11 Reasons You’re Always Broke

11 Reasons You’re Always Broke

If you feel like you’re always scrounging for money and struggling to make ends meet, stop and take a look at your finances. Are you making these common mistakes? Just because the majority of Americans are doing it doesn’t make it smart. Choose to take control of your financial future.

You Borrow For All Your Purchases

  1. Credit Cards – The average credit card interest rate is over 15%. If you’re holding a balance or paying the minimums, your bank account is constantly being drained unnecessarily. The key to using credit cards is to pay them off every month. If you can’t do that, you can’t afford the purchase. A cash advance is another terrible way to get money immediately with even higher interest rates on withdrawals.

I’ve never paid interest on a credit card; I actually get cash back from my expenses. I don’t spend more than I can afford each month and my bank account is set to automatically pay off the full amount every month. This way I’m building my credit but I don’t spend any money on interest. Now if you can’t pay them off every month, a rewards card is even worse for you because they typically have higher interest rates.

  1. Auto Loans/Leasing – If you’re buying new, you’re basically throwing thousands of dollars out the window when you drive off the lot. Leasing is just about the most expensive way to operate a vehicle; don’t do it. Most people borrow to purchase a vehicle. Now the interest on your vehicle loan is usually a little lower than a credit card but it’s still eating away at your bank account. Take a little extra time to save up cash for your vehicle. It’s such a great feeling not having a car payment.
  1. Home Mortgage – Many individuals take out a loan that is too large for them to handle or they purchase a home without a down payment. Just because you’re approved for your loan, doesn’t mean you should borrow the money. Save up at least a 20 percent down payment and buy a smaller house for your first one. You also need to factor in all the extra costs like repairs, insurance and realtor costs that are involved with home ownership. If you’re not going to be in the area for over five years, it probably makes more sense to just rent anyhow. And Just because your interest is tax deductible doesn’t mean you shouldn’t pay your mortgage off; you’re still paying to borrow that money.
  1. Payday Loans – This is one of the worst ways to borrow money with rates over 400% in annual interest. Individuals get a loan here with great intentions of paying it off, but they never address the root cause and end up in a perpetual cycle of additional loans that destroys their finances.

You Live Above Your Means

  1. Lifestyle Inflation – If every time you get a little raise you upgrade your car or your house, you’ll never see growth in your bank account. Pay yourself first; put some money to the side for your emergency fund. Save up cash for your next car purchase or down payment on your house. Invest it so that your money can work for you for a change.

Related: 11 Major Investing Mistakes to Avoid

You Don’t Cook

  1. Eating Out – Restaurants typically cost over $10 per meal while the average home meal will run you about $2. Packing your lunch and planning to only eat out on special occasions will free up a lot of money each month and it’s usually healthier so your waistline will thank you.

You Live Paycheck to Paycheck

  1. No Emergency Fund – Without any type of cushion to fall back on, anytime an issue arises you’ll be in a world of hurt scrounging for money. Establish a three to eight month emergency fund and get rid of that unnecessary stressor.

You Don’t Plan For Your Purchases

  1. Spontaneous Shopping – Make a list, and plan your shopping efforts. If you weren’t planning on buying it, hold off, take some time and think if you really need it. And if you can’t afford it, don’t borrow to purchase it.
  1. Subscription services – Various companies are moving to subscription based services because it creates a constant flow of income for them. What that means for you is a constant drain on your account. If you’re not careful all these little subscriptions can really add up and deplete your accounts. Try to avoid signing up unless it’s something you’ll actively use or find another option that doesn’t require the endless payments.

You Don’t Know How to Have Fun Without Spending Money

  1. Paying For Things You Can Get For Free – Don’t forget about your local library. You can get movies, books, audiobooks, magazines and more for free from your local library saving you tons of money. Take one of those books out to a local park for a relaxing day at no cost to you. Why pay for something you can get for free?

You Don’t Realize What’s Happening In Your Accounts

  1. You Don’t Know Where Your Money Is Going – A huge reason many individuals are always broke is because they don’t track their expenses. Even if you don’t have a strict budget, you should at least have some mental guidelines to keep you within your means. I recommend looking at your income and expenses at least once a month. This will help you realize if you’re blowing way too much money on one area or another and also can identify potential fraudulent charges in the case of identity theft or an account you had cancelled in the past. Try using a free online tool like Mint.com to track your expenses; it’s worked great for me.

Conclusion

Imagine a world where debt is not an option and borrowing does not exist. Where you save up for things BEFORE purchasing them instead of after. Where you use your money to invest in assets instead of paying someone else to borrow it all the time. You trade your time for each one of those hard earned dollars; make them work for you. If you’re working 40+ hours a week to make that money, don’t you think it’s important to spend a little time planning the best way to use it? The average American household carries a debt of over $200,000 including credit cards, auto and student loans and mortgages. Don’t follow the masses. Change your mindset and you can change your reality.

Want to learn more? I highly recommend Dave Ramsey’s The Total Money Makeover if you’re new to the personal finance realm and struggling with debt. It’s simple and actionable.