It’s mid-month and yet you see a very low balance in your account. So, is it right to say you are poor? Not necessarily. There is a slight but very important difference between being poor and being broke. Most people assume these two are the same because they involve a lack of money.
The term “broke” implies a temporary lack of cash flow whereas poor is a state of living which includes more than a person’s financial status. So, it may be that even a good earning person/individual can be broke at a particular time or period of their life.
Here are a few harsh reasons why individuals face being “broke” and a few major steps or how to fix this.
Reasons for being broke
1) You don’t have enough money:
This is the most obvious reason and also the real truth, you are broke simply because you are barely making enough to meet all your expenses. However, I would invite you to take a closer look. Many people jump to this as a conclusion when one of the following reasons is the true issue.
2) You have pile of debts:
Always remember debts not only hold your future financial plans hostage but can also paralyze your monthly income. If you are constantly in debt, you are not only paying for the item you purchase, but a premium to get it before you can afford it.
3) You are not saving:
Without savings, it is impossible to have an emergency fund to cushion you when you have an emergency. When is the best time to start saving? Yesterday! We recommend having 3 to 6 months of your expenses saved for in an emergency fund.
4) You have an expensive lifestyle:
This may be #4 on our list, but it is the #1 most prevalent of the issues. Most of the broke people are fastidiously trying to fit into the social lifestyle of their peers without enough disposable income to match the kind of cars, phones, houses they would want. Stop being a slave of brand names, eating out, expensive cars and keeping up with the Joneses in general.
5) You spend before you earn:
Some of us do that by spending money when we don’t have to. Every day when people around the globe create debts to live their luxurious life. This is the reason why economic crisis impact us so heavily. I’m sure you’ve heard the words, “pay yourself first”. This does not mean, buy yourself a nice outfit before you pay your bills. It means to put money aside for saving and investing.
6) No Financial literacy:
Here we need to understand the Bible verse, “my people are destroyed for lack of knowledge”. This is true for most people. Many of people who constantly find themselves “broke” lack financial awareness despite holding a degree or two. We rarely teach financial literacy in school.
7) Bad habits:
When you are habitually drinking, smoking, or eating out, not only will it impact your health but also your finances. These habits are major financial drains. Stop your bad habits so both you and your wallet can become healthy. Imagine if you were to set aside and save all that money you waste on bad habits?
8) Making Impulse Purchases:
While standing in the line at the grocery store, if something catches your eye, do you put it into your cart without thinking? This can be a dangerous spending habit. To regain control, track your spending and plan before you spend. Some people call this budgeting, but if that word is offensive, we still recommend tracking your spending.
9) Spending Money Unnecessarily:
This can be very difficult, especially if you are on a tight budget and feel you have no room to spend for pleasure. Control on your spending. Keep it on only things that you need. Remind yourself to control the spending for things you can’t afford. Your future self will thank you!
10) Expensive Vacations:
When you are broke, you cannot afford lavish vacations. However, this doesn’t mean you can’t find creative solutions! Instead of going to an all inclusive resort in the Riviera Maya for 10 days, think about a 1 night stay in a hotel closer to home. Yes, it may not look as good on instagram, but being broke isn’t very fun either.
How to fix the problem:
If you are sick and tired of being broke, here are a few points that will help you to fix the situation.
1) Try a No Spend Challenge:
Try not spending money for a week or even 30 days. The longer you go, certain necessities like groceries, water, electricity and other bills are allowed but any other spending is not allowed. See how long you can go!
2) Budget Forecast:
When money is tight, a budget is a necessity. Create a budget so you will know how much money is coming and going.
3) Put the credit cards away:
To get on the right track financially you have to stop using your credit cards as a crutch. Just because you have the credit limit, doesn’t mean you should use them. Cut them up, freeze them in ice, do whatever you need to avoid using your credit cards unnecessarily.
4) Find a second source of income:
One of the fastest ways to get out of a financial hard spot is to increase your income. This still doesn’t cure a bad spending habit, but it definitely helps!
5) Set clear financial goals:
Always have a clear picture of what you want for yourself. Always keep a track of your monthly expenses to see if you are on the right path to achieving these goals. Once you identify the areas where you are spending, only then you will be able to find ways to cut those expenses.
6) Always pay your bills on time:
It is very important to pay your bills on time. Late fees can add up quickly and put a real serious dent in your budget. It is bad enough to spend money unnecessarily on eating out or whatever your guilty pleasure is, but I don’t know anyone who enjoys wasting their money on late fees.
7) Practice self-discipline:
If your money goals are made a priority, you are more likely to achieve them. Practice discipline in setting and following through on your financial goals.
8) Start saving today:
When it comes to saving money, focus on building the habit and consistency of saving. It will help you when you don’t have enough money to pay your bills but the habit of saving money will help in that situation.
Take responsibility for your own actions. Make plans and execute them. Stay Positive and stay rich.
Invest in building wealth
This may be a subtle difference, but mindset is very important to me. Instead of focusing on “not being broke”, focus on building wealth. Becoming wealthy, achieving financial success, and loving life on your terms are things all of us want for ourselves whenever we think about the future.
Anyone with the right mindset can make their life wealthy and become financially successful so that they fulfill their dreams. Building wealth is about putting in the hard work, planning, discipline, accountability and and consistently practicing good money management skills.
There are a number of ways to build wealth. If you’d like to learn more, consult with one of our advisors today!
Clark Boyd, MBA