Why am I broke?
From age 22 to about age 28 I felt like I was asking that question in my head almost every week.
Here I was, career in hand, summer job in place, two college degrees, and yet I still felt like I never had enough money… but why?
How could it be that someone “Who did it all right,” feel so broke? Well, there are many reasons why you might keep asking why you’re broke. So today I set out to hopefully help you nail down just the reason you’re broke…
But how to fix the being broke problem once and for all!
Why You’re Broke and How to Fix It!
Use the following list to not feel bad about yourself, but to instead identify where you can improve and how. Use the shopping cart approach – take what you want and leave what you don't need!
1. You Don’t Make Enough Money
Let’s just cut right to the chase – the probability of being broke decreases with the influx of income.
Put simply, you don’t make enough money and that is why you’re feeling broke. Even if you happen to make six figures or some good money, you still might feel broke due to lifestyle inflation.
Regardless, not making money is the #1 reason people may feel broke. You can have the best budget, the best financial strategies, and best you name it – but if you don't make enough, it can be suffocating.
Luckily the internet has made it much simpler to make money on the side and to help you “Give yourself a raise.” We will talk about other factors that contribute to feeling broke, but in the meantime, start focusing on making money, here is how:
Try this instead…
You have to focus on making more money if you're not making enough, here are a few recommendations:
- Get a copy of my free Side Hustle Action Guide so you can learn how to make more money on the side
- Don't rely solely on things like ride-sharing or surveys, but use them when/as needed
- See about getting a raise at work or if you have to, look for a new job!
- Use the money you do make more wisely, like #2 below states.
2. You Eat Out Too Much
Don’t think your eating out habit hurts your bank account?
If you’re a millennial or younger, according to one study, close to half of all millennials spend more money eating out, than they do saving each month!
In another study by USA Today, nonessential spending (Drinks, eating out, Uber rides, entertainment) was at $18,000 per year! Any guesses what the top four were?
- Restaurants $209
- Drinks $188
- Takeout/Delivery $177
- Buying Lunch $173
- Monthly Total: $747, Annually: $8,964 on food!/drinks!
So if the average person makes approximately $60,000 per year before taxes, spending $8,964 on eating out and drinks is almost 15% of their annual salary.
While you might feel full, you might also feel broke, all because of eating out!
Source: USA Today
Try this instead:
Operate on strict eating out budget. Be sure to set a budget that is appropriate for your income – not for keeping up with friends or posting on Instagram!
To help you, instead of saying “Oh I will just spend $100 a month” come up with a number that is a percentage of what you make. If you make $3,000 per month take home, eating out budget of $150 is 5% of your take home.
When you look at things in terms of percentage, you make wiser decisions, not broke type decisions!
3. You Drive Too Much Car
Don't underestimate the atrocious TRUE cost of buying cars. Buying cars that are not within your appropriate budget are not only detrimental for your debt to income ratio, but your ride can also be the main reason you feel broke all the time!
What most fail to recongize is that it's not just a car payment you're getting when you finance/lease a car, but all the other stuff associated with car buying such as:
- Property taxes
If your car is valued at 25% or higher of your gross income OR your total monthly costs for your car (payment, insurance, gas, maintenance) exceeds 10% of your take-home pay, you're paying too much – and you might be car broke!
Try this instead:
Instead of overspending on a car, make sure always follow these tips:
- Recognize cars are depreciating liabilities, not assets
- Don't fit the car to your budget by extending terms and financing, fit the budget to your car!
- Your car should not be worth 25% of what you make annually. If you make $40,000 per year, you should drive a car that is worth $10,000 or less.
- Each month, your car should not cost you more than 10% of your take-home pay ideally. This includes everything, not just payments!
The tips might seem a bit extreme, but chances are you have met someone who drives a nice car but is always broke!
For more information on car buying, be sure to use this complete car buying affordability guide!
4. You Don’t Save For Emergencies
It's not a matter of IF a financial emergency will occur, it is just a matter of when.
Think about it logically (especially if you're a homeowner), in a 30 year period, do you think anything will happen that requires your immediate financial attention?
Perhaps a car tire, a new roof, or heaven forbid – a medical scare, regardless, stuff comes up.
In 2017 my car's engine failed and my washing machine went dead. During March of 2019 my dog at chocolate, costing us $4,300. To top it off, a few days later my car hit the neighbors when I forgot to pull my emergency brake.
Needless to say, I wasn't ready for any of this to happen mentally, but I was financially! However, most people simply aren't and less than half of all adults have $1,000 in savings.
So a small emergency can quickly become a large emergency, and leave you broke!
No matter what the financial emergency might be, it's important to always have your finances in order to prepare for them (or at least weather the storm).
Try this instead:
There are three simple tips for preparing for financial emergencies:
- Create an emergency fund in a savings account separate from your checking/banking (so you don't just use it whenever).
- Save 1 month, then 3, then work to having 6-12 months worth of expenses saved up!
- Look into term life insurance and umbrella insurance policies to protect yourself!
5. You Use Credit Cards
If you constantly rely on credit cards or use them frequently, there is a good chance you are broke.
Unless you use credit cards and pay them off every month (for the points), relying on credit cards to fund your lifestyle, pay your bills or just to survive typically is a warning sign of someone who is broke.
People who use plastic are more than likely to spend money they don't have than those who use cash or debit.
Or, as Amanda of My Life, I Guess shared below, sometimes life happens (like #4) above and we have to use extreme measures (such as credit cards) to make ends meet:
I was laid off in 2014 and was unable to find a permanent, full-time job for 2.5 years. Being unemployed and under-employed for that long meant relying on credit just to make ends meet. Once I was back to working full-time, paying off that debt was nearly impossible as we were still living paycheck to paycheck. The majority of our payments went directly to interest instead of paying off the principal amount we owed.
So while there are plenty of cases such as Amanda's where you might feel broken and it isn't necessarily due to anything you did – credit cards can help us stay afloat, but not necessarily save us from drowning!
Try this instead:
If you're constantly broke, you need to stop using credit cards. Cut them up, who cares about a 2.5% cashback bonus.
What will $20 in bonuses do for you if you're shelling out $400 in interest every month? You're still -$380.
Before ever using credit cards, you need to first make sure everything is budgeted and you're used to managing your finances. Once you have determined you're financially disciplined than explore using a credit card for simple things such as:
- Gas only
- Groceries only
- Utility bills only
6. You’re Trying to Keep Up
Vacations, food, parties, nightlife, babies, weddings, bar crawls, baby announcement photos – you name it, chances are you have seen it in person and on social media.
And social media is the digital age version of keeping up with the Joneses, only it is on steroids!
When the neighbor got a car, you only had to look at when they pulled in and out of their garage. Now, every time you visit a friend's Instagram page you get to see all the great stuff – and none of the not so great.
This constant bombardment makes us feel like we need to keep up, even if that means we sacrifice our long term security and go broke in the process!
So instead of keeping up, it's time to recognize that keeping up doesn't make you happier and it is actually keeping you broke in the long run.
Try this instead:
Since social media is typically where comparison runs rampant the most, use these ideas to help you stop financial comparison:
- Delete social media apps from phone and only check 1-2x per day on your desktop
- If you refuse to delete your apps, only keep 2!
- Scramble your apps on your phone every few days to reduce “Boredom” scrolling that can lead to comparison
Lastly, always keep in mind you're seeing other's best and it's never smart to compare. You wouldn't compare yourself to a marathon runner if you never run, so don't compare financially – or you might very well stay broke!
7. You’re Comfortable
What I really wanted to say is you might be broke because you're lazy. But I decided comfortable was nicer than lazy.
However, don't think your comfort zone doesn't get the best of you. Enough statistics show that most adults don't make enough, save enough, or budget enough so they feel broke all the time.
That being said, why don't they do something about it?
Here is the big issue with comfort zones that goes completely unnoticed – most of us fail to even recognize we are operating in a comfort zone.
Our habits can get the best of us and we start wasting time on pointless things that make us feel like we are being “productive” or “busy.” In reality, we are really just
Try this instead:
- Start by identifying the time-wasters in your life. Create awarness around them and track how much time you're spending doing them.
- Write done some of your values or goals. Think big and long term on this.
- Come up with a plan to align your values with your habits. For example, I run because I value my health to live a long time.
- Now see what your values and habits are telling you, chances are they're saying get out of your comfort and routines!
Busy is a choice, and busy is an excuse.
8. You Have Too Much Debt
Just because a bank says yes to financing, doesn't mean you should be purchasing whatever it is your financing.
You can finance anything these days – cell phones, furniture, boats, bikes, computers, you name it – in addition to cars and homes. This is also why Americans are saddled with debt and saving at an all-time low annually!
And while all the payments might mathematically work according to the lender, chances are if you're in too much debt, you feel broke!
If not making enough money is the #1 reason why people stay broke, a close second would be debt. Debt is a killer and even manageable debt can make us feel broke!
Try this instead:
Start treating your debt seriously. Debt causes financial strain in relationships, marriages, at work and the stress can be physically harmful.
That being said some slight adjustments can make your debt go away (or start) in a matter of months. Here is what you should do:
This guide is no joke. It details some of the exact steps we took to pay off our student loans. In November 2016 we had $262,000 today we have $60,000.
9. You’re A Short Term Thinker
Do you get the freshly prepared Hotbar food or do you go buy the bulk chicken for the same price and meal prep?
In reality, we are faced with choices like these every single day, sometimes multiple times per day! You can even order food and new shoes from your phone bored at work.
All of this to say that our short term decision making can sometimes get the best of us while keeping you broke at the same time!
Long term thinkers, or those who can say no now for something better later, have been the subject of studies for years. And the results are clear, those who think long term are typically more successful than their counterparts.
So it's time to start thinking long term (which takes time to develop) so you can stop feeling broke all the time…
Try this instead:
To think long term use both of these step by step articles:
10.You Impulse Buy
When you walk into the store without a list, without a plan, and a credit card in your hand – there is a high probability you're 5-30 minutes away from committing some impulse buying!
Buying stuff just to buy it, or purchasing items you truly don't need is not only a recipe for blowing money but for staying broke. And there are psychological reasons why we impulse buy.
For starters, similar to #6 above, stores know our innate desire to keep up, so they tempt us with aversion tactics, sales, and the feeling of missing out.
We have all seen the people with a cart of groceries and a new flat screen at the local Walmart – don't be that person!
Try this instead:
Instead of impulse buying, enact a spending policy with yourself that combats impulse buys online and in stores. Two ideas to include are:
- A 24 Hour Purchase Rule
- 1x Per Month Online Checkouts
For any purchase of a singular item that costs over $50 (You can set the amount) make a rule that you can’t buy it until you have waited at least 24 hours. This will prevent impulse buying and really help you assess needs vs. wants.
Secondly, online shopping makes it super convenient to overspend your hard-earned dollars. The emotional feeling of buying and parting ways with your money doesn't exist with online shopping.
Instead of just buying whatever you want on your Amazon Prime app, instead, fill your cart. Then on payday, check out, but go back through your shopping cart and really assess if you still need/want the items in the cart!
11. Your Social Life Is More Important Than Security
Don't punch me through the computer, but there is a high probability your social life is why you're broke.
When I assessed why I was broke five years ago, what I quickly realized was that in addition to not truly having a budget, I also didn't have a clue as to how much I was truly spending on my social life.
One weekend I sat down and started adding up all the:
- Uber rides
- Drinks in the city
- Football games
- Brewery trips
- Party bus trips
- Fast food stops
- Bachelor Parties
And the list went on, and on, and on. As the list of my social life grew, so did the number I was spending on my social life. I quickly realized I was spending over $1,000 a month on variable expenses dedicated to my social life!
I wasn't investing any money, but I was spending $12,000+ a year on my social life, which was I was personally broke all the time.
Try this instead:
You might be broke because of your social life, but you can have a social life and money… however, you need to make some adjustments.
First, define your value system and start figuring out what your plan is longterm. Think of things like houses, family, kids, travel.
Next, ask yourself if your social life is getting you close or further to your values. Use this exercise to start really assessing your association. Do you truly enjoy going out every single Friday – or is it something you're just caught up in?
From me to you, I hope you’re feeling pretty good right now – not discouraged.
If you’re anything like how I was 5-6 years ago, what I had to realize was that I wasn’t broke – but my financial habits were broke.
Just like a leaky faucet that needed some repair, my spending, saving, debt payoff strategies, and money-making habits were all out whack. My feeling of being broke was real, but the situation was not nearly as bad as I thought… slight adjustments had to be made.
So as we part, here are my final recommendations to helping you take action to lose the feeling of financial uncertainty:
- Just start somewhere, and start today. Either create a savings account, start investing $10 a day, or write down a few ways to attack your debt.
- Use a budget to help you better track your money (Get my FREE budget sheet here).
- Find someone who can help you with accountability
- Examine your progress monthly, consider using something like Personal Capital to help you track your net worth and financial progress!
And lastly, hopefully, you will never have to ask yourself “Why am I broke?” again!
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎