I'm Broke!
If you’re broke and looking for a way out then you have come to the right place.
I myself was broke in the past so I know what it looks and feels like to be in that position. I’ve also had a lot of time to reflect on the things that caused me, and many others to go broke.
This article explores the top 10 reasons why you’re likely broke and proposes a cure for each.
With further ado, let’s identify why you might be broke so you know what to focus on as you navigate your way toward a stronger financial position.
Top 10 Reasons You're Broke
1. Broken Money Blueprint
If you aim at nothing, you'll hit it every time.
The above quote is a perfect way to look at broken money blueprints.
Your money blueprint is like a roadmap that guides your thoughts and behaviors surrounding money. If yours is broken, then it means you are likely operating on financial auto-pilot.
The problem with this is that you don’t know where you navigational system will take you. And the destination can be way off your intended course.
You’ll likely have vague money goals or no goals whatsoever. At any rate, your odds of being broke go way up when you’re directionless.
The Fix: Master Your Money Blueprint
2. Not Having a Budget
Imagine for a moment that you were planning to take a cross country road trip. Now imagine that you set out for this trip by car, but you did so without a map or GPS. How might the trip go?
You may make it to your destination, but it certainly won’t be an efficient journey. And it’s perfectly feasible that you end up becoming lost and not make it to the place you wish to go.
This is what it’s like when you manage your money without a budget.
Spending without a budget means that you are managing your finances without a navigational tool that will guide you to your desired destination. You may hope to pay down debt, save for a home, or set funds aside for retirement.
But you may never reach these goals.
At a bare minimum, it’s nearly impossible to be broke while managing a solid budget. So this is likely one of the major causes of your problems.
The Fix: Consider Adopting A Cash Budget
3. You Have Debt
No matter how you slice it, debt forces you to continue to pay a financial penalty for decisions you made in your past.
To put it differently, imagine for a moment that you take out a car loan today at any interest rate. The transaction will be completed today, but you will continue to pay for the car for several years in the future.
As such, debt makes many people broke because it restricts the options that an individual can choose from today based on those past financial decisions.
And speaking of interest rates – debt also makes all of your purchases more expensive and could put a squeeze on your cashflow.
Having great cashflow is the exact opposite of being broke, so clear your debt so you can enjoy your money.
The Fix: Eliminate Debt & Commit to a Debt Free Lifestyle
4. You Don't Save
A good gauge of your overall financial health can be determined by how much you save. But ironically, you actually have to start saving to even start down the path toward financial health.
It’s somewhat of a self fulfilling prophecy.
Forms of saving include building an emergency fund, paying off debt, slashing expenses, and saving for retirement. Which of these you focus on will depend on where you are in your overall financial journey.
At any rate, saving is a mandatory component of a solid financial plan and a requirement if you want to move on from being broke and live a better life.
The Fix: Save More Money to Start Living Better
5. Constant Overspending
This one likely goes without saying, but I must say it still. Here goes nothing..
Simply put, you will certainly be broke if you constantly spend all of your money.
Overspending comes in two primary forms. The first form of overspending is when you simply spend more than you earn. The second form comes when you spend beyond the allotted amounts for certain categories of your budget.
For instance, you may not spend more than you earn in a given month – but you may eat out more than planned and end up having to allocate funds from your grocery budget to cover the restaurants. Not the worst result in the world, but still shows a general lack of discipline with the budget.
The Fix: Work on Building Financial Discipline
6. Keeping Up with the Joneses
I mentioned in my money blueprint article that a person’s social circle plays a role in how they manage their finances. Unfortunately, these influences can lead one away from financial success if they aren’t cognizant of the negative sway
One of the major ways our social circle influences our finances is by the lure of competition or peer pressure. In essence, you may feel that you have to keep up with or do better than those around you.
This externally focused way of living is an easy pathway to being broke. In particular, it could cause one to spend excessively for the sake of appearances even though the expenditures put you in financial peril.
We see this most often in cars, which is why it’s never good to judge a person the wheels they drive.
The Fix: Develop A Strong Financial Identity
7. You're Having Too Much Fun
I don’t intend to come off as the fun police here, but having fun may be wrecking your finances and keeping you broke.
Fun is a broad term, but for our purposes I’ll use it to describe extracurricular and entertainment activities that exist outside of the more mundane functions of life.
Eating out, vacations, and nightlife are common forms of adult extracurricular activities. Additionally, other things on the list could be streaming and subscription services as well as concerts, shows, and festivals.
I want everyone to have as much fun as possible. I just don’t want your fun to be holding you back from financial success.
If you are broke then you should examine your spending to determine how your non essential activities may be holding you back from meeting your financial goals. Then you should prioritize fixing your finances before adding in more fun.
When I went broke, fun became a bad word in my life for a while because I was focused on living better. The fun that I have now feels so much better knowing I’m doing it from a strong financial position.
The Fix: Create a Fun Fund
8. You Have Expensive Tastes
This is not a shaming exercise as we are all well within our rights to have our own unique tastes and preferences. The only trouble with having expensive tastes is that they come with equally expensive price tags.
In line with the theory of luxury beliefs, I’ve noticed a trend that common people tend to mimic and adopt the ways of the rich. They incur the same hefty costs that the rich pay for their expensive goods, but aren’t as economically capable of taking on these costs.
We can easily see this play out when examining certain consumer trends. For instance, the size of the average house has increased substantially over the years – while the average family has decreased.
Similarly, we can also easily look around and see the markings of luxury brands everywhere we go. Luxury is so prevalent that it’s impossible to distinguish the rich from the common people nowadays.
In all, it’s okay to purchase fancy things as long as you aren’t doing so while being broke.
The Fix: Always Live Below Your Means
9. Vulnerable to Emergencies
A well circulated study found that 56% of Americans lack the funds to cover a $1,000 emergency. This is concerning because if there is one thing we know about life, it is that there will always be an emergency.
Emergencies come in all forms such as car accidents, injuries, broken appliances, or even job loss.
There is just too much risk inherent in everyday life. As such, it doesn’t make smart financial sense to not shore up your first line of financial defense in the form of an emergency fund.
You are vulnerable if you fall into the group of people without an emergency fund because one such emergency could be enough to thrust you into credit card debt. The emergency is the first domino, followed by the debt, and then there are usually downstream consequences such as a diminished ability to save and even more debt.
This all amounts to a potentially devastating cycle that would be very difficult to break out of.
The Fix: Build an Emergency Fund
10. Your Income is Too Low
I put this one last for good reason.
For a good portion of the population, a lack of income is a perfectly legitimate barrier to achieving financial success. But for many others, income is not the real issue. The thing that harms most people is poor financial habits, and most of these have been addressed above.
We know this because there are many people who are surviving quite well with incomes that fall on the lower end of the spectrum. I personally know teachers who make under $50,000 per year, yet remain financially healthy. I also know people in high income fields struggling to make ends meet.
Simply put, being broke does not usually come down to a matter of income.
If you are broke and thinking that your income is the cause – be sure to address each item in this guide first. And then focus on your income, because having a higher income will not make up for your poor financial habits.