Many people don't feel as wealthy as they used to be. Some may feel no different, but one thing they agree on is that life has become expensive. We are surrounded by financial experts every time we log onto social media, yet people still repeat methods that result in financial disappointment. What are the signs you are setting yourself up for being broke?
1. Not Budgeting
In the documentary Becoming Warren Buffett, the great man explains his morning routine, when he asks his wife to leave some cash out for him so he can grab a McDonald's breakfast on his way to the office. “When I'm not feeling quite so prosperous, I might go with the $2.61, which is two sausage patties, and then I put them together and pour myself a Coke,” says Buffett in the film. “$3.17 is a bacon, egg, and cheese biscuit, but the market's down this morning, so I'll pass up the $3.17 and go with the $2.95.” If a billionaire can budget for his breakfast each day, anybody can.
2. Not Saving Any Income
Whether you're struggling with three jobs or own three houses, you should save some money. From a simple percentage of your hard-earned income or gains from renting out property, there is no excuse for not budgeting at least 5% of your money into some form of savings. Experian argues that three to six months of living expenses is the recommended target for an emergency savings account. If an unexpected cost arises in the future, it may be the difference between discomfort and insolvency.
3. Impulse Buying
Sadly, impulse buying can get us in a world of trouble, even if it provides a worthwhile dopamine injection in the short term. The National Institute of Health (NIH) found that impulse buying is linked to a “strong and emotional desire” that arises through a lack of cognitive control. Moreover, the data show that impulse buying since the 1940s represented between 40% and 80% of all consumer goods purchases. We must remove ourselves from situations where impulse buying might be possible, including surfing Amazon, hitting the mall without a reason, or not locking ourselves indoors during big sales.
4. Marrying a Spender
It may be taboo to view relationships through such a lens, but if you're not good with money, should you date that significant other who has little impulse control? Even worse, if you're good with money, marrying a shopaholic will create nothing but friction, unless you are at least in the two-comma salary club. Having fun with extravagant partners is best reserved for youth. Finding “the one” may require a health warning as we age.
5. Neglecting Debts
A cardinal sin with money is not paying it back or avoiding the fact that you must pay it back. It happens to many people and brings with it almost guaranteed mental health problems, but the debt must be faced head-on. It could be a student loan, insurance payout, or dental bill holding you back, but left alone, these issues will affect your credit score and incur late or non-payment penalties, which will only add to your woes. Several debt relief companies, such as Pacific Debt Relief, National Debt Relief, and New Era Debt Solutions, can help those in need.
6. Keeping Up With the Joneses
Fashionistas all have one thing in common — they will do whatever it takes to have the next thing, whether they can afford it or not. Whether it's buying clothes, cars, or tech gadgets, trying to run in the same circles as your high-flying friends is pure folly if you want to save a nest egg. Moreover, the connection between mental health and financial instability means that while you may look good, you will likely be breaking up inside. The seduction of being part of a clique is too much for some. Living for the moment is one thing; not living for the future is another.
7. Not Taking Money Seriously
There are two different types of people in life: those who value money and those who only see it as a necessity. We are conditioned by youth culture to believe that worshiping money is evil — which it is. However, hating money or taking cash lightly is even worse, especially if you earn money for dependents. Personal finance expert Tim Denning writes that too many people are poor because they aren't prioritizing cash and spend too much time virtue-signaling about money's social woes.
8. Failing To Understand Taxes
Most people are paying dozens of small taxes connected to their lifestyle choices. Institute of Economic Affairs writer Chris Snowdon explains how “sin taxes” such as vehicle excise, betting, and gasoline taxes hold back most working-class families. If the government deducts up to 50% of every dollar you earn, becoming familiar with the dozen or so different taxes most Americans pay daily makes a lot of sense. Furthermore, those who don't put anything away toward their tax bill come January are asking for trouble. Those who put money into a 401(k) will also be at a tax advantage, just as long as they withdraw five years after its creation and once they are 60 years old.
9. Credit Card Debt
While strategic use of a credit card is key to building a good credit score, there are many dangers if that card falls into the wrong hands. Credit cards are safer than cash, but responsible behavior is a prerequisite. Those in upper salary echelons benefit from competitive credit card rates, travel rewards, and offers because they can make early payments. The truth is that most credit cards don't offer these treats, capitalizing on exorbitant annual percentage rate (APR) fees.
10. Mindless Purchasing
The U.S. Bank says mindless spending can be defined as buying without trying. Remember that $50 that was in your wallet when you left the house? It's now only $10, and you have nothing to show for it; worse still, you have no idea where it went. Another example is grocery shopping on an empty stomach when you grab things you might typically avoid just because everything looks good. Dopamine is an addictive hormone.
11. Being Too Scared To Invest
There are so many investment quotes people love dropping in their investment pep talk videos and blog posts. Soundbites like Ken Fisher's “Time in the market, not timing the market” is one stalwart. However, they all make perfect sense, while waiting to invest makes none. Why wait and watch your spare cash eaten away by inflation and temptation when you can watch it grow? Those at the bottom of the financial ladder are often unwilling to start climbing.
12. Having Chaotic Financial Matters
If you are living paycheck to paycheck, chances are you spend little or no time managing your finances. It's a sign that you don't have enough to manage, are burying your head in the sand, or don't know where to start. Either way, asking for financial advice will improve your fiscal future, bring down potential anxiety levels, and give you targets for growing wealth. There's no reason why anybody can't learn the basics of financial management.
13. Keeping the Wrong Company
Harsh words as these may be, the company you keep can be the difference between financial security and vulnerability. Whether it's your circle of friends who live beyond their means or an unstable relative who can't keep a job, the wrong people can drain your finances. A University of British Columbia study found that fear of missing out (FOMO) drives Generation Z's spending habits. However, friends who think nothing of maxing their credit card for a vacation are best avoided at any age.
14. Lacking an Emergency Fund
Most advisers tell earners to start building an emergency fund today if they haven't already. The Consumer Financial Protection Bureau (CFPB) says an emergency fund provides peace of mind and helps people recover quicker from unexpected (and inevitable) financial setbacks. The first step is identifying a reasonable method for goal setting and then building consistency to reach short-term and longer-term goals. Without at least three months' living expenses put away, the likelihood of using some interest-heavy credit for an emergency could be twice as costly down the line.
15. Focusing on Expenses, Not Assets
You could be drowning financially if you focused on expenses and did not consider assets. An example of expense vs. asset is our choice between mortgage and rent. While others hate the idea of the monthly mortgage-term payments hanging over them, someone who invests in their property will save more in the long term than their Free Bird counterparts. Furthermore, their assets will only appreciate in value.
16. Having Only One Income Stream
The best way to view oneself is not as a singular worker trapped in one industry but as a walking business adept at creating revenue streams. Nothing will push you into poverty quicker than trading hours for income and not making the most of external or passive income streams. There are many ways to multiply income streams, such as investing in stocks that pay dividends, owning real estate, or starting a side hustle. There is no excuse for those capable of generating extra revenue to complain about being poor with all the free access to revenue streams available today.
17. Paying Yourself After Everything Else
According to Capital One, paying oneself first is a positive mindset for building wealth regarding the weekly paycheck. This ethos means taking what you need for savings, investments, and personal development funds before you allocate money for bills, groceries, and other costs. The fastest way to ruin is paying all the bills before being disciplined about growing your money. Maybe that weekend at a national park can wait.
18. Making Only Minimum Payments
A straightforward rule anyone can live by as they navigate life is avoiding playing into debtors' hands. Credit card companies always set the minimum payments up to keep you hooked. By setting minimum payments low, credit card companies want you only to pay part of the balance, meaning the interest keeps compounding, taking more years and accruing higher costs than if you had paid the balance off immediately. For example, NBC showed a model for a credit card balance of $6,194 with an APR of 16.61% being paid off at the minimum rate of $35 per month or 1% of the balance plus interest charges. It would take 17 years to pay off, with added interest at $7,286.
19. Going Without Insurance
Consumer Reports published an article in 2017 detailing how the Affordable Care Act (Obamacare) positively affected bankruptcy, so much so that filings dropped 50% from 1,536,799 in 2010 to 770,846 in 2016. This figure shows the value medical insurance has on financial well-being in America, and even though some people may feel their good health is insurance enough, the numbers don't lie. Not owning property, life, or medical insurance is one strategy for guaranteeing a huge financial hit one day.
20. Brushing Retirement Aside
For dynamic young people in their thirties, laughing off talk of retirement planning is a bad idea, and starting a 401(k) can't come soon enough. Not only does planning badly for retirement have implications for you, but it may also negatively affect your children's financial safety. Nothing will keep a 40-something treading fiscal water like an aging, sick, broke parent to care for. They have to spend valuable money-growing time looking after your badly planned matters.
DePaul University's financial literacy pages discuss reasons consumers overspend on products, and most of the reasons stem from insecurity. There is a difference between needing an item and wanting one. Those who want items are more likely to overspend on them — think parents forking out $10 for a bottle of Logan Paul's Prime drink back around its 2022 release. With certain kinds of consumers desperate for attention, overspending is often linked to sending a message.
22. Buying More To Save More
Countless supermarket deals attack us when we enter the store, so discipline is paramount to showing self-control. How often have you fallen for the “buy three, get the fourth free” offers singing from the shelves? Often, these are linked to junk food promotions, which will only encourage more excessive junk food consumption. The most expert shoppers look ahead for the best deals, or they embrace their inner coupon warrior.
23. Surviving Financial Trauma
Due to previous financial mismanagement, some earners have a negative view of financial steps that can help them. Maybe you invested in Lehman Brothers in 2007, or a bad financial manager cost you some revenue. Whatever happened, we must all resaddle our financial steed one day. Moreover, growing up extremely poor can have a traumatic effect on anybody, forcing them to sit on their money as cash.
24. Neglecting One's Health
While it may sound obvious, good health is like good wealth, and having one or the other means you are on the right track. Being poor doesn't mean you need to be unhealthy, and a simple regimen of exercise and vitamins can be all it takes to provide the energy you need to change your financial outlook. A powerful machine is only as good as the mechanical parts inside. Neglecting health will grind a person down faster than money problems.