Living paycheck to paycheck sucks, and many of us have been in that situation wishing we could wave a magic wand to stop being broke.
The vicious cycle of being broke is very frustrating, but the truth is – you don’t have to be stuck in this cycle forever and keep experiencing all the financial stress and anxiety linked to it.
There are things you can do to turn your financial situation around. In this blog post, we will share what you can do to stop being broke.
Let’s get started
If we take a survey now and ask people to choose between two options being broke and having more than enough, I might be wrong, but I don’t know anyone who would choose being broke.
So in my world, at least many people don’t want to be broke, but this is far from the reality as many live paycheck to paycheck.
It’s important to note that being broke has nothing to do with your income
I have seen people who earn a lot and can’t cover an emergency with cash, and this is the same with people who earn very little
The biggest reason that cuts across these two groups is that they spend more than they earn and have been spending more than they earn for a long time.
Even if you have a ton of savings today, the moment you start and continue spending more than you earn, it’s just a matter of time before you become broke
Let’s look at other reasons and discuss solutions
Many habits lead to being broke, and these habits are formed from a poor or broke mindset
Instant gratification. This is made possible today because of credit cards
You see it, desire it, and click the buy button and because you don’t see or feel the money leaving your bank account it doesn’t register immediately that you have spent some money unlike using a debit card or paying cash.
Keeping up with the Joneses. This is the twin of instant gratification; instead of being influenced by marketing and sales ads, you are influenced by friends, family, neighbours etc, constantly comparing yourself with them.
You don’t have to do this because it keeps you broke and your financial goals are different.
Not budgeting and tracking your spending: It’s important to know where your money is going or better still determine where you want your money to go and track that you are spending in line with your plan
How you budget and how frequently you track will vary from person to person but make sure you are consistent.
Not saving for emergencies: An emergency fund is important, without it you are open to being broke and getting into debt when the unexpected happens but much more than saving for emergencies, cultivate the habit of saving for saving’s sake
Not taking debt seriously: Many of us, including myself, have been tricked to see debt as a way of life but the truth is we were not meant to live a life where we owe everyone from banks to credit card companies and friends.
If you have debt and you are only paying the minimum payments for example on your credit cards and incurring high interest charges or even late fees this means you are not taking debt seriously.
So, what can you do to break free from these habits, get control of your finances, and start building a more stable financial life? We will look at that next.
There are concrete steps you can take to stop being broke and start building a more stable financial future.
Taking action won’t be pretty, for many of us, it will feel like climbing a mountain, but we must do what we can to get out of this situation.
This is the starting point to make a lasting change. Your money script is like the root, usually unseen but responsible for how things look externally.
Your money script is the set of beliefs and attitudes that shape your relationship with money.
It is often developed in childhood and can be influenced by your family, culture, and life experiences
Cambridge University behavioral specialists discovered that our attitude towards money is mostly formed by age seven. It also discovered that once formed, such behaviors are difficult not impossible to reverse later in life.
Here are some questions that can help identify your money script:
You change your money script by having positive affirmations you tell yourself daily.
This involves looking truthfully at your income, expenses, debt, savings, investments, assets, and net worth. You want to know these figures and the story it’s telling you.
For example, if your expenses, savings, and investments are greater than your income, you are living above your means, and if your assets are greater than your debts, you have a positive net worth.
9 Personal Finance Metrics You Need to Track
A budget is crucial to take control of your finances because it is a plan and roadmap to spending your money.
Creating a monthly budget is a natural next step after the last step because you have started doing some calculations. If you did the last step, you now know your monthly income and have an idea of your expenses.
To be as accurate as possible regarding your expenses, look at your previous expenses, you can get these from your bank or/and credit card statement for the past 3 months.
Armed with this information, you can now make a plan for the future.
There are different budgeting types for example 50/30/20 Budget and zero budget. You can read about them here.
There are also different tools you can use to budget. Your choice of system and tool will depend on you, but whichever you choose, be consistent with budgeting, not necessarily the tool or system, because it’s ok to change them, don’t get into the trap of feeling stuck if one doesn’t work.
Make sure to track your spending and adjust your budget as needed to ensure that you’re not overspending or falling into debt.
There is a big difference between being frugal and cheap.
A frugal person is careful with their money and spends it wisely on important things, while a cheap person is unwilling to spend money even if it’s necessary or important.
It’s important to know the difference, being frugal is an important step to not being broke because it helps you lower your expenses while focusing on and maximizing things and experiences that bring you joy.
For example, a frugal person will stop their gym membership for outdoor running and hiking at the weekends because they love being in touch with nature.
Ideas to help you be more frugal
An emergency fund is essential to avoid you being broke and getting into debt. This involves saving money for unexpected expenses like car repairs or medical bills. An emergency fund can help you avoid debt when unexpected expenses arise.
This step will be much easier as you reduce your expenses and increase the gap between your income and expense. It’s a good idea to keep these savings in an easily accessible account and the rule of thumb is to save 3 – 6 months of expenses.
This is a no-brainer for those with a low income. After reducing your expense, you will quickly realize that you can only reduce so much, that’s why it’s important to increase your income. You can find ways to earn extra money by
The list is endless.
If you are in debt, it’s important to tackle debt seriously. Start by writing down all your debts, interest rates, and to whom
Decide on the strategy you will use to pay down either the debt snowball or debt avalanche method.
The debt snowball starts by sending all extra payments to the smallest debt while paying the minimum on the rest to build that snowball effect, while the debt avalanche method sends all extra payments to the debt with the highest interest rate while paying the minimum monthly payments on the debts with a lower interest rate.
Read about these strategies here. There pros and cons etc
Follow through till you are debt free.
It’s important to constantly invest in yourself and financial literacy through education. Its never been easier to educate yourself on any subject, from youtube videos to books and podcasts, you can find something that will make you better.
Maybe this should have been the first step, you can do this. Millions have done it before you, and millions will do it after you.
Take charge and move forward, also use positive affirmations to constantly reinforce all you want to see
Taking the first step to improve your personal finance and walk toward financial freedom is important.
Remember, making better financial decisions may seem daunting initially, but it’s a simple way to achieve great things in the long run. Start small by changing little things in your spending habits and practicing financial literacy. You can break the vicious cycle of debt and financial stress with enough time and effort.
