Money Fail: Broke on Thursday
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
- Image by Daniel Moyle
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.
Struggling Financially
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
Recommended Reading
Invest it Wisely – Planting a Seed of Savings
Punch Debt in the Face – You’re not Debt Free if you Have Debt
Beating Broke – Taking Financial Ownership
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.
I’ve been there before, too. Luckily I got most of my financial mistakes out of the way while the Army was there to provide me with free room and board. It took me a while to stop “living in the moment” because every time I’d realize I was spending too much my solution would be to go out and have a good time to get my mind off the problem.
A $35 overdraft fee seemed small compared to the possibilities a Friday night out held. Of course, now THOSE possibilities seem small compared to the possibilities a good investment holds 🙂
When I was writing this post, I was thinking about the balance between fun and responsibility. That’s why the intro came out the way it did. I had a lot of fun when I was young and I don’t regret it. But, I wish I had of caught on to sound finances a little sooner. I could have saved myself a lot of drama and problems.
They didn’t have overdraft when I was young. When you ran out of money, your ATM got declined and you were done partying. This probably saved me a lot of money.
Thinking long term takes a different mindset. It takes a lot more effort to avoid the pitfalls of overspending, debt and that out of control behavior. I make savings a priority and make sure I live on what is left.
There is nothing harder than looking in the mirror once in a while to see if you are meeting your own expectations. For me, this happens a couple of times a month, when I review my written goals. When I’m on top of it, it’s pretty easy. When I have been slacking, it’s not so fun. In either case, I wouldn’t be anywhere near where I am today, if I didn’t have those goals and hold myself accountable.
Thanks for the inclusion, Bret. I’ve also been there, too, and started getting out only in my mid to late 20s. The earlier the lesson can be learned, the better. I have seen the problems that can result when the easy way out is taken, especially if the mistakes are subsidized and repeat themselves over the long term.
You’re very welcome Kevin. I really enjoyed your post.
I don’t think sound money management is emphasized nearly enough, by parents or society. The overwhelming message young people are getting is spend, spend, spend and pay for it later. They finance their cars and education and receive credit cards before they even get an income. Often, parents are encouraging it. This has changed a lot since I was in my 20s.
I had two parents who were both pretty savvy with money and investing. They set a fine example and made us earn everything for ourselves. We all bought our own cars and worked our way through college. I am forever grateful to them.
I could relate on the feeling of being broke. Sometimes it is really tempting to spend the money that one earned in the previous week. It is good thing that I don’t have expensive habits and hobbies or having a credit card when I run out of money. But I am still missing on investing and having a financial plan.
Thanks for stopping by Stephan.
These are both so easy, you have no idea.
Financial Plan – This is the easiest way to create a financial plan I know of. It takes about 10 minutes.
Three-Step Financial Plan
Investing – Setup an automatic monthly investment to Pay Yourself First every month. If you have a 401K plan at work start there. If not, pick a good mutual fund and set up the AIM. You won’t even need an initial minimum investment. Just go online and sign up.
Why I Invest in Mutual Funds
Just let me know if you have any questions.
Bret
How nice is it knowing that you can cover your bills whenever they fall due? Even better when you have enough for those unexpected surprises. Best of all is making the same kind of allowances for the fun stuff.
Good financial habits are sometimes hard to develop, but very worthwhile in the long run.
Great post.
Thanks Shaun.
It’s definitely worth the effort to develop sound money habits. People who are struggling don’t realize it takes a lot more time and energy to do things the wrong way, than to do it right in the first place.
Luckily, most of my money fails were in college. (I love your phrase, “Money Fail”, by the way). Knowing what it was like to avoid more expensive events due to the lack of green in my wallet, I think it conditioned me to hit the ground running with some healthy financial habits once I graduated and found a job.
Hi Paul,
You are really lucky to have learned this lesson during college. Many people never figure it out and they struggle their whole lives.
I learned most of these lessons around age 21, when I had a lot of things go wrong all at once. Actually, I think I learned them at age 22, when I started to recover from my stupidity. 🙂
I like that – “it’s called a liability for a reason”. Great advice here, Bret. I’m 27, I get paid monthly and I usually invest more than half of my salary on pay day. I purposefully leave myself cash poor in order to build my wealth, but I just cannot understand people who live like this. Sometimes my friends think it’s funny that I can’t buy a laptop or holiday because all my money is tied up in investments, but I’d be seriously embarrassed if I couldn’t afford dinner because I did not have enough money in the world.
Hey Ash,
That’s amazing you can save 50% of your net income. You must be single. 🙂 I save 20% of my net, but I’m going to bump it up to 30% next year.
I used to leave myself purposely cash poor, because I’m married and I knew any available money would quickly find a purpose. Now, I keep a little more money in my account and some cash around in a safe. I got tired of scrapping by at the end of the month and I enjoy having some money on hand.
I loved this post – ! – but I have a small quibble with one sentence: “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.”
Nooooo… you start to lose all the things YOU HAVEN’T YET PAID FOR. The ones that are paid off, you get to keep. My granddad’s philosophy “Dont pay rent; don’t pay interest” has really held up and kept it simple for me – although recently I have actually found, to my surprise, that paying rent is sometimes the thriftier way to go – especially for short periods of time – but “Don’t Pay Interest” is still my mantra.
Buying the first home and the first car for cash is, admittedly, very tough, and requires some serious “tightwad” frugality for a while, but the rewards convince you quickly that it’s worth it – and then rolling the sale price into the next purchase makes it so much easier each time.
What really helped me get my Happy-Days-Are-Here-Again-Spendthrift-Mentality (at my first job) under control was writing down each evening exactly what I had spent that day (this was also before the dawn of ATM’s, I might add) and then totalling things up every month. I still do it. Manually. Electronic spreadsheets are wonderful, but the real horror of where the money went comes when you manually tally the items.
Great Post!
Thanks for stopping by AniVee.
You are so right about losing the things on payments, but not the things you already own. I am really looking forward to having my house paid off, so I don’t have to worry about the mortgage any more.