Your income doesn’t matter. What you do for a living doesn’t matter. If you want to keep from being broke, none of these things matter except for this: When you’re dealing with money, you’ve got to understand how to do simple math.
I hear stories about people that don’t understand what broke means. It could be the person that recent graduates from dental school with $400K in debt that buys the $80K BMW for instant gratification.
Or it’s the family that has to take their kids out of the private school system because they can’t make the payments on the new SUV and the private school. It’s because they don’t know how to do math.
And that’s why they’re broke and will continue to stay broke until they learn how to avoid poor financial decisions.
It’s that simple.
I don’t know anybody who starts their career wanting to become part of the poor people crowd.
When I say the phrase, “broke person,” what picture comes to mind?
Someone living out of their car?
If that’s what you think, then I have news for you.
- You can be broke and be a doctor.
- You can be broke and be an attorney.
Remember that what you do for a living or the amount of money you make does NOT matter. Bad financial habits are contagious.
Being broke is living paycheck to paycheck. This can be someone making $30K or $300K a year. Doesn’t matter.
Broke is having debt payments up to your eyeballs as I had after a dental residency ($300K). It’s making purchasing decisions based on whether or not you can “afford” the monthly payments.
Here’s the deal. Being broke in today’s society is normal! And there’s a lot of people that are normal.
If you’re normal, then that’s OK. Because today we’re going to help you figure out how to stop being broke so you can make financial progress for a much better life.
Are Americans really broke?
Did you know that 78% of Americans are living paycheck to paycheck?
To put this in perspective, this means that 8 out of your ten neighbors don’t have $1,000 saved in an emergency fund to help protect them from a financial disaster.
This is the reality of what’s going on in America right now, as most folks are broke.
What About HENRYs?
Again, being broke is not just for those with a small income problem. There’re other groups affected, such as HENRYs.
This acronym stands for a “high earner, not rich yet” consumer who enjoys an above-average income but is more inclined to spend on expensive gifts rather than save or invest.
They tend to have a college or advanced degree, make a lot of money (at least six figures) and spend money almost as soon as it hits their checking account.
Five ways to avoid being broke
1. Change your mindset.
For me personally, whenever I’ve made a dramatic change in my life, it all started with a mindset shift.
For instance, I dealt with a “scarcity mindset” until I was able to make a change in the way that I thought about how money is abundant and is out there for everyone.
Once I made this change, I began to slowly break free of the fear and scarcity thoughts.
When you make a mindset change and decide that you don’t want to be “normal” anymore, that’s when you are able to get control of your finances.
Unless you’re sick of being broke and quit buying things you don’t need, nothing will change.
2. Avoid the net-zero life.
The net-zero lifestyle is keeping most people broke and from obtaining financial freedom.
It works like this. Most people think that if they have $1,000, they can go out and spend $1,000 on a new cell phone because they have enough money in their bank account.
This is net-zero thinking.
This mindset is the major reason that can kill your wealth because if you have $1,000, you can’t afford to spend $1,000. This will determine if you’re going to have financial stability and build wealth.
If you make $100K per year yet spend all of it, then guess what?
That’s right, you’re broke.
If you make $20,000 a year and you spend $20,000, guess what? You’re still broke.
You’ve got to understand that some of your money needs to be saved to protect you from emergencies and some for investing to help build wealth.
When you have a need to spend every dollar you have on material things that don’t make you money, then you’re going to be broke.
The solution to this net-zero thinking is to create a system where you’re NOT allowed to spend all the money you have to live below your means.
3. Avoid money traps.
Let me give you an example of a money trap that most people fall into (whether they realize it or not).
As mentioned earlier, it may not be so obvious when entering a money trap.
This can happen when most people claim they can afford something based on making a monthly payment.
Again, that’s much different than being able to afford something.
Let’s use the example of your $1,000 cell phone.
More than likely, you have one in your pocket. Most people are financing one on 48 or 60 monthly payments because they can’t afford to pay outright.
Yet they tell themselves they can afford it because they can pay $50 a month with 0% APR financing.
But don’t be fooled, as this is a money trap.
What happens when you finance something that you can’t afford to buy upfront? Now you’re going to be paying this $30, $40, $50 a month for the rest of your life. Why? Because every year you’re going to continue to get into this trap of buying a brand new phone.
Secondly, you never have the pain of this money ($1,000) leaving your wallet to pay for a phone that will be obsolete in three years (at least that is what Apple tells you anyway). The only thing you see is the $50 percent month that is charged to your Mastercard, which makes you think it’s only costing you $50 a month.
Now because of this, you have no issues going to Best Buy next month to buy an impulse buy such as a $2,500 laptop that you can’t afford, but it’s only $85 a month.
You’ve been led to believe that you were being financially smart by paying 0% APR, but in reality, you just got played because now you’re spending more money on things that you don’t need because you never had the pain of money leaving your pocket in the first place.
The bottom line is this, if you can’t pay for it upfront, don’t buy it. The goal of avoiding a net-zero lifestyle and money traps is so you can grow your money and wealth faster.
4. Stop comparing yourself to others.
The best way to ensure you’ll have financial stress and make poor financial decisions is living with discontentment.
This is usually seen in someone that is always trying to “keep up with the Joneses. ”
Unfortunately, social media makes this vicious cycle much too easy as with “one click,” we’re able to quickly see things we could have.
What does society tell us?
It tells us that we always need more or something better, and what we have now is never good enough.
Don’t equate your self-worth with your ability to buy things. This type of thinking will never provide contentment keeping you stuck in debt forever.
The older I get, the more I realize that contentment can’t be achieved without personal discipline and staying within the lifestyle parameters God has established for us based on His provision.
- Studies show that 70% of lottery winners end up broke, usually within a couple of years.
- After only two years of retirement, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce only two years out of retirement.
- Within five years of retirement, an estimated 60% of former NBA players are broke.
Again, personal discipline is one of the keys to being content.
5. Understand the game of how money works.
In the book Rich Dad Poor Dad, Robert Kiyosaki states, “You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is rule number one. It is the only rule.”
If you want to avoid being broke, especially those of us that are high-income earners, then do this:
Focus on buying assets (put $$$ in your pocket) and avoid liabilities (take $$$ out of your pocket).
Too many doctors and other professionals “think” they’re rich because they have expensive cars and big houses.
The interesting thing about liabilities is they make you look rich, right? When you go out and buy fancy new clothes, shoes, or a new watch, all of this stuff makes you appear rich.
Remember, this is what broke people do. They spend all their money on liabilities. That way, they can look rich, but they’re actually they’re broke because they own no assets.
On the other hand, the rich buy assets. The poor and middle class acquire liabilities that they THINK are assets.
Assets put money in our pockets, and liabilities take money out.
If you begin to avoid the net-zero life and money traps, then all of a sudden, you’re going to find extra money starting to appear in your account.
This extra money will start to fund the assets to put money back into your pocket.
The first time I understood this concept of assets and liabilities was when I started investing in real estate.
At the time, I had saved up about $50,000 and was going back and forth between purchasing a new 4×4 truck (which I didn’t need) and investing in a passive real estate syndication.
I started running some numbers and quickly realized how quickly my new truck would depreciate in value, yet the real estate investment would produce passive income and create massive tax benefits and appreciate in value.
If you keep money sitting around in a savings account (or under your mattress), at some point, you’re going to get to where you can’t physically always be working.
Because of this, you should consider structuring your financial life where you have other sources of income coming in.
This is where assets come in as they will spin off income without you physically having to work.
At this point, you’re playing the money game to win as you’re using money as a tool (like a magnet) to go out and attract more money.
And if you want to attract more money, buy more assets.
Remember the things that we’ve discussed as the majority of people are broke. And just because your friends are showing off the “stuff” things they buy doesn’t mean they can actually afford them.
Once you realize that everybody in the world is after your money, the quicker you know how the “money game” is really being played.
Just don’t get played yourself.
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