I got a Facebook message from a friend of mine who was feeling down. His truck was broken and he didn’t have the money to fix it. He told me that he was just tired of being broke and he couldn’t get motivated to work, even though he really needed the money. I remember that feeling very well. I also remember when I finally discovered how to stop being broke. It was surprisingly easy.
Vicious Cycle – The problem with being broke is that it becomes a vicious cycle. The collection calls, late fees and penalties just pile onto the already difficult job of paying the bills. Loans, payments and items purchased on credit siphon away your paycheck, which makes it hard to afford basics like food, rent and utilities. The debt begins to grow and you can never get ahead.
Scarcity Mindset – The only thing worse than actually being broke is worrying about being broke. The more you think about bills and payments, the less energy you spend on increasing your income. How hard would it be to pay your bills if you made twice as much money? It’s often easier to increase your income than it is to reduce expenses.
Loss of Motivation – Being broke kind of wears on people. It undermines their confidence and distracts them from the critical job of earning income. When all of your income goes to bills and you are still broke, it’s hard to get motivated. Yet, that is exactly what you need to do in order to break the cycle and get ahead.
1. Manage Income – One common trait among people with financial problems is they rarely balance their bank accounts. They often have no idea how much money is in their checking account, until they get hit with an avalanche of overdrafts. The first step in getting ahead is managing what you have. With bill pay and online banking, there is no excuse for frequently paying bills late or overdrawing your account. If you don’t wake up in the morning and know approximately how much money is in your bank account, you aren’t paying attention to your finances.
2. Learn to Save - The second step is a critical one. If you don’t save some portion of your paycheck, you will always be broke. You will never get ahead and have financial security. The saddest thing I see are good people who have worked hard their entire lives and have nothing to show for it. They may have earned millions of dollars in their careers and let it all slip through their fingers. Learning to save is the best thing you can possibly do for yourself and your family. Having money saved brings security, opportunity and peace of mind. Living paycheck-to-paycheck brings stress, risk and worries.
Check Out: Pay Yourself First
3. Make a Budget- Another common trait among people with financial problems is they rarely budget. I’m not saying you have to add up receipts or put money in envelopes, but you will need a basic budget for how much money gets spent on rent, utilities, food and entertainment. Otherwise, it’s like playing whack-a-mole with your paycheck and the important things may not get paid. Managing your spending is just as important as managing your income.
4. Have a Plan - Once you start to put some money away, you will need to know what to do with it. Creating a financial plan is probably the easiest of these four steps. For now, all you have to do is pick a good investment and start putting money in. Later, you will need to come up with a plan that makes sense for you.
Check Out: Three-Step Financial Plan
The Bottom Line
The bottom line is that it’s much easier to balance your accounts and manage your money than it is to deal with all of the headaches from being broke. There is no shortcut to sound finances and no income is big enough to spend foolishly. You must take control of your finances or your finances will control you.
“Being broke is a temporary situation. Being poor is a state of mind.”
Mike Todd – American Film Producer