For some people it seems like no matter how much money they make, they are always broke.
I was out the other day and saw a young man walking down the street talking on his cell phone. He was wearing expensive designer jeans, some Ray-Ban sunglasses, crisp new sneakers, and sporting a fresh haircut.
Clearly he was a man who cared about his appearance.
But as he passed me and I overheard his phone conversation, I had to stop shake my head.
He was complaining to the person on the other end of the line that he was broke.
Without knowing anything else about this man, I can tell you with almost 100% certainty why he is having money problems.
It’s not because his job doesn’t pay enough.
It’s not a lack of education.
It’s not because he’s being held back by “The Man.”
It’s because he keeps spending all his hard earned money.
This guy clearly made enough to allow him to afford $200 jeans and sneakers, but his poor money managing decisions means that he is always broke.
He makes money… then he spends it all. It’s as simple as that.
This is a recipe for being chronically broke.
If you spend all your money, you won’t have any money.
I know that sounds obvious, but it’s amazing how many people fall into this same trap.
There are two primary reasons why this happens.
- People don’t properly track their expenses.
- People increase their spending to match their income.
Let’s talk about each in turn starting with expense tracking.
Let me ask you; do you know how much you spent on food last month? How about gas? If not, you’ve fallen victim to the first mistake of money managing.
How do you expect to be able to properly budget your life if you don’t know what your expenses are?
Are you just gonna go with your gut? How has that worked out for you in the past?
We’ve all had the experience of opening our bank account expecting to see a few hundred dollars left and being shocked to find that all our money is gone.
It’s only after we go through our expenses that we see where our money went.
For the next month I challenge you to track all your expenses. Open your online banking and calculate exactly what you’re spending your money on.
Figure out how much you spend a month on groceries, gas, car payments, insurance, rent, movie tickets, eating out, and everything else. You’ll be shocked when you finally see just where all your hard earned money keeps disappearing to.
Once you do this, I challenge you to cut your expenses by at least 10%. This shouldn’t be that hard once you know exactly what you’re wasting your money on.
The second reason people stay broke is because even when their income increases, they increase their spending to match.
If you make $2,000 a month and you spend $2,000 a month, at the end of the month you’ll have no money. If you make $20,000 a month and spend $20,000 a month, again you’ll have no money.
For most people, as soon as they start making more money, they increase their spending as well.
This leaves them right back in the same situation. Still broke, only wearing more expensive clothes.
It doesn’t matter how much you make, if you spend it all you’ll still be broke.
Most people justify their wasteful spending by telling themselves things like, “I worked hard for this money. Why shouldn’t I enjoy it?” Or they trick themselves into believing their new luxury purchases are somehow helping them. They say things like, “I’m investing in myself.”
While there is truth to the idea that you need to invest in yourself, you should invest in yourself by learning a skill or building a business or improving your health, not by buying things you don’t need.
These people aren’t really interested in investing in themselves. They just want an excuse to justify giving into their every whim and desire.
They want that new handbag, or that top of the line cell phone, or those concert tickets… so they buy them. Savings be damned.
These kinds of people want to appear rich more than they actually want to be rich.
This is self imposed poverty.
Remember this – “The rich get rich by living like they’re poor. The poor get poor by living like they’re rich.”
Track your spending and keep your expenses to a minimum and you’ll never be broke again.