In the event of a catastrophe such a sickness or job loss, many people wouldn’t be able to cover their bills. And this is because they are simply broke. In addition, many people always find out that they hardly have any cash left before end month. Broke means that you can only cover your needs but you don’t have enough money to save or even pay down debts.
Being broke can be temporary and so it is not the same as being poor, but if not handled early, then it will lead to poverty. Have you ever asked yourself why you are always broke by the middle of the month? Could it be you are overspending what you don’t have?
We interviewed several people from a variety of backgrounds including the employed and the freelancing on the reasons most of them are always broke and also discovered what they are trying to do to break that cycle.
You Don’t Make Enough Money
This is obvious but the real truth, you are broke simply because you are barely making enough to meet your all your expenses.
In our article “Founder360° Step by Step Guide to Creating a Personal Budget” we highlighted what kind of adjustments you can do when you have negative cash flow – Adjust your fixed expenses on the downside. But even after this process, you barely seem to have enough left; you need to make more money.
What You Can Do: Getting a raise from your boss might be the most viable method to achieve this but starting a side hustle that will boost your income and lift you off from the snout of poverty.
Start a side hustle of your passion and skillsets and do not require tons of cash to start like. There are many business ideas you can easily start now. – Find some here.
You have a Pile of Debts
This is one of the major reasons our respondents gave that contributed to being broke. Debts cannot only hold your future financial plans hostage but can also paralyze your monthly income.
Whether taken for right reasons or not, many people are caught up in a never-ending debt cycle that involves a large percentage of their salary redirected to paying down loans hence remaining with hardly enough to direct to their needs and wants. As a result, they opt into taking more loans to meet these needs.
What You Can Do: The first step is creating a budget that prioritizes debt payments. This is the first step in managing your debts and avoiding being broke. If you have more than one debt, then negotiate with all your debt collectors for a flexible payment schedule.
We have also handled this particular topic in another article in this issue dubbed “5 Tactics You Can Use to Get Out of Debt on Your Own”
You are not Saving
Most Kenyans live from paycheque to paycheque with barely anything to save. According to the government, Kenyans only commit at least 12% of their income as savings with a majority retiring in poverty.
Without saving, it’s impossible to have an emergency fund that will cushion you when you are broke. And in cases of job losses and health issues, no amount of cutting back will protect you against.
What You Can Do: Make saving a priority in your life. Saving is a culture that will need to be cultivated every month. To make it easy, do it automatically by directing your employer to deduct an amount every month to another account or alternatively, you can set up a standing order with your bank.
“Wealth consists not in having great possessions, but in having few wants.” – Epictetus
You have an Expensive Lifestyle
With malls sprouting on every corner of this country, consumerism has become the norm, especially with young people. Most are meticulously trying to fit into the social lifestyle of their peers without enough disposable income to match the kind of cars, phones or houses they would want to.
And with this, they resort to borrowing loans from banks or mobile loans platforms to gratify their appetite hence falling into piles of debt leaving them in a perilous state.
What You Can Do: Overspending strips you the ability to save or invest and exposes you to debt and being broke. There’s no easy way to cure this ailment other than creating a budget and living within your means.
Tame your spending appetite and practice delayed gratification if you want to have a healthy financial life. Find friends who can positively influence into positive financial management and duck away from the socially expensive ones.
You Don’t Have a Plan
It has been said a countless number of times, failing to plan is planning to fail. Lack of planning is one of the biggest reasons people become broke and poor. When you don’t plan or write down your goals, you will fail to track your spending hence broke will knock at your door.
What You Can Do: Goal setting is a great way to manage your finances and build wealth. The best planning activity you can do is to create a monthly budget that works and builds wealth for you. Budgeting and sticking to the budget will help you curb your spending habits on variable expenses, automate your fixed monthly bills and build your savings account.
You Spend before you Make
There’s a popular proverb that says “Don’t count your chicks before they hatch.” This is very true for some of you with your finances. Taking an overdraft or a loan because you are expecting a bonus from your employer or your aunty abroad promised to send you some cash is never a wise decision however much convenient it seems. Life happens and that bonus may not come through at that time or at all leaving you in unjustified debts and interests to pay.
What You Can Do: Spend what you have now and within your means and whatever bonus that might come in the future, it becomes a plus for you.
You have undesirable Shopping Habits
One of the reasons people become fat broke is because they have very bad habits. One of them is spending “cheap” – yes cheap; buying household stuff separately is way more expensive than getting them in bulk. Others spend more money buying depreciating assets like cars and other fancy stuff while other fail to manage their purchasing appetite hence erratic shopping sprees.
What You Can Do: You have to change your attitude towards spending. Seek wisdom when it comes to establishing a relationship with money. Know how to differentiate between your needs and wants; what is not important but urgent and what is important but not urgent.
You lack Financial Literacy
The Bible says that “My people are destroyed for lack of knowledge:” – Hosea 4:6. And this is true for most people. Many lack financial awareness despite holding a degree or two. And the lack thereof is costing many people a lot of avoidable mistakes that is taking them down the drain.
What You Can Do: There’s no two way about this. Ignorance will not earn you a shilling. Financial literacy according to Investopedia.com is the convergence of financial, credit and debt management and the knowledge that is necessary to make financially responsible decisions – decisions that are integral to our everyday lives. This is the minimum effort anyone can do for themselves.
Understand the basic financial principles. Find out the best savings platforms; find the costs of banking and loans before you go in and most importantly about your retirement life. Read books on personal financial management and use google to research more on this topic.
You are Lazy
There’s no substitute for hard work. Laziness will cost you a lot of money. When you fail to cook at home and choose to buy dinner from a restaurant every now and then, you are expenses become high.
Getting into get rich quick schemes like a lottery and betting as a shortcut into building wealth is a sure big sign of severe laziness. There is no shortcut to becoming rich or creating wealth and anything worth having requires a lot of hard work.
What You Can Do: The only cure for this none other than pouring in hours of hard work; you have to understand that building wealth is a gradual process that takes time and hard work.
If you desire to make extra cash side of your 8 – 5 job, then you have to do that after 5 pm and on weekends and there is no shortcut to that. Instead of waiting for some magic to usher you into financial freedom, you have to go out and get what you want.
You are Slaved by Brands
Some people are enslaved by high-end brands when they are shopping for shoes, clothes etc. simply because they want to pass a message that they are classy. The quest for brand recognition in everything that you shop costs you much more money because most of these brands are overly expensive. Your spending is driven by people’s expectations of you.
What You Can Do: Sometimes going for the lesser known and cheaper brand will save you tons of money. This is not to say that you cannot treat yourself once in a while but become a slave for the need to impress is perilous for your financial health.
Being broke is a temporary state that you can overcome. Which of the above 10 reason fits you? What are you doing about it? Fix it now and stop being broke and if not poverty will usher itself in your life sooner than later.