This Is Why I'm Broke:
7 Reasons For Your Plight

“This is why I’m broke” is the m.o. of our practical guide debunking prevalent money myths and giving you a breakdown of the reasons you may be broke, even as you earn more money.

This Is Why I'm Broke

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If you’re struggling to keep afloat financially, this post will provide you with explanations to your predicament that you may have overlooked, as well as obvious reasons you could be ignoring, and a comprehensive look at what you need to do to turn the tide.

This Is Why I’m Broke Reason #1:
You think making a lot of money should make you financially solvent.

The reality of earning more money, contrary to popular belief, is it simply doesn't guarantee financial success.

Many Americans find themselves in a cycle of increased earnings, leading to higher spending, to accumulating more debt. It's essential to understand the relationship between income and spending habits. If you are earning a lot and spending a lot, or earning more and spending more, you are just spinning your wheels.

Stop the financial bleeding! The first step towards financial stability is putting a halt to superfluous and unnecessary expenditures.

You will not make any progress until your earnings overtake your spending. This may involve making tough decisions for some - such as cutting back on luxury items, frequent dining out in costly restaurants, non-budgeted vacations, and other non-essential expenditures.

This Is Why I’m Broke Reason #2: 
You don’t track your expenses.

You are a free-spending squanderer who doesn’t really control where your money is going. There isn’t anyone with solid wealth who does not operate with a budget. A budget is like a compass that indicates the direction of navigation at all time.

Without creating a detailed budget it is difficult to follow your financial inflows and outflows or gain insights into areas where you can make adjustments to keep more of your money.

We love this simple quote of billionaire Richard Branson who was once asked in an interview what he recommends people do to follow in his tracks. He said, “Count your money!”

It’s amazing how many people neglect to keep track of what they earn, what they spend, and how much money is left over if any.

This Is Why I’m Broke Reason #3: 
You’re a dream come true for your bank.

Banks love you because each and every month, you voluntarily surrender a small fortune to them in the form of high interest credit cards and other debts that you carry.

Credit card debt is like trying to carry water in a bucket with holes in the bottom. You simply will not be able to build wealth when your container is continuously leaking!

Now, let’s talk about high interest debt and the illusion of 0% APR cards. The prevalent advice is to transfer credit card debt to a 0% APR card. And that may seem like a reasonable solution, but it comes with risks. The banks know that you will fall for the easy bait and they will soon switch to insanely high interest rates once they have you on the hook.

While transferring debt to a 0% APR card can provide temporary relief, it's crucial to have control over your spending habits first. The interest-free period should always be used to aggressively pay down debt, and to avoid the pitfalls of accumulating more debt.

This Is Why I’m Broke Reason #4: 
You are misusing plastic to fuel a lifestyle you cannot afford.

The best overall use of credit cards is to pay the balance in full each and every cycle, or at least work as diligently as possible in that direction.

Relying on credit cards to maintain a lifestyle beyond your means catches up with you sooner rather than later with ballooning balances and your paychecks spent on monthly payments before you even get to payday.

You might also want to be watchful of unfavorable interest rates that the banks will keep on your accounts even when your credit score qualifies you for lower interests.

The banks will not do your homework for you. You have to call them and renegotiate the interest rate on your accounts or bluff that you'll switch to another bank. Otherwise, they’re never in business to do you any favors!

High-interest debts act as a significant obstacle to wealth accumulation. Tackling these debts first ensures that your hard-earned money isn't going into the pockets of credit card companies.

This Is Why I’m Broke Reason #5: 
You are not strategic with your money.

Increasing your income is a vital aspect of building wealth but it requires a planned strategy. As we said earlier, simply earning more if you’re spending more will just keep you broke!

You have to align increasing your income with calculated and specific financial objectives. Whether you’re getting it thanks to a career change, a second job, or a side hustle, the extra money you make should always help you solidify your financial position, paying down debt, increasing your savings, and investing.

Set some goals with manageable steps and concrete benchmarks to track your progress in the short and long term.

This Is Why I’m Broke Reason #6:
You’re not adjusting your lifestyle for long-term success.

Let’s face it! Keeping up with the Joneses is a major factor in the way people are driven to spend their money, from their housing selections to the cars they’ll drive, or even the clothes they’ll wear and their choice of social activities.

Challenging surrounding societal norms and reassessing your lifestyle choices is a critical but often overlooked step in wealth building. Some of this stuff is non-negotiable for a lot of people, yet the proof is in the pudding.

One example, among others, is the FIRE movement (Financial Independence Retire Early). It clearly demonstrates how you can cut expenses today so that you’ll be financially free tomorrow.

The question is, are you willing to downsize your lifestyle now for financial freedom later?

Would you consider reducing expenses - as in cheaper housing, or cheaper transportation - and trim monthly bills? You see, one of the incontrovertible fundamentals of wealth-building is the ability to bankroll investments with your surplus funds. 

This Is Why I’m Broke Reason #7: 
You’re working for your money, but your money isn’t working for you.

Your blood and sweat go to paying for trivial things like ridiculously priced brand-name fashion, or your $100 a month Starbucks habit - or other non-essentials. Name your poison! Why not redirect that wasted money towards investing in the 3 majors: Owning Stocks, owning Real Estate, and owning businesses?

The mindset shift from spending to investing is fundamental in building lasting wealth. You don’t need a ton of money to start investing. That money that you’re blowing on Starbucks every month? Guess what? The Starbucks stock (SBUX) has a Growth Style Score of B, forecasting 2023 year-over-year earnings growth of an impressive 17%. That’s where your monthly $100 would really do some good.

And that bank that’s ripping you off with high interest debt? Do your research and see if you could at least do a fair trade by owning their stock, or ETFs that contain their stock. ETFs are safe and low-cost mutual fund investments that assemble a basket of stocks and are ideal diversification in novice investors’ portfolios.

If you systematically spent the money you save from unnecessary expenses, or high interest debts, and put in instead in automated investments, you would be leveraging your money and creating sustainable financial growth over time.

This guide would not be complete without mentioning some fundamental starting points to achieving financial stability and wealth-building:

Emergency Fund

The importance of establishing and maintaining an emergency fund cannot be overstated.

The financial safety net of having an emergency fund can prevent you from going into debt in the first place, or falling prey to unexpected situations, including job loss or medical emergencies.

Start building an emergency fund right away and you will soon see the difference in how you feel not living paycheck to paycheck or not feeling broke or thrown off by the slightest unexpected expenses.

A solid emergency fund foundation is the bedrock of any wealth-building strategy, followed by a good handle on debt. If you follow financial content like ours, you may already know that we talk about debt strategies involving good debt versus bad debt.

Once you’ve established a reliable emergency fund and you’ve turned debt into an effective tool at your disposal, you can then focus your attention on growing the money you save and have it work for you instead of the other way around.

Financial Education

Most people get through school without ever receiving meaningful financial education. Even highly paid doctors often find themselves financially in the hole despite their massive paychecks.

Luckily, we live in a time where learning to build wealth is no longer the exclusive domain of the few. Today, anyone can learn the fundamentals of wealth building and should. In addition, wealth-building strategies and vehicles are available to all with virtually no restrictions.

All you need is the willingness to seek the knowledge, to persevere, and to keep learning about investment options and various financial strategies through videos, books, courses or other empowering resources of financial education.

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