Last month, I went out to dinner with a group of people and someone hit me up to float their meal. It was Thursday night and they were broke. Thankfully, I had plenty of cash with me, so it wasn’t a problem. I have been there myself a number of times and I know how it feels. I also know that it’s no way to live. It is so much nicer to have the money available to handle a situation.
This is the first post in a series of Money Fails.
Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort
The Weekend Warrior
One of my biggest problems when I was in my early 20s was that I was Friday rich. I would drink up all of my money clubbing on the weekends and then I would scrimp through the rest of the week until payday. Sometimes, I would run out of gas or have to skip lunch, but I didn’t consider it a problem. I was having a great time and saving money was the furthest thing from my mind. After I experienced a couple of financial setbacks, I realized it was a huge problem. I almost lost my car and my apartment.
The problem with the payday mentality is that it becomes a lifestyle. Instead of thinking about the future, people are thinking about payday. This is a cycle that repeats itself over and over again. Bad habits are hard to break and bad financial habits are the worst. In order to become successful, people need to think long-term. Nobody gets ahead in life by dropping back to zero every week.
Living on the Edge
Most people today don’t fear debt like our parents and grandparents did. They have been conditioned to think it’s OK to owe money on the things you want. Some kinds of debt are even considered “good” debt. But, all debt carries a risk. It’s called a liability for a reason. If your income stops or you can’t afford to make the payments, you start to lose all of the things you worked so hard for. And, people have a lot of unnecessary stress and anxiety related to the debt.
The problem with living on the edge is that it only takes a small financial setback to push someone over a cliff. And, this small setback is going to happen sooner or later. An accident, illness or layoff can set someone back for years. They may lose their place and have to start over. And it’s completely avoidable, by saving a little money each week. Being broke on payday is an indicator that something is wrong. It’s a red flag that you are taking too much risk by having no cash reserve.
Imagine coming home from work and your wallet, gas tank and refrigerator are empty. The phone rings and it’s a bill collector. You don’t have the money to pay all of your bills, so you screen your calls. Last week, you got a ticket for an expired registration. It has gone up by 50%, because you missed the due date. Your bank account is overdrawn and you got hit with five separate $35 overdraft fees. On payday, you juggle some bills and pay others.
Why People Struggle
- They pay a lot of interest, penalties and fees
- They have no idea where their money is going
- They pay extra to have the latest and greatest
- They have very expensive habits and hobbies
- They feel entitled to things they can’t afford
- They try to impress others and look successful
- They use credit when they run out of money
- They don’t save for problems or opportunities
Are you one of the millions who are struggling financially?
A Prosperous Life
Now imagine payday rolls around and there is still some money left in your bank account. The bills come in and you can afford to pay them all. You invest some money for the future and buy something nice for yourself. An unexpected expense pops up and you have the money to handle it. You are saving for a vacation and researching destinations. Despite the fact you make the same level of income as before, you live better and have way more money.
How to Prosper
- Invest part of your income from every paycheck
- Watch your budget to keep from overspending
- Save up for wants instead of using credit cards
- Avoid monthly payments, except for a mortgage
- Eliminate consumer debt as quickly as possible
- Increase your income by any means necessary
- Create a sound financial plan and stick to it
Would you change your spending habits in order to prosper?
The Bottom Line
The bottom line is that people shouldn’t be waiting for payday just to become solvent again. They should be paying themselves first and pulling ahead from every paycheck. There’s no joy on payday when others keep your pay.
“Being broke is a temporary situation. Being poor is a state of mind.”
Mike Todd – American Film Producer
This post was featured on the Carnival of Personal Finance over at Mrs. Nespy’s World. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. There are dozens of amazing posts.