Here’s Why Most People Are Broke


Here’s Why Most People Are Broke

Don’t be one of them


Do you have at least $400 saved to cover an unexpected emergency? You’re financially better off than one-third of Americans. The truth is that most people do a very poor job when it comes to managing their finances.

Far too few people are responsible with their money.

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You can have a good relationship with money without having a high income, or being ultra-wealthy. All it takes is making responsible choices instead of careless decisions on a regular basis.

So let’s talk about some of the most common reasons why people are broke, as well as ways to avoid them. Some of these mistakes could keep you broke forever.

Not having clear financial goals

Financial goals are the starting point for every decision you’ll make with money. You’ll probably not be able to increase your income or pay off debt if you have no direction.

By having set financial goals, you now have a destination to look forward to.

For example, becoming debt-free within the next 5 years is a clear and concise goal that you can use to execute a plan that will help you get there.

If you want to double or even triple your income by next year, what are some things that you can start doing right away to take you there?

The first step that you should take if you don’t want to be broke for the rest of your life is coming up with a goal of exactly where you’d like to be financially. Then set a deadline. It’s very important to have a defined finish line for your financial goals.

Failing to prepare for emergencies

You already know that one-third of Americans don’t even have $400 to cover an unexpected emergency. This can obviously be a huge problem. Nowadays unexpected expenses are quite common, and $400 really isn’t a large amount of money. For example, the average repair cost on a car is around $500.

If you don’t find a way to prepare for financial emergencies, you’re setting yourself up for disaster. You should always be prepared for any emergencies, such as losing your job or having to cover for unexpected medical bills.

You really don’t want to find yourself in a place where you’ll be forced to fund these emergencies in other ways, such as going into credit card debt.

Not only will you struggle to pay off that debt that probably comes with very high-interest rates, but you’ll also have a really hard time saving for an emergency fund now.

Failing to budget

One of the main reasons people are broke and stay that way is that they don’t live on a budget. Research shows that only about 41% of Americans stick to a budget.

It’s almost impossible to know how much you spend on different things without tracking your income and your expenses.

Far too many people get their paycheck, make some purchases, and then they have nothing left over. This is why budgeting is so important.

Many people don’t like the idea of putting their expenses and their income on a spreadsheet — they find that to be uncomfortable. However, doing this can be a powerful exercise especially for those who are trying to take control of their finances.

Not thinking about the future

One of the most common excuses I hear nowadays is that people want to enjoy their life today, instead of having to save money until they’re old.

I fully get it if you don’t want to save every penny until you’re in your 60s. It doesn’t really make sense to sacrifice your 20s or 30s for a potentially good retirement. However, it’s very important to be able to balance having a good time now and thinking ahead as well.

Having the right balance means that you can make wise decisions to set yourself up for success in the future, and spend some money to have fun now as well.

Expensive habits

The truth is that not only rich people have expensive habits. Far too many people have habits that keep them from getting ahead financially. For example, smoking is an expensive habit, which costs more money than you realize.

If you’re a regular smoker, you probably spend upwards of $200 a month on cigarettes alone.

Now, how many smokers would claim that they are not able to invest $200 per month for their future because they don’t have enough money?

There are many other expensive habits, such as eating out several times a week. Some people got so used to these habits that they don’t realize how much money they end up wasting in the process.

Bad debt

Not all debt is the same. There’s good debt, and there’s bad debt.

If you have good debt, the money that you borrow will help you make more money. An example of good debt is something like a mortgage on a rental property. That property will generate money.

And then there’s bad debt, which you probably think of when someone mentions debt. Whenever you’re borrowing money to purchase assets that are depreciating, you’re getting into bad debt.

Cars, clothes, and most items bought with a credit card are all in this category.

Generally speaking, debt allows people to make purchases that they can’t afford and don’t have the money for. Let’s say that someone wants to purchase a new car, so they choose to finance it because they can’t afford to pay cash.

They’re now paying interest to the lender, the car is depreciating at a rapid rate and it was out of their budget in the first place.

Rich people earn interest, poor people pay it.

Spending money to impress others

Most people buy things they don’t need, with money they don’t have to impress people they don’t like — Dave Ramsey.

This may sound silly to you, but this is very common and it happens all the time.

Far too many people want to look rich in front of others, so they make bad purchases. While you might feel good for a short time after making a big purchase to impress others, that feeling won’t last too long. And the biggest problem is that even a single purchase can set you back for a long time.

Failing to pay yourself first

Woman holding cash
Photo by Alexander Mils on Unsplash
Paying yourself first is one of the easiest ways to improve your finances that most poor people don’t do. If you’re trying to get ahead, you need to understand that simply saving money is very unlikely to make you wealthy.

That’s why it’s very important to put your money to work. It will take a long time until you see any results. The best way to do this is simply taking a percentage out of your paycheck every time and investing that money.

Try to automate this, so you’ll be less likely to miss that money. When faced with the option of whether or not to invest every week, you’re much less likely to choose to invest.

Most people are broke because they make poor financial decisions in many different areas.

The good news is that it’s possible for just about everyone to improve their situation to a point where they’re comfortable. It just takes a lot of consistency and a good plan.


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