Transcription
You walk into any Walmart, any Dollar General, any corner store in America and you see the same pattern over and over. People who can least afford to waste money are lining up to buy things that are actively keeping them poor. And I'm not talking about the occasional splurge or treating yourself. I'm talking about seven specific things that create a cycle of poverty so vicious, so predictable that if you can just stop buying these seven items, you could change the entire trajectory of your financial life.
I've watched this happen for decades. I've seen families trapped in the same financial spot year after year, and when you look closely, it's always the same seven things showing up in their shopping carts, their closets, their driveways. And here's what makes me angry. Nobody's teaching them why these purchases are so damaging. So, I'm going to tell you exactly what these seven things are, why they're financial poison, and what you should be doing instead.
Let me start with something that might surprise you. I grew up during the depression. My family didn't have much, but my father taught me one lesson that's made me more money than any investment strategy or business deal. The difference between poor thinking and wealthy thinking isn't about how much money you have right now. It's about what you do with every single dollar that comes into your hands. Poor thinking says, "I have money today, so I'll spend it today." Wealthy thinking says, "I have money today, so I'll make it work for me tomorrow." And the seven things I'm about to show you, they're all symptoms of poor thinking. The good news is that thinking can be changed. Right now, today, by the time you finish this video, you're going to see these items differently. You're going to understand why they're traps and you're going to know exactly what to do instead.
Thing number one, brand new cars. This is the single biggest wealth killer I see in lower income communities. Someone gets their first decent job. Maybe they're making 40 or 50,000 a year and the first thing they do is walk into a dealership and sign up for a $35,000 car with a six or seven-year loan at 8% interest. Let me break down why this is financial suicide. A new car loses approximately 20% of its value the moment you drive it off the lot. Not 20% over a year. 20% in the first day. You just paid $35,000 for something that's now worth $28,000. You're already down $7,000 and you haven't even made your first payment yet. Over the next 5 years, that car will lose another 40 to 50% of its value. So your $35,000 car is worth maybe 15 to 18,000 after 5 years. But you're still making payments on a loan that had you paying over $40,000 total when you factor in interest.
Here's what wealthy people do. They buy used cars that are 2 to four years old. Someone else already took that massive depreciation hit. A three-year-old Honda Accord or Toyota Camry that originally sold for 30,000 is now selling for around 18 to 20,000. It's got most of its useful life ahead of it. that's proven reliable and you just saved yourself $15,000 in depreciation alone. If you take that 15,000 and invested at 10% average annual return in 30 years, that's over $260,000. You just traded a new car smell for a quart million dollar in retirement money. I drive a 2014 Cadillac XTS that I bought used. It gets me where I need to go. It's comfortable. It's reliable. And every time I get in it, I'm not thinking about the $600 monthly payment I don't have. I'm thinking about what I'm doing with that money instead. That's the difference.
Thing number two, lottery tickets and scratchoffs. The lottery is a tax on people who can't do math. That's not me being mean. That's just reality. The odds of winning the Powerball jackpot are 1 in 292 million. You have better odds of being struck by lightning twice. The odds of winning any prize on most scratchoff tickets is about one in four, but the average prize is less than what you paid for the ticket. Here's what kills me. I've seen studies showing that households earning less than $30,000 a year spend about 5% of their income on lottery tickets. 5%. That's $125 a month. $125 a month invested at 10% annual return for 30 years is over $270,000. You're literally giving away a retirement fund for the fantasy of getting rich quick. The lottery prays on hope. I understand that when you're broke and struggling and you don't see a way out, spending $5 on a dream feels reasonable. But here's the truth. Hope is not a financial strategy. The way out of poverty is not luck. It's discipline, consistency, and making your money work for you instead of throwing it away on astronomical odds. If you're spending money on lottery tickets, stop today. Take that same money and open a Roth IRA. Start investing it in a low-cost index fund. Watch it grow. That's your real lottery ticket, and the odds of winning are almost guaranteed if you give it enough time.
Thing number three, payday loans and cash advance services. These are predatory and they should be illegal. A payday loan works like this. You need $500 today. So, you write a check for $575 that the lender agrees to hold for two weeks until your next paycheck comes. That $75 fee for a two-week loan works out to an annual percentage rate of over 390%. 390% interest. Credit cards are expensive at 20%. Payday loans are 20 times worse. And here's the trap. Two weeks later, you still don't have that $500 because you were already living paycheck to paycheck. So, you roll the loan over another $75 and another and another. Before you know it, you paid $300 in fees for a $500 loan, and you still owe the original 500. The Consumer Financial Protection Bureau found that more than 80% of payday loans are rolled over, renewed within 14 days. I know what you're thinking. But Warren, I need that money right now. My car broke down. My rent is due. What am I supposed to do? Here's what you do. First, never put yourself in that position again by building an emergency fund. I don't care if it's only $25 a month. Start today. Second, if you're already in that emergency, call your landlord and ask for an extension. Call the utility company and set up a payment plan. Ask your employer if they can give you an advance. Every single one of those options is better than a payday loan. And if you're already trapped in the payday loan cycle, stop paying it and deal with the consequences. Yes, they'll harass you. Yes, it'll hurt your credit. But you know what hurts worse? Paying 390% interest for the rest of your life.
Thing number four, rent to own furniture and electronics. This is one of the sneakiest wealth traps out there because it feels affordable. You walk into a rent to own store and you see a living room set for only $69 a month. A big screen TV for $39 a month. It feels doable. But read the fine print. That's $69 a month for the sofa, you're paying it for 72 months. That's six years. You're going to pay almost $5,000 total for a sofa that retails for $1,200 brand new. You're paying four times what it's worth. The rent to own industry makes billions of dollars a year targeting people who don't have good credit and can't get traditional financing. They know exactly what they're doing. They're counting on you looking at the monthly payment instead of the total cost. Don't fall for it. Here's what you do instead. Buy used furniture. Craigslist, Facebook Marketplace, estate sales, thrift stores. You can furnish an entire apartment for $500 if you're patient and willing to look. Is it going to be perfect? No. Is it going to be new? No. But it's yours. You own it. You're not making payments. And when your financial situation improves, you can upgrade. But right now, your job isn't to have the nicest furniture. Your job is to stop being poor. And you can't do that if you're paying four times retail for a couch.
Thing number five, extended warranties and insurance on small items. Every time you buy something at Best Buy or on Amazon, they try to sell you an extended warranty. Phone insurance for $11 a month, a protection plan on your laptop, a warranty on your headphones. It all sounds reasonable until you do the math. Let's say you buy a $1,000 laptop and they offer you a three-year protection plan for $200. That sounds like a good deal if the laptop breaks, right? Wrong. Most manufacturer warranties already cover the first year. Most credit cards automatically extend that warranty by another year if you use them to make the purchase. So, you're really only buying one additional year of coverage for $200. And here's the kicker. Most electronics either fail in the first 90 days, which is covered by the store's return policy, or they last way beyond 3 years. You're insuring against a problem that statistically probably won't happen. Phone insurance is even worse. You pay $11 a month, so that's $132 a year. If your phone breaks, you still have to pay a deductible that's usually around $100 to $200. So, you could pay $400 over three years and still owe $150 deductible if something happens. You know what's smarter? Take that $11 a month and put it in a separate savings account. In two years, you've got over $250 saved. If your phone breaks, you use that money to replace it. If it doesn't break, you still have the money. The only things worth insuring are things [clears throat] that would financially devastate you if they were lost or damaged. your house, your car, your health, your life if people depend on your income. Everything else, self-insure by saving the money yourself.
Thing number six, premium cable and streaming service packages. I know people making $35,000 a year who are paying $200 a month for cable, internet, and five different streaming services. $200 a month is $2,400 a year over 10 years at 10% return. That's over $40,000. You're trading $40,000 in future wealth for the privilege of watching shows you could get for free at the library or with one or two streaming services. Here's the truth about entertainment. You don't need it all. You need some. Get basic internet. Pick one or two streaming services and rotate them. Watch Netflix for three months, cancel it. Watch Hulu for three months, cancel it. You're not missing anything. The shows will still be there when you come back. And if you're worried about missing sports, go to a bar once a week and watch the game there. You'll spend less money and probably have more fun. People justify expensive entertainment packages because they work hard and they deserve to relax. I get that. But you know what else you deserve? Financial security, a retirement fund, the ability to handle an emergency without panic. Those things don't come from cable TV. They come from making hard choices about where your money goes.
Thing number seven, fast food and convenience store purchases. This is the most insidious one because it doesn't feel like a big deal. $5 here, $8 there, $12 for lunch, but it adds up faster than anything else on this list. The average American spends about $3,600 a year on dining out and takeout. For lower inome families, that number might be lower, but even $1,500 a year is a car payment. It's health insurance. It's a Roth IRA contribution. I'm not saying never eat out. I'm saying be intentional about it. Buying lunch every workday at $10 each is $200 a month. Making lunch at home, even simple stuff, costs maybe $50 a month for groceries. You just saved $150. Do that for a year and you've got $1,800. do it for 10 years and invest the difference, you've got over $30,000. The same goes for convenience stores. A Coke at a convenience store is $2.50. That same Coke in a 12-pack from the grocery store cost 60. You're paying four times as much for convenience. A bag of chips is 350 at the gas station, a dollar at Walmart. Coffee at Starbucks is $5. Coffee at home is 25. Every time you choose convenience, you're choosing to stay poor.
Now, here's what all seven of these things have in common. They're all about instant gratification. They're all about feeling better right now without thinking about the cost later. And that is the fundamental difference between poor thinking and wealthy thinking. Poor thinking is short-term. Wealthy thinking is long-term. When I look at any purchase, I don't ask, "Can I afford this right now?" I ask, "What is this costing me in the future?" That new car isn't costing me $35,000. It's costing me $260,000 in lost investment returns. That daily Starbucks isn't $5. It's $30,000 over 10 years. When you start thinking that way, your entire relationship with money changes.
So, here's your action plan. I want you to look at your life right now and identify which of these seven things you're buying. Be honest with yourself. Write them down. Then I want you to calculate what you're actually spending, not what you think you're spending, what you're actually spending. Check your bank statements. Add it up for the last three months and multiply by four to get your annual number. Then I want you to cut one thing, just one. Pick the easiest one to eliminate. Maybe it's the lottery tickets. Maybe it's one streaming service. Maybe it's making coffee at home instead of stopping at Dunkin Donuts. Take the money you save and open a Roth IRA. if you're eligible, or a traditional IRA, or even just a regular brokerage account. Set up automatic transfers so the money goes straight from your checking account to your investment account the day after you get paid. Start with whatever you can. $25 a month, $50 a month. It doesn't matter. What matters is that you start after three months, cut a second thing from the list, then a third. You don't have to do it all at once, but you do have to start. And you have to be consistent. This isn't about being perfect. It's about being better than you were yesterday.
I've been investing for over 70 years. And I can tell you with absolute certainty that wealth is not built by making huge amounts of money. It's built by keeping more of what you make and putting it to work. The gap between poor and wealthy isn't as big as you think. It's just a series of small decisions repeated over decades. Save this video. Watch it again in six months and see where you are. Subscribe if you want more straight talk about money and building wealth with what you have right now. And here's your homework. Pick one thing from this list that you're going to stop buying this week. Write it down. Put it somewhere. You'll see it every day. And every time you're tempted to buy that thing, remember what you're actually choosing. You're not just choosing to save $5. You're choosing your future. The people who win with money aren't the smartest people. They're not the highest earners. They're the most disciplined. And discipline is a choice you make every single day with every single dollar. Make the right choice.