Reasons Why Most People Are Broke (Avoid These Mistakes)

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Two years ago, I was what you would consider normal. I had a decent job, a nice, little one-bedroom apartment, and some loan debt. I had a beautiful girlfriend that is now my wife with whom I was dining out almost every night. On the surface, I appeared to have it all together but like, most people, I was broke. I was living paycheck to paycheck. I was unprepared for any kind of financial emergency and living beyond my means. So if you’re wondering why most people are broke, you’ve come to the right place. I lived that life so I know exactly what causes it. More importantly, I turned my financial life around by doing the exact opposite and you can too.

These are the 10 reasons why most people are broke, and if you don’t want to be like them, all you have to do is avoid these financial mistakes.

They don’t have clearly defined financial goals.

Financial goals are the starting point for every action you take and make with your money. In other words, when you set financial goals, you are guiding your future financial decisions. They give you a financial direction and a sense of purpose. Additionally, without them, your financial life will lack accountability.

For example, if you decide you want to save 10,000 cedis this year, you have to measure every spending decision you make and then ask the question, will this help or hinder my efforts to save 10,000 cedis? Honestly, a simple question like that can be the difference between impulse spending and frugal living. In fact, I would go as far as to say that little questions like that can be the difference between being broke or well.

Quick tips for setting financial goals. I recommend setting, at least two achievement goals and two Habit goals, let me explain. Achievement goals are goals that have an endpoint in personal finance, they are almost always tied to a specific amount of money. Whether you want to save 10,000 cedis like our earlier example, pay off all your debt or save for a house. These goals have a Finish Line.

Habit goals, on the other hand, do not have a Finish Line, they are ongoing. So the goal is consistency, a good example of a habit goal would be to invest 10% of your income every time you get paid.

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They don’t have a budget.

One of the main reasons most people are broke is because they don’t live on a budget. In fact, according to a recent study, only 95% of Ghanaians stick to a budget. And without a budget, how are you supposed to know when you are getting off track in your finances, budgeting allows you to plan track and analyze your spending habits, it is your well-paved path to your financial goals.

If you don’t track your spending, it’s easy for money to slip through your fingers. Then before you know it you’re broke. I don’t even know why I like to think of tracking your spending like parenting, little kids have a tendency to wander off. So what do you do as a parent? Keep track of them. Well, the same goes for your money if you don’t pay close attention to your spending habits money has a way of wandering off.

You need to keep track of your spending otherwise, you will find yourself wondering what happened to all that money.

They borrow money to purchase depreciating Assets.

Most people are broke because they borrow money to make large purchases they can’t afford. Additionally, most loans are used to purchase depreciating assets like cars and pretty much anything else with a motor.

I’m not a financial genius, but I think the key to wealth is to do things that cause your money to grow. Do not pay somebody extra for something that loses its value. People base their financial decisions on cash flow, one of the most common Financial mistakes you can make is to establish whether or not you can afford something on how much your monthly payment is. For instance, if you want to purchase a new car and you can’t pay for it outright, don’t buy it.

They don’t prepare for emergencies.

Many people would need to sell something or borrow money to cover an emergency eg. a medical emergency. I don’t know about you, but that sounds like a major problem. If you don’t prepare for financial emergencies, you are setting yourself up for financial disaster. What if your car breaks down? What if you lose your job? the worst part is being unprepared.

Okay, consider this scenario: There are two people. The first person has one hundred cedis in savings. While the second person has 25,000 cedis sitting in an emergency fund. Now, imagine both of them, accidentally breaking their phones, which they need for work and are forced to buy new ones. The first person would call that an emergency. Meanwhile, for the second person, it was a minor inconvenience.

They don’t invest consistently.

First off, I think it’s important for you to understand that saving money will not make you rich. In order to become wealthy, you need to put your money to work. That means consistent investing over a long period of time. In fact, do you know the difference between broke people and wealthy people? broke people pay interest while wealthy people earn interest.

So essentially, if you don’t want to be broke, you need to do two things. Don’t go into debt, and invest. that way, you won’t be paying any interest and you will be earning it.

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They spend before they save

Another reason most people are broke is because they spend money before they save. You see, the average person will take his income, subtract their monthly expenses, and then, use whatever money is left over to save.

The problem with this is that it places more priority on spending than saving. This inevitably leads to a lacklustre savings account and slow Financial progress. So if you want to budget correctly and avoid the common mistakes of broke people, reverse the financial process rather than prioritizing spending. Make saving the first thing you do with your money.

So if you find yourself in this situation, it might be time to ask yourself a few questions. Are you living by a budget and tracking your spending? Do you spend your time paying interest on debt or earning it on investments, will an emergency require you to borrow money? The good news is nobody is relegated to being broke. You get to make your own financial future. All it takes is effort and better decision-making to turn your finances around.

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