How to never be broke: 5 money tips to be financially secure
It’s a relaxing Sunday evening and an excellent time to have fun outdoors with friends and family. So you wanted to spice things up by ordering a delicious steak sauce and chicken grills, but you just realised you didn’t have any pennies left. Oh, my! Can you imagine that disappointment? Yes, that is the feeling! Well, crazy things happen, and sometimes we are caught unawares, but trust me, being broke is just one of those awful things that we wish they don’t ever happen to us.
But, come to think of it, could things have turned out differently? Are there any proven ways to avert being broke? Fortunately, there are many ways to avoid going broke, and in this post, we will be discussing why people go broke and several ways to avoid going broke. Read along!
Why do people go broke?
1. Living on a paycheck
One of the quickest ways to go broke is to depend solely on your paycheck. Following the research carried out by CareerBuilder, about 78% of U.S. workers live from paycheck to paycheck, making it more difficult to save or invest. This makes them more susceptible to bankruptcy in harsh economic situations.
2. No budgets, No plan!
While living on a paycheck from a relatively low paying job is bad enough, it can get worse when you do not have proper plans for your paychecks. Not making budgets is more like stepping into a fierce battle without a plan! In addition, it makes you more vulnerable to several financial mishaps, including going broke.
3. Spending more than you earn
The problem is not that you buy expensive jackets or wears from luxury designer brands; the problem is whether your financial status affords you such luxury or whether it should be a priority at the time.
Consider this scenario. Mr. Grayson lives with his family of three in a cottage and earns $1,530 a month. Grayson also owns a Cadillac Deville, which he drives to work. Let’s be clear on something: Grayson lives a reasonably comfortable life until he decides to add a Honda Civic to his Cadillac to impress his colleagues. The new Honda Civic costs $21,700, and Grayson earns just $1,530. So he decides to take a loan, which leaves him in a precarious financial position. He still has to provide for the family!
The problem here isn’t that Mr. Grayson got a new car; it’s the fact that he didn’t need a new car, yet he took a loan without considering how much he earns.
Spending more than they earn, especially on things they can do without is one of the major reasons people go broke.
4. You don’t like to save.
Most people find it difficult to commit to a savings plan. But hey! We are all likely go broke if we don’t commit to a savings plan sooner or later. Saving is a means of delaying gratification, reduced gratification directly leads to reduced expenses.
Understanding how saving prevents you from going broke is not rocket science. But, sadly, people tend to go broke because they find it hard to save. And coupled with lavish spending, they often go broke sooner than they expected.
5. Your income isn’t increasing
The prices of goods and services are rising on daily basis, thanks to inflation and other economic factors. The effects of rising prices often hit harder when your income is not increasing in the same proportion. This is because the available income would continue to reduce in value even with proper budgeting.
What you should do differently: How to avoid going broke!
1. Create a financial plan and have a budget.
The first step to never going broke again is to commit to a budget, an actual plan! Here’s what I mean: set aside a list of things you will do with your money before the paycheck comes in. Then, go through this list and see what you need and what you want. Of course, your most essential needs should come first, including groceries, rent, health insurance etc.
2. Control your spending.
You probably saw this coming. Well, that’s it. Control your spending. Tracking what you regularly spend your money on helps you anticipate upcoming expenses to be better prepared for them.
As Jeff Bezos once said,
"I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out."
One common constraint is to deliberately lock up funds for certain period of time with no access to it. This usually helps control how much you spend.
At first, it may seem a little difficult to give up all the things you’d love to spend that paycheck on when it comes in. However, you never want to go broke, do you? Certainly not. To that end, be very thoughtful about the things you spend on. More so, you may not even need them in the long run.
3. Commit to a savings plan
I can’t stress how important this is. A backup plan is always a pivotal part of our lives. Committing to a savings plan doesn’t just mean you won’t go broke later in the future; it means you become more disciplined and thoughtful with your spending.
Do not save what is left after spending. Spend what is left after saving. - Warren Buffet.
You can read more on how setting aside a portion of your income can help you become secure financially in a previous post.
4. Invest more often.
Investments provide for the future. Your bills will continue to pile up, one way to secure your finances is investing in assets whose value would increase at a later time.
Great investments give you the opportunity to make recurring income with little or no time needed to maintain them. It's like making your money work for you. For example, let’s say you go into real estate and get a couple of properties leased out. That will surely bring in some passive income for a lifetime making it less likely that you'd go broke.
Make investing a habit, you will get better at it.
5. Find alternate sources of income
It is always a good idea to find an alternative source of income: a side business that you can run while maintaining your current job. This can remain just an alternative source of income, or it can grow to become a big business and might even warrant you to quit your regular job to focus on it.
There are various alternative sources of income. Regardless of the one you choose, ensure you it's something you would enjoy doing so you don't become frustrated.
The internet provides a lot of opportunities for multiple income streams in today's gig economy: from SEO, web development, freelance writing, and graphic designing. All you need is a computer and access to the internet.
Being broke is mostly a result of our habits. However, setting up a budget and sticking to it, reasonably avoiding debts and not spending above your means will ensure your pocket never gets dry.
Maximise your chances of financial security by having a savings plan you commit to and forming a habit of investing regularly, and I can assure you’ll never go broke again.
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