Being broke is a temporary situation. Being poor is a state of mind. -Mike Todd
The difference between a broke and a poor person is that the poor person doesn’t have the money, while the broke person is mishandling their money. I know—money is such a difficult subject to talk about. But if you want to get out of the “constantly broke” trap, you must come to terms with it. If you aren’t managing your money, your money is managing you.
See, I believe we can’t manage what we can’t measure. If we don’t know where our money is going, or if we don’t keep track of our spending, then we will eventually go broke. So how do we fix this? To help you out, we’ve listed 5 common money mistakes that keep people broke—we hope it can help you too.
- You don’t know where you are spending your money.
You will always be broke unless you know where you are spending your hard-earned money. How many times do you walk out of the mall and realize you bought things you didn’t need in the first place? Your horrible spending habits are keeping you broke.
It’s very easy to lose sight of your spending habits unless you are constantly paying attention. If you stop paying attention even for a few minutes you will find yourself spending more than you should.
To fix this, simply keep track of your expenses down to the last centavo. I know it is a difficult task, but simply write down all your expenses. Once you start doing this, you will be shocked at how much money you are wasting.
2. You don’t budget.
You will always be broke unless you make a budget.
Budgeting is essential; it is the backbone of financial security. If you have horrible spending habits, an effective budget will usually pinpoint that. A budget will also serve as a buffer to ensure you don’t overspend. I get it. Budgeting is a huge hassle—but if you want to achieve your long-term goals and financial security, then simply starting one with an excel sheet or a budget tracking app is a good start. The secret to getting ahead is getting started.
3. You live beyond your means.
Let’s keep it simple—spend your money wisely. You’re constantly broke because you’re spending like a king. If you find yourself unable to walk away from a bazaar, if you love shopping online, or if you can’t help it but buy just one more item, then something is not right. You know deep down if you are overspending.
If you need financial security, then it is time to make a conscious decision to control your spending. This step will be challenging. But you can’t get ahead financially if you don’t break your bad habits. To stop being broke, you would want to dig deep down and analyze your spending patterns.
- What is causing you to overspend?
- Where can you cut costs?
- Where are you spending your money?
These are some questions to ask yourself to achieve financial freedom. Part of reducing your expenses involves changing your attitude. Try to simplify your life and live below your means. You’ve got to switch things around in your mind to change your attitude towards money—this is the key to financial security.
4. You are in debt.
Debt is the worst thing in the world when you are already broke. My avid readers, the biggest issue with debt is that it restricts your monthly income—and is keeping you broke. It just sits there and gradually increases. Before you even realize, you’re already in big trouble. Take a few moments to add up all your debt and I’m sure the number will surprise you. After summing it up, it’s time to plan your course of action.
There are two simple ways to pay off your debt: The first way is the Avalanche Method, which attacks the highest interest loans first. This will prevent you from paying thousands of pesos for unnecessary interest rates. The second way is the exact opposite. By addressing the smallest loans first, we can knock it out quicker which helps build momentum and motivates us to pay other loans. This process is called the Snowball Method. Pick your poison. My dear, it is best to seek professional advice such as Registered Financial Consultants.
Getting yourself out of debt is going to be one of the most difficult (but most fulfilling) things you will ever do in your life. Once you start making progress it is seriously the most amazing thing ever! I cannot tell you how much easier and less stressful our lives would be if we’re debt-free. Debt is the worst of poverty.
5. You don’t have an emergency fund.
An emergency fund works as a buffer between real life and emergency. If you find yourself unable to cover unexpected expenses, then you will benefit from an emergency fund.
Here’s why: Everything that can go wrong, will go wrong. No, this does not include beer money nor vacations. It is also not meant to be used to finance lavish celebrations.
Emergency funds are used for dire circumstances that will decrease the quality of your life.
Your emergency fund is meant to protect you from the event of an unexpected financial blow. It can also help prevent you from going further into debt. If you have funds set aside to serve as a buffer, you are going to have a much easier time dealing with all the unforeseen expenses life throws at you. Build an emergency fund asap. Here’s how to go about it:
Set aside 6 months’ worth of your expenses. If you spend PHP 15,000 a month, you must have PHP 90,000 stored in your emergency fund. The money must also be liquid – easy to access if need be.
In conclusion, I believe the way to financial security is simple, but it won’t happen overnight. When you don’t have money, it becomes the source of a lot of pain, frustration, and anger. When you become financially free, however, you will no longer make every decision solely based on money. The way to financial security requires a change in habits and discipline. Being broke is a temporary situation—being poor is an attitude. If you have decided to work on your spending habits but need more information, seek professional help, and consult a Registered Financial Consultant.
Disclaimer: Just a reminder, dear reader, that the content in this column is my opinion only and should not be construed as investment advice because I am not your financial adviser, neither did I take into consideration your personal objectives, financial situation, needs or circumstances as your fiduciary. This column is mainly for your entertainment and education only.