Why am I in debt?
I felt like I was asking the question virtually every week in my brain from the age of 22 until roughly the age of 28.
Despite having a profession under my belt, a summer job lined up, and two college degrees, I still felt as though I never had enough money. Why was this?
How could someone “Who did it all right,” feel so poor? There are a lot of explanations for why you could keep wondering why you’re poor. So today I went out to try to identify the precise cause of your financial situation.
How to finally resolve the issue of being broke, though!
Why You’re In Debt and What to Do About It!
Use the list below to determine where and how you might improve rather than using it as an excuse to feel horrible about yourself. Take what you want and leave what you don’t need by using the shopping cart method!
1. You’re not earning enough money.
Let’s get right to the point: when money comes in, the likelihood of being broke lowers.
Simply put, you feel broke because you don’t make enough money. Due to lifestyle inflation, even if you make six figures or other substantial money, you might still feel poor.
Regardless, the main cause of feeling poor is not having enough money. The best financial plans, budgets, and anything else you can think of won’t matter if you can’t afford to live comfortably.
We will discuss about other things that lead to feeling broke, but in the meanwhile, start focusing on producing money, here’s how:
If you’re not producing enough money, you should concentrate on increasing it. Here are some suggestions:
1. Download a free copy of my Side Hustle Action Guide to find out how to generate additional money on the side.
2. Use tools like ride-sharing and surveys when needed; don’t rely completely on them.
3. Try to negotiate a pay increase at work or, if necessary, look for a new position!
4. Spend the money you do earn more wisely, as stated in item #2 below.
2. You eat out way too often.
Don’t you believe your habit of dining out is bad for your finances?
According to one survey, whether you’re in your twenties or younger, almost half of all millennials spend more on eating out each month than they do on savings!
Another research by USA Today found that annual non-essential spending (drinks, dining out, rides on Uber, and entertainment) was $18,000! Any ideas as to the top four?
$209 for restaurants
Alcohol $188
Delivery and Takeout: $177
Lunch costing $173
$747 total every month; $8,964 per year; for food!/drinks!
Therefore, if the typical person earns about $60,000 a year before taxes, their annual expenditure on eating out and drinking comes to about $8,964.
As a result of eating out, you could feel both stuffed and broke.
Follow a strict budget when dining out. Make sure to create a budget that is suitable for your salary rather than one that is used to keep up with pals or post on Instagram.
Instead of telling yourself, “Oh, I’ll just spend $100 a month,” come up with a figure that represents a percentage of your income. If your monthly take-home pay is $3,000, your $150 dining out budget represents 5% of your monthly income.
Making wiser decisions rather than decisions based on being broke is possible when you think about things in percentages.
3. You drive a lot of cars.
Don’t minimize the horrifying REAL expense of purchasing a car. Not only are ill-advised car purchases bad for your debt-to-income ratio, but your car may also be the major cause of your constant financial woes.
What most people don’t realize is that when you finance or lease an automobile, you also get all the other costs that go along with it, including:
Gas
Insurance
tax on real estate
Maintenance
You’re paying too much – and you could be car broke – if the value of your car is 25% or more of your gross income or if the sum of all your monthly car expenses (payment, insurance, gas, maintenance) exceeds 10% of your take-home pay.
Don’t overspend on an automobile by always remembering this advice:
Recognize that vehicles are depreciating liabilities rather than assets.
By extending terms and financing, don’t fit the automobile to your budget—fit the budget to the car!
Your car shouldn’t cost more than 25% of your annual income. Drive a car that is worth $10,000 or less if your yearly income is $40,000 or less.
The recommended amount for your car payment per month is no more than 10% of your gross income. Everything falls under this, not just payments!
The advice may seem a little excessive, but chances are you’ve encountered someone who always has no money despite driving a gorgeous car!
Use this comprehensive guide on affordable automobile buying for more details on the subject!
4. You don’t Make Emergency Savings
A financial emergency will happen, it’s just a matter of when, not IF.
Do you believe anything will occur in the next 30 years that requires your immediate financial attention? This is especially true if you own a home.
Things come up, whether it be a flat tire, a new roof, or, God forbid, a medical emergency.
My car’s engine broke down in 2017 and my washing machine stopped working. My dog ate chocolate in March 2019, which cost us $4,300. To top things off, a few days later I neglected to engage my emergency brake and my car ran into some neighbors.
It goes without saying that while financially prepared, mentally I wasn’t ready for any of this to happen! However, the majority of individuals aren’t, and just about 50% of adults have $1,000 in savings.
Thus, a tiny issue might grow into a big one very soon, leaving you with no money!
It’s crucial to always have your money on hand in case of a financial disaster so that you can be ready for it (or at least weather the storm).
Three easy strategies can help you get ready for monetary emergencies:
Establish a savings account for your emergency fund that is separate from your checking and banking accounts (so you don’t just use it whenever).
Save for one month, then three, and eventually aim to have 6–12 months’ worth of expenses set aside!
To protect yourself, research term life and umbrella insurance coverage!
5. Utilizing credit cards
There is a considerable likelihood that you are broke if you frequently or continuously use credit cards.
Relying on credit cards to fund your lifestyle, pay your bills, or just to survive is often a warning sign of someone who is broke, unless you use credit cards and pay them off each month (for the points).
Compared to those who use cash or debit, people who use plastic are more likely to spend money they do not have.
Or, as Amanda of My Life, I Guess explained below, there are times when unforeseen circumstances (like #4) force us to take drastic measures (like using credit cards) in order to get by:
After being fired in 2014, I spent 2.5 years searching for a long-term, full-time position. That prolonged period of unemployment and underemployment meant that I had to rely on borrowing just to get by. Paying off that debt once I was working full-time was next to impossible because we were still surviving paycheck to paycheck. The majority of our payments weren’t used to pay down the debt we owed, but rather went straight to interest.
Credit cards can therefore help us keep afloat but may not always prevent us from drowning, even if there are many situations like Amanda’s when you might feel broken and it isn’t always because of anything you did.
You should quit using credit cards if you’re always broke. Who cares if you get a 2.5% cashback bonus? Cut them up.
What good are $20 in bonuses if you’re paying $400 a month in interest? You still owe $380.
You must first ensure that everything is budgeted and that you are accustomed to handling your finances before using credit cards. Once you’ve established that you have good money management, consider utilizing a credit card for small purchases like:
only gas
Only groceries
just utility bills
6. You’re Attempting to Follow
You’ve probably seen images of vacations, meals, parties, nightlife, newborns, weddings, bar crawls, and birth announcements in person or on social media.
You simply needed to see the neighbor’s car when it was parked and unparked in their garage. Now, if you visit a friend’s Instagram page, you only see the fantastic content and none of the less-than-great content.
We feel pressured to keep up by this constant barrage, even if doing so means sacrificing our long-term stability and going bankrupt!
It’s time to stop trying to keep up and realize that doing so would only make you unhappy in the long term and keep you broke.
Use these suggestions to stop financial comparison as social media is often where it occurs most frequently:
Remove social media apps from your phone and check them just once or twice a day on your PC.
Only retain two programs if you won’t delete them!
Every few days, shuffle the apps on your phone to prevent “boredom” scrolling that can lead to comparison.
Last but not least, remember that you are always seeing others at their finest, so never compare. Don’t compare yourself monetarily to others, or you can end up being broke. You wouldn’t compare yourself to a marathon runner if you never ran, would you?
7. You feel at ease.
I wanted to remark that you might be poor because you’re a slacker. But I made the decision that being cozy was preferable to being lazy.
Don’t believe for a second that your comfort zone won’t overcome you. Enough data indicates that most folks don’t earn, save, or budget enough, leaving them perpetually broke.
The main problem with comfort zones is that it often goes unreported because most of us don’t even realize we’re in one.
When our habits take over, we begin wasting time on useless activities that give the impression that we are “productive” or “busy,” but are actually just doing nothing.
1. To start, take stock of your time wasters. Make them aware of them, and keep track of the time you spend performing them.
2. Outline a few of your values or objectives. On this, think broadly and long-term.
3. Develop a strategy to match your behaviors and your ideals. For instance, I run because I want to live a long time and cherish my health.
4. Look at what your habits and values are teaching you; chances are they are asking you to leave your routine and comfort zone!
8. Your debt is too high.
Just because a bank approves financing doesn’t mean you have to buy what the credit is for.
These days, in addition to automobiles and residences, you may finance anything – cell phones, furniture, boats, bikes, laptops, you name it. Additionally, this explains why Americans have historically low rates of saving and are burdened with debt.
And even while the lender may be able to calculate all your payments, if you have too much debt, you probably feel broke.
If not having enough income is the main factor keeping people in poverty, debt would come in second. Even reasonable debt can leave us feeling destitute because it is a murderer!
Take debt management seriously. Debt puts financial burden on marriages, relationships, and the workplace, and the stress it creates can be physically hazardous.
That said, a few minor changes could cause your debt to end (or begin) in a matter of months. What you should do is as follows:
This manual is not a joke. The particular procedures we used to pay off our college loans are described in full. We had $262,000 in November 2016; as of right now, we have $60,000.
9. You Have A Short-Term Perspective
Do you purchase the freshly made Hotbar cuisine or do you visit the store to purchase bulk chicken for the same cost and meal preparation?
In reality, we have to make decisions like these frequently, sometimes several times a day! If you’re bored at work, you can even get lunch and new shoes from your phone.
All of this is to indicate that making decisions in the moment can sometimes backfire on us and leave us broke.
Studies on long-term thinkers—those who can pass up something better now in exchange for something greater later—have been conducted for years. The findings are undeniable; people who think long term often achieve greater success than those who don’t.
So that you may quit constantly feeling broke, it’s important to start thinking long term, which takes time to develop.
10. Impulsive Purchases
There is a good chance that you will make some impulsive purchases when you enter the store without a list, without a strategy, and with your credit card in hand.
Not only is it a surefire way to lose money, but buying things merely for the sake of buying them or buying things you really don’t need will keep you broke. We make impulsive purchases for psychological reasons as well.
Stores firstly tempt us with aversion techniques, sales, and the sense of missing out because they are aware of our fundamental urge to keep up, just like in #6 above.
Don’t be that person at the nearby Walmart who has a cart full of groceries and a brand-new flat screen!
Make it a rule that you can’t buy anything for more than $50 (you decide the amount) unless you’ve waited for at least 24 hours. This will help you evaluate necessities vs. wants and stop you from making impulsive purchases.
Second, it’s quite easy to waste your hard-earned money when shopping online. Online shopping does not have the same emotional impact as going out and making a purchase and paying for it.
Fill your cart with items rather than just buying anything strikes your fancy on the Amazon Prime app. When pay day comes, go through your shopping basket again and decide if you still need or desire the products there before checking out.
11. Security Is Not More Important Than Your Social Life
Don’t hit me through the screen, but there’s a good chance your social life is the cause of your financial difficulties.
I rapidly came to the conclusion that, in addition to not really having a budget, I also had no idea how much I was actually spending on my social life when I examined the reasons I was broke five years ago.
I sat down one weekend and began to total up all the:
Uber taxis
alcohol in the city
football contests
Subscriptions
breweries tours
parties on buses
Stops for fast food
Clubbing
Parties
The bachelor party
Weddings
The list kept going on and on. My social life list expanded along with the amount of time I was spending on it. I soon discovered that my social life was costing me more than $1,000 a month in variable expenses!
I wasn’t making any investments, but I was spending more than $12,000 a year on my social life, which left me perpetually impoverished.
You may be broke as a result of your social life, but you may still be sociable and successful if you make certain changes.
Prior to determining your long-term strategy, describe your value system. Consider your homes, family, children, and travel.
Next, consider whether or not your social life is helping you live up to or down from your principles. Start evaluating your association honestly by using this exercise. Do you actually love going out every Friday, or are you just caught up in the habit?
My spending, saving, debt repayment plans, and money-making practices were all out of whack, just like a leaking faucet that needed some maintenance. Although I truly felt broke, the situation was not as awful as I had imagined; only minor modifications needed to be made.
Here are my final suggestions to assist you take action and eliminate the feeling of financial insecurity as we part ways:
Just get started, and start now. Either open a savings account, begin investing $10 per day, or list a few strategies for paying off your debt.
To keep better track of your finances, use a budget (click here to download my FREE budget sheet).
Look for a person who can assist you with accountability.
Consider utilizing a tool like Personal Capital to help you track your net worth and financial development as you evaluate your progress each month.
Hopefully you will never have to ask yourself, “Why am I broke?,” as a final thought.” again
