I used to wonder, ‘why I am always broke despite my fat paycheck? How do people around me who earn less live comfortably without being broke?’ you would have wondered so, and perhaps you’re still broke at the moment and are thinking, ‘how do I get this fixed?
Can I not be broke for a month?’ you’re not alone, as more than 55% of Americans, signaling that more than half of the adult population in the US is always broke before the next paycheck.
Here are seven reasons you’re always broke and how not to stay broke.
1. You Spend More Than You Earn
The easiest pathway to being broke is to spend more than you earn by borrowing and not being able to pay back after getting your paycheck.
This happens because you focus more on your wants, which are totally not necessary for your survival and existence, and your inability to spend your money appropriately, focusing more on your needs rather than your wants.
If you’re trying to keep up with the Jones, that will mean that you’re trying to maintain a lifestyle you can’t afford at the moment, and this can include moving into a costlier apartment, driving an expensive car, eating out at 5-star restaurants, wearing designer clothes, using designer perfumes, etc.
Hence, trying to keep up with the Jones is a fake lifestyle that makes you spend far more than you earn, making you rely heavily on credit card loans to fund a fake lifestyle.
If this is your reason for being broke, the best solution is to accept the reality of your financial situation and embrace a frugal lifestyle of spending below your income by cutting out all unnecessary expenses you have incurred in trying to keep up with the jones.
You can start by moving into a more affordable apartment, doing clearance sales, selling your expensive car for a cheaper and durable one, and much more.
If your expenditure exceeds your budget, it’s high time to cut out all unnecessary expenses that often take away the bulk of your money before the next paycheck.
Read Also: How to Live Below Your Means: 7 Hacks You Were Not Told
2. You Don’t Have a Budget for Your Income
Without creating a budget for your income, you could find yourself spending impulsively, leaving out your actual needs.
After exhausting your income on immaterial things, you would end up wondering how you’re left with no cash to sustain you through the month.
Without a budget, it will be almost impossible for you to track your money flow, set SMART financial goals, save money, and stay out of debt.
If you’ve not been budgeting your income, you should start by itemizing your pressing needs or group your spending into priority needs, savings, and wants using the 50-30-20 rule.
Read Also: 9 Practical Budgeting Tips for Easy Money Management
3. You Have Only One Source of Income
You could have only one job and not be broke, provided that the job is high-paying and you’re a good money manager.
If on the other hand, your job does not pay you well and you spend all day at it, you most likely will end up being broke before the next paycheck because your income would not be enough to meet your needs.
Less than 28% of the US workforce are low-wage earners who probably also struggle to meet their needs or have multiple jobs to augment their wages.
By upgrading yourself, you can demand a pay raise at work, get a higher paying job, or multiple jobs and earn more to cover your needs and also save.
If you have acquired skills, you can freelance and earn more in your free time, or with a good plan and a high level of financial literacy; you can set up a business that will help you build wealth.
4. You’re Saving Far More Than You Should
Being broke means not having enough liquid cash to cover your basic needs.
If you jump on many investment opportunities, leaving less cash than you need to take care of basic expenses, you will find yourself broke before the next paycheck unless your investments are ripe enough to yield income that can take care of your needs before the next paycheck arrives.
To avoid finding yourself in terrible financial situations where you have to rely on loans to cover your basic expenses, you should apply the 50-30-20 rule, where 30% of your income goes to savings and investment, and 50% takes care of your basic expenses, which covers feeding, transportation, family needs, home repairs, etc.
Read Also: 7 Easy Money Management Tips You Can Start Today
5. Families and Friends Rely On You for Financial Support
When you have to give much consideration to the financial needs of families and friends, you did find yourself being broke before the next paycheck.
In as much as it is good to offer financial support to families and friends, doing so will be at the expense of your personal financial goals.
That means it could cause you to abandon your goal of saving towards a down payment for your home, retirement, or children’s tuition.
To avoid being broke as a result of rendering financial support to families and friends, you should set financial boundaries by being realistic about the financial support you can offer without going broke.
You can also budget a percentage of your income towards providing financial support for families and friends.
Where necessary, offer non-financial support like advice, encouragement, and referral to sources where they can get financial help.
Read Also: How to Set Financial Boundaries with Friends and Families
6. You’re Financially Indebted
Reliance on credit cards and loans to fund your needs puts you more in debt as interests continue to mount. More than 23 million Americans live in debt, with a collective debt exceeding $246 billion.
Borrowing to fund your living expenses puts a heavy financial burden on you as a result of your continuous borrowing and interest payments, which also accumulate, preventing you from making any savings and making any serious advancement in life.
To break free from the unending cycle of debt, you should create a budget and stick to it, cut down on unnecessary spending, pay off all debts as soon as possible, use cash or debit cards, and, where needed, seek loans with lower interest rates. For example, you can take a low-interest loan for a down payment on your home.
7. You’re Incurring Hidden Costs
When you feel like your money disappears because you’re not able to account for your spending, you have incurred hidden costs, which are expenses like taxes, automatic subscription renewal, maintenance costs, fees, and a lot more, which are not immediately obvious.
Some common hidden costs to watch out for include banking fees, utility and service bills, subscription fees, taxes and surcharges, etc.
Including hidden costs in your budget and also unsubscribing from subscription services not needed may help you manage your finances properly without going broke before the next paycheck.
Conclusion
A behavioral lifestyle of spending more than you earn, not having a budget, living a lifestyle financed by debt, and giving financial support beyond what you can bear are some of the common reasons you’re always broke.
To break free from the habit of being broke at all times, you should cultivate good financial habits like having a budget and sticking to it, not exceeding your income, having a saving and investment plan, and aggressively paying off all debts.
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