garden weeding, errand running, house cleaning, grocery shopping, and other services that some people can perform more easily or better than others. If you enjoy any of these common tasks, consider offering them for barter. You will be surprised at how many people will readily accept a barter for these types of services.

Find items you no longer want or need
Look around your home and garage from a bartering perspective; there may be things that would be hard to sell but easy to barter in small barter transactions. Unwanted books and clothing, an extra toaster or other appliance, or even unopened wine bottles or food items can be exchanged in small trades. Don’t forget about collectible items, collections and vintage items.

Finding Barter Partners

Look for bartering websites
Websites where bartering connections range from the all-purpose to specialty products and services. A few examples are:

Craigslist – General merchandise and services
SwapStyle – Clothes
ThreadUP – Kids clothes
BookMooch – Books

Tip – Make sure to read and understand the instructions, process, membership fees, or fees to receive or send items before you sign up.

Join or start a time bank to trade services
If you are interested in trading services more than goods, join a time bank in your area or start one yourself in your locality. Anyone who joins the time bank can “hire” someone else for any type of work. Instead of getting paid, the person who does the work gets the number of hours she worked recorded in the database. She can then “hire” another member of the time bank for that number of hours. In a standard time bank system, one hour of work is always worth the same as another hour of work, regardless of how much hiring someone to do that work would normally cost.

Find bartering partners in your community
Searching the Internet for bartering groups in your town or area may lead to a community forum where you can make deals with people near you. Also check out your local newspaper, community message boards or locations where flyers are posted to find out about products and services being offered. One major advantage to local bartering is the ability to trade items or services face to face. It’s also great for bartered items that are too heavy or delicate to mail or ship.

Advertise in your local area
Advertising locally is a great way to draw attention to bartering. Put up flyers around your community, talk to neighbors, or organize a meet-and-greet swap. Finding regular or long-term bartering partners this way can be a great way to save money on recurring needs such as lawn care, handyman services and housecleaning. It also allows you to build relationships with your neighbors.

Ask If A Barter Is Possible
It never hurts to ask whether someone is open to a barter arrangement … as long as you take”no” for an answer. Most people are not used to bartering, but may be willing to accept a barter under the right circumstances. Mention what services or goods you’re offering, ask if there’s anything specific they’re looking for. Drop the subject if they aren’t interested.

Securing a Better and Safer Barter Transaction

Do research on the potential barter partner before you commit to a transaction
If a friend referred you to a barter partner, ask that friend about the partner’s integrity and reliability. Request that the bartering partner show examples or samples of his work (if possible), and ask about his experience, certification or licensing, when applicable. The more valuable the transaction, the more important it is to make sure you’ll be receiving a high-quality barter.

In detail, each barter partner needs to describe their service or item
It’s critical to be exact about what you are offering before you get too far into the negotiating. Does “yard work” mean trimming the hedge, or a full landscaping job planting new trees and shrubs? Are the items you are offering fully functional, or are there non-functioning parts the other person needs to know about? It’s difficult to negotiate a barter transaction if the two parties have a different understanding of what’s being offered and what isn’t.

Come to agreement on the value of each service or item
For personal casual trades between friends, you might quickly decide in a conversation that one French lesson is worth one gallon of homemade vegetable soup. When dealing with strangers, or conducting more valuable barters, it’s wise to discuss the value more formally. Each party needs to explain how much they would normally charge for the items or service they are providing. Be open to haggling over this amount or reducing the price if it still results in a barter that saves you money. Once you’ve agreed, for example, a used lawn mower is worth $100, and an hour of garden work is worth $20, finding a barter that is fair to both parties will be much easier.

If you can’t come to an agreement, add something extra to sweeten your offer
This can be cash, another item you can throw in, or an additional service.

Verify that you have the following details covered
For larger transactions, or transactions with strangers, it’s a good idea to have written agreement or contract. For many small barter trades, an oral agreement or a confirmation email may be sufficient. Either way, make sure you agree on the following points before you close the deal:

  • Which barter partner is responsible for providing tools and small supplies, ingredients, or materials? If something additional needs to be purchased, who pays for it, and who gets to keep any newly purchased tools or excess materials after the barter transaction is completed?
  • If applicable, how much follow-up service is included or expected? For services which usually require an undetermined amount of additional time, such as website maintenance, it’s a good idea to agree on a maximum number of hours that is included before a new agreement needs to be in-place.
  • If your barter partner is providing a service in your home or garden, should an advance notice be given before she comes over, or is she allowed to stop by and work even if you aren’t at home. In many cases, it’s better to have a set day and time to perform the service each week.

Following the steps and tips above will put you in a position to have successful bartering experiences in which everybody involved is happy with the bartered transaction.


Do you have experience in bartering on a personal basis? Please share your thoughts and experience in the comment section below.


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Contentment

“Contentment makes poor men rich, discontent makes rich men poor.”
— Benjamin Franklin

Contentment is a vital ethical value if we are to be happy. The kind of contentment I’m referring to is when there is the absence of greed. With this kind of contentment, we know “what is enough” and knowing “when to be contented.” It means being able to find happiness and satisfaction without needing or wanting more.

Contentment is something like the virtue of moderation. It implies a certain thrift of ambition, or having limited desires. By living frugally and setting reasonable limits, we free ourselves from the sense of insecurity and insufficiency brought on by incessant craving.

Happiness doesn’t come from wealth but from setting limits on our desires and living within those limits with satisfaction. Our materialistic society puts us under constant pressure to want more and to spend more long after our basic needs are met. Advertising is designed to stimulate the imagination and to generate a perception that it is material goods (more is better) that make us happy, and that we are somehow missing out on life unless we have the latest accessory, gadget, or fashion item.

The materialism of today’s society makes the practice of moderation and contentment a daily necessity if we are to resist falling victim to a sense of personal dissatisfaction brought on by unrealistic craving.

Wealth alone does not bring happiness, and the sooner we learn to live simply and frugally, the better off we will be when it comes to our happiness.


Do you have a question or comment about this post? Please use the comment section below or you may contact me by email at mbrown.ec@mail.com.
Thank you for visiting the Frugal Plan Blog!


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Primary Fear in Retirement

You spent decades saving and sacrificing to make sure you could retire. Now you are starting to enjoy your retirement years but you have one major fear — running out of money before you run out of life. What can you do to make sure you don’t run out of money? Following these steps will get you on the path to know:

Get intimate with the numbers

It’s practically impossible to look at your retirement savings and have the confidence to know that it’ll last you for the rest of your life. There are just too many unknown variables in play.

It is possible to calculate a reasonably based outcome based your assets, spending, rates of return, inflation and income. With detailed knowledge and planning, you will be able to gain a sense of your financial well-being and confidence to overcome your retirement fears. Certified Financial Planners, your investment broker, and/or reputable computer software programs are good sources to assist you.

The numbers need to be conservative so that you have a very realistic picture of your financial future. As an example, it’s better to use an assumed 7% instead of a 12% average annual rate of return on stock portfolios or stock mutual funds. You won’t be in trouble if your actual rate of return is 8.5%. However, you’ll be between a rock and a hard place if your plan assumed a 12% average rate of return.

Regardless of what anyone tells you, history is not a good predictor of future results unless the future market and economic conditions are identical to those in the past.

Know and understand the real risks to your future security

Research from Transamerica found that fear of running out of money, concerns about the viability of Social Security and not being able to afford health care are the three biggest retirement fears.

Other factors that might put your financial security and future in jeopardy include inflation, economic markets, emergencies, falling real estate values, an environmental disaster, a catastrophic health event or perhaps even another unpredictable pandemic like COVID-19.

Get the expertise of a reputable financial adviser

Have you ever sold a house before? Did you try to sell it on your own, or did you seek out an experienced professional that sells dozens of homes each year? Most people use an experienced reputable Realtor.

Why? It’s simple. You were attempting to make a transaction with the largest asset you had at the time, and it wasn’t worth the risk of getting it wrong.

Another piece of advice, don’t risk what you can’t afford to lose. That’s why your retirement savings and investments need to become more conservative as you age.

Commit to the right kind of spending

Money is everything — at least, that’s what you might have thought when you were younger. That’s why you sacrificed and saved! You believed that money would give you financial security, create options and maybe even give you some happiness.

While that’s not too far off, it’s not entirely true. Money, all on its own, doesn’t really do that much for us. It’s how we use that money that can lead us toward happiness.

If you can shift your spending from owning things to experiences, spending your retirement savings becomes fun and meaningful instead of being a retirement fear.

It’s not about fancy cars or a big house — it’s about experiences and making memories.

Live off the interest and dividends

You want to live off the income from your retirement savings and investments. This leaves your capital intact to keep producing income so you won’t ever run out of money. When your end of life nears, you will have the money needed for a terminal illness, nursing home care and the transfer of your wealth according to your will.

Don’t let your money wither away

Many people continue to add to their wealth during retirement. For some, the income they receive from their retirement plans are more than they need to live on. Consequently, they continue to add money to their overall savings.

I am in this position now. Because I am more conservative with my money than most people, my retirement plans assumed a 6% annual rate of return. In actuality, my total retirement funds are earning a guaranteed* annual rate of return of 8.38%. This allows me to continually increase my capital savings which also increases the income produced.

(*) All my retirement savings are in 380-day CD’s in several institutions in Ecuador, South America — my country of residence for the last 8 years. All the institutions have financial safety rating of A+.


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The Poverty Trap

“Poverty is the worst form of violence.”  
— Mahatma Gandhi

What is a poverty trap?

A poverty trap is a situation that creates a never-ending pattern of poverty. Unless something dramatically is done to change the situation, the cycle cannot be broken, leaving generation after generation ‘trapped’ in a constant state of poverty.

The reality is that the effects of poverty lead to even more poverty. And this condition can be passed from generation to generation depending on the underlying cause(s).

What are the causes of a poverty trap?

When many people think about poverty, they think about the lack of an adequate income. While low wages certainly contribute to poverty, there are many other conditions that can cause poverty traps.

  • Lack of good paying jobs: In densely populated urban areas or remote rural areas, it is usually difficult for people to even find a job, let alone finding a job that pays well.
  • Inability to pay for higher education or specialized job training: Without money, people cannot pay for the education they need to get a better job.
  • Violence: Many poverty-stricken areas are so stuck in a poverty trap that people are forced to fight for the basic necessities which creates a very dangerous and violent environment. Violence can inhibit education, industry, and an individual’s ability to excel.
  • The cost of products and services: In poor areas, certain products and services (including food, housing, transportation and medical care) can be unaffordable for large portions of the population.
  • Lack of business and industry growth: In extremely poor areas, even if there is room to build buildings for large industries, the corruption of government, the price of power, and the lack of skilled labor can deter business and industry growth.
  • Poor sanitation: Poor sanitation, or tainted resources (like bacteria tainted water or high levels of air pollution) can lead to disease which spreads quickly and can be difficult to control in areas that are already lacking essential resources.
  • Access to quality medical care: Due to the lack of money or medical insurance, people do not get the medical care they need. Hence, many become chronically ill or die from starvation, malnutrition or a chronic disease.

Taxation and welfare systems can jointly contribute to keep people trapped in poverty because the withdrawal of means-tested benefits that comes with entering low-paid work causes there to be no significant increase in net income. An individual sees that the opportunity cost of returning to work is too great for too little a financial return, and this can create a perverse incentive to not work.

Hence, the government systems that were designed to lift people out of poverty actually institute the barriers that keep people from being able to climb out of poverty.


A Look at Global Poverty Today

Globally, the number of people living in extreme poverty declined from 36 per cent in 1990 to 10 per cent in 2015. But the pace of change is decelerating and the COVID-19 crisis risks reversing decades of progress in the fight against poverty. New research published by the UNU World Institute for Development Economics Research warns that the economic fallout from the global pandemic could increase global poverty by as much as half a billion people, or 8% of the total human population. This would be the first time that poverty has increased globally in thirty years, since 1990.

More than 700 million people, or 10 per cent of the world population, still live in extreme poverty today, struggling to fulfil the most basic needs like health, education, and access to water and sanitation, to name a few. The majority of people living on less than $1.90 a day live in sub-Saharan Africa. Worldwide, the poverty rate in rural areas is 17.2 per cent—more than three times higher than in urban areas. 

For those who work, having a job does not guarantee a decent living. In fact, 8 per cent of employed workers and their families worldwide lived in extreme poverty in 2018. One out of five children live in extreme poverty. Ensuring social protection for all children and other vulnerable groups is critical to reduce poverty.

COVID-19 and Poverty

Developing countries are most at risk during – and in the aftermath – of the pandemic, not only as a health crisis but as a devastating social and economic crisis over the months and years to come. According to UNDP income losses are expected to exceed $220 billion in developing countries, and an estimated 55 per cent of the global population have no access to social protection. These losses will reverberate across societies; impacting education, human rights and, in the most severe cases, basic food security and nutrition.

Facts and Statistics

  • According to the most recent estimates, in 2015, 10 percent of the world’s population or 734 million people lived on less than $1.90 a day.
  • Even before COVID-19, baseline projections suggested that 6 per cent of the global population would still be living in extreme poverty in 2030, missing the target of ending poverty. The fallout from the pandemic threatens to push over 70 million people into extreme poverty.
  • In 2016, 55 per cent of the world’s population – about 4 billion people – did not benefit from any form of social protection.

Section Source: The United Nations


This post is the second post on poverty. To read the first post, Understanding Poverty, please click here.


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