Why most people are broke
By: Joe N
Tags: Financial Freedom, Money, Wealth, Financial Planning, Personal Finance

The strategy for staying out of debt and building wealth

There are many reasons that are obvious and some that most people would not mention. The 5 main reasons why people are broke are;

1. Tolerating the way things are

Sometimes we get overwhelmed to the point of giving up. It becomes more like waiting for a miracle to happen, which never does. In most cases, things get worse. Life has shown that we should never rely on other people to solve our problems because they have their own lives. Waiting is simply not good enough. Even the 12 Step programme for addictions starts with the acknowledgement that there is a problem. Introducing yourself in AA meetings is like “Hi, my name is Joe and I am an alcoholic”. So first, people need to acknowledge that they are broke.

2. Societal conditioning

The world we live in is powered with debt. Most countries are in debt and they also have a deficit, that is, in addition to owning large amounts of money, they spend more than they bring in. So should you and I listen to the Government for financial advice? I would say not at all. The more people can spend the better it is for the economy, even if that means spending through debt. have you seen how society makes it easy to borrow money? This arrangement contributed heavily to the 2008 crash but banks are still giving out loans and credit cards that some will not afford.

So here, people only need to be aware and understand that society makes it easy to spend, borrow more and tolerate debt. This knowledge alone is significant when it comes to money mindset. There are examples of people who have spent in excess of £50000 in borrowed money on clothes, shoes and handbags. Watch programmes like spendaholics on YouTube.

3. Not doing the math

If you earn £2000 monthly and spend £3000 monthly that is not going to work. While most people know this, they do not imagine that they could be doing the same. There is a very simple way of checking and it’s called budgeting. What I come across is that people say no we spend less than we bring in but when we sit and look at income and expenses, over 90% are surprised by the revelation. No matter how good you are at Math, do not do it in your head when it comes to managing personal finances. Most people do not budget.

4. Lifestyle

It’s human nature to want to compete with the Jones’. But we don’t ever stop to think whether the Jones’ can do Math. Competition is inherent even without consciously being aware. How many people do you know who got a puppy because someone else they knew got one, or neighbours buying a new car when another does the same. That is all well for millionaires who can afford the stuff but that is not the case for the majority. We like to live beyond our means.

There are also a few habits that enhance this, for example, compulsive spending and instant gratification. We just want something and we want it now, even if we regret it a few days later. I was the same with cars and mobile phones. But note I used the word “want” and not “need”. If you are trying to escape being broke then do not buy something that is a want, it has to be a need so that you can save more.

5. No vision for the bigger picture

For people who think ahead, they would save for their car, house and children’s education fund at the earliest opportunity. Those with no vision will be driving around in their children’s education fund and when the time comes to pay, they will not have the money and will possibly be still paying for the car. Others simply live for the moment. YOLO right? Saving for retirement does not cross their minds.

Here is what people could do to start fixing their broke status

The first step is to acknowledge the problem. If you do not genuinely see a problem do not even start because you will not have the right commitment. Next, you must budget. Write down the money coming in and take away the expenses by month. If you have money left over that is a good start because you can either save or pay off your debts. If you have more expenses than income there are two things you need to do.

Firstly, increase your income. Get a side hustle, sell on the Facebook market or Shpock, get a second job or a promotion. You can do this temporarily to improve your situation. Secondly, you will need to make sure your money is being spent only on needs and remove all the wants. We show you how to do this and more in The Financial Freedom Manuscript. It will surprise you what some people prioritise when they are broke even if it is clear to the rest of the world that it is not a priority. For example, if I was broke and committed to changing, In the UK I would shop at say Aldi instead of M&S or Harrods, I would cancel gym membership because I like running in the park for free, I would prepare lunch meals at home rather than spend £10 a day on coffee and sandwiches at work. I would also sell a car that I couldn’t afford, especially if public transport is cheaper compared to the car loan payment, fuel, servicing, MOT, Tax and insurance. These simple steps alone could improve the situation for over 50% of people who are broke.

Keep your lifestyle in check. As much as possible, save for something you want to buy so that you pay cash. Except for a mortgage to by a home, if you are borrowing in order to buy something then you can’t afford it. Hard to hear but that is the correct mindset to hold. A portion of what you earn is yours to keep. Aim to save at least 10% of your income. We go into detail about some of these elements in our book and eBook that you can buy for the price of a latte. As you can tell, we are passionate about this subject and we haven’t even described the education system, getting rich quick schemes and how the poor are targetted by fake gurus! More here.