Top 10 Reasons Why Most People Are Broke

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Do you want to know the reasons why most people are broke despite having more opportunities to make money in this digital era? There is no doubt in the fact that more money is currently circulating in the world. People have more opportunities to make money through the internet. However, people are still struggling for financial freedom. So, what are the reasons why most people are broke while surrounded by myriads of opportunities? Let’s see!

Well, there are numerous reasons why most people are broke. These reasons vary from one person to another. However, there are some common reasons that cause financial problems for people across the globe. Let’s dive deep to find out. 

10 reasons why most people are broke

1. Living beyond means

Living beyond means is among the top reasons why most people are broke. Why so? Because it is a concept of simple math. What will you have if you spend all that you earn or even more? It is simple. You will have nothing. There are numerous reasons that make you end up like this. Perhaps, you are buying impulsively or you have a habit of buying unnecessary things. In short, less-than-ideal money moves are causing a lot of problems for you.

Therefore, it is imperative to take the necessary steps right now instead of waiting and waiting. You can take measures that will help you make your money moves ideal. First of all, have a look at your cash flow – how much money is moving in and how much money is moving out. Secondly, review your expenses and where you spend your money. Thirdly, figure out where the problem lies so that you can correct things straight away. 

2. Not having financial goals

Not having financial goals is also among the top reasons why most people are broke. People struggle financially because they don’t clearly define their financial goals. Financial goals are important because they give you direction and enable you to avoid unnecessary spending. Additionally, your financial goals give you a sense of financial accountability. So, it is important to set financial goals to prevent a financial crisis. 

What is the solution here? In my opinion, setting achievement goals as well as habit goals is the key. Achievement goals have an endpoint and you have to set new goals once previous ones are achieved. For example, you set a goal to save $5,000 to pay off your debt is an achievement goal. Once you pay your debt off, the goal is achieved and it ends there. On the other hand, habit goals are ongoing and don’t have an end line. For instance, your decision to invest a fixed portion of your paycheck is a habit goal. 

3. Not saving money

One of the top reasons why most people are broke is not saving money. Again, it is very simple to understand that saving money is parallel to securing your future. People live paycheck to paycheck and don’t save their money to rest aside for investing. However, this is a practice that leads you to a lot of financial stress. So, what is the solution?

The solution is to save your money whenever and however possible. The best solution here is to set a budget. A carefully crafted budget helps you cut your expenses short and save money. You can also decide to save at least 10% of your monthly income for the future. In short, it is up to you how you plan things to save your money.

4. Not having a budget

As you know, budget is the most important factor in the corporate world. Experts prepare budgets for organizations. Why do organizations do this? Because they always try to find ways to cut their expenses short. Furthermore, they always keep an eye on cash inflow and outflow. This is exactly what people need in their life to achieve financial freedom. Not having a budget is among the reasons why most people are broke. A budget is an exquisite measure to get financial freedom at a point in your life. So, what is the solution here?

The solution is to carefully craft a budget. You can analyze how much income is coming in and how much money is flowing out. Thus, you can track your expenses, minimize fixed expenses, and also prevent unnecessary spending. Moreover, it is the budget that will empower you never to get off track in your finances. 

5. Not earning enough

Spending too much is a habit that is among the reasons why most people are broke. At the same level, not earning enough is also among those reasons. You can cut your expenses short up to a certain extent. However, the cost of living might also increase more quickly than your income. Therefore, it is important to increase your income. It is almost impossible to save money, invest, and get financial freedom when you aren’t earning enough. That said, it is of paramount importance to get out of paycheck to paycheck living cycle. So, what is the solution? 

The solution is to find ways to increase your income and that’s only possible when you think out of the box. You can find new ways to increase your income instead of relying on your paycheck. For instance, you can start a part-time business to increase your income stream. However, if that isn’t possible for you, you can work towards increasing your income from the same source. For example, you can work overtime or double shift. Similarly, you can work even harder to get a promotion and pay raise. 

6. Not investing

Saving money is of no use if you aren’t investing. If you are just putting your money into your bank account, it will lose value over time because of inflation. Therefore, you need to grow the money that you save. Obviously, you wouldn’t want to save money just to let it depreciate. The best way to grow your money is by investing. Yes, it is overwhelming for most people. Moreover, we hear a lot of stories about people who lost all their money. There is no doubt that investing is risky. However, there is a brighter side. Lots of people have made huge profits. In fact, there are billionaires who made their fortune through investing. 

That being said, start investing today to let your money grow today instead of waiting for tomorrow. Just start somewhere. However, it is important to do your research and get expert advice on where to invest. Making informed decisions before investing is the key to successful investing. 

7. Not working for passive income

Again, you can cut your expenses short up to a certain limit. Similarly, there is a limit on how much you can work. So, you won’t be able to make extra money to save enough. Furthermore, if you cannot find ways or don’t have options to expand your income stream then passive income is the best option for you. Passive income increases your income stream. The enticing point is that you have to work for once for passive income and it will keep flowing afterward. That is why not working for passive income is among the top reasons why most people are broke. But, the question is how to earn passive income.

There are numerous ways to increase your income stream through passive income. For example, you can invest in a high-yield savings account. Similarly, you can invest money in dividend stocks. Dividend income will keep flowing in each month. However, if you don’t have enough money to invest, you can find other ways. For instance, you can write an ebook and put it on sale. You can also design an online course for passive income. 

8. Don’t save for emergency

Life is full of uncertainties. You can never imagine life without an emergency. Moreover, an emergency never issues a notice before coming your way. Therefore, it is always a good idea to save for an emergency. Those who don’t save money for an emergency make themselves vulnerable to financial disaster. So, what is the solution here?

The solution here is to put aside a portion of your monthly income for an emergency. You can even arrange a separate account for emergency funds. There are multiple ways and it doesn’t matter how you save for an emergency. The important thing is saving for the emergency to avoid borrowing money or selling your valuables to arrange funds in case of emergency. 

9. Buy depreciating assets with borrowed money

Imagine buying a car with borrowed money. The picture must be clear. Isn’t it? This is among the main reasons why most people are broke. They buy depreciating assets they cannot afford with borrowed money. They will have to pay the debt back. However, the asset will keep losing its value over time. 

The solution is simple here. Don’t ever think about buying depreciating assets with borrowed money. Believe me, resisting the temptation to buy a luxury car is easier than paying your debt back.

10. Carry credit card debt

I don’t think that I have to explain how bad is credit card debt. In fact, it is a thing that excessively puts you under financial pressure. As you know, credit card debts accompany high interest. Therefore, you have to not only pay debts but also interest and that puts a huge burden on your shoulders. 

That being said, it is important to never let yourself down with credit card debt. You should never purchase things beyond your means. Furthermore, if it is absolutely necessary, try paying your debt with a concerned effort to prevent interest from piling up.

The wrap-up

There are so many reasons why most people are broke. Despite having myriads of opportunities, people are facing a financial crisis. That’s because they make poor financial decisions. However, you can turn things around with the suggestions we have discussed. The simplest way forward is to live according to your budget, spend after saving, and invest money.

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

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