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20 Reasons You Are Broke and How To Fix Them

Being broke is often not the result of just one bad financial decision. Instead, it’s a combination of small mistakes you’ve unknowingly made. So, if you’re trying to identify reasons you are broke, you’ve come to the right place.

Overall, you’re broke because you spend more money than you have coming in. There are plenty of reasons, like overspending on non-essentials and trying to keep up with other people you know. Failing to save and invest properly can also leave you broke, as will wasting money on paying too much interest and fees.

In this detailed guide, you’ll dive deeper into 20 of the most common reasons you’re broke. More importantly, you’ll also learn how you can fix each reason to improve your finances and stop being broke.

Key Takeaways

  • Financial struggles often result from a series of small, unnoticed mistakes rather than a single bad decision. Understanding these cumulative errors is crucial for addressing and correcting them. 
  • A primary reason for financial difficulties is spending more money than you earn, especially on non-essential items, and trying to keep up with others. Creating a realistic budget and prioritizing essential expenses can help you live within your means. 
  • Failing to plan for emergencies, not saving for retirement, and lacking financial literacy can all contribute to being broke. Educating yourself about personal finance and setting clear financial goals are essential steps toward financial security. 

20 Reasons You Are Broke and How To Fix Them

The most important thing to understand about being broke is that it’s not a permanent condition. It’s entirely fixable as long as you can identify the reasons and put in the work to fix them.

Here are 20 common reasons you are broke and what you can do to fix each one:

1. Overspending on Non-Essentials

The first likely reason you're broke is that you spend too much money on non-essential items. In simpler terms, it means you're paying too much for things you want but don't necessarily need.

Sure, everybody deserves a treat now and then. Plus, you're entitled to spend your money on anything that makes you happy.

However, spending more than you can afford will cause you to go broke, leaving less money available for essentials like food, utilities, shelter, and transportation.

How To Fix It: You should create a budget and prioritize your essential expenses. Then, you can use any money left over on things you want.

2. Ignoring a Budget

Everybody knows that having a budget is important, though only a portion of them prepare one. Then, among those people, an even smaller percentage actually stick to the budget they've prepared.

If that sounds like you, that might be one reason you're broke. Ignoring your budget makes it difficult to control and track your spending.

How To Fix It: Analyze your current budget and understand why you're not sticking to your budget. Then, update it or create a new one that aligns with your financial goals.

3. Not Saving for Emergencies

If you're like most people, you've likely heard countless times that having an emergency fund is critical. One financial emergency is all it takes to destroy someone's finances if they're not prepared to cope with it.

Suppose you've been experiencing financial hardships lately and have not had enough money saved to resolve them quickly. That's another reason you're likely broke today.

How to Fix It: It is best to start an emergency fund and contribute to it regularly, even if only in small amounts. You should aim to have enough money in that fund to cover 3 to 6 months of expenses. 

4. High Debt Levels

Another thing that's keeping you broke is your high debt levels.

Debt is a tool that can help or hurt you. Sometimes, it can even do both simultaneously. Debt becomes a problem when you have too much to pay each month, leaving you with little money left over.

How To Fix It:  Pay off your debts with the debt avalanche approach. First, pay the minimum amounts on all your debt. Then, use all the money you have to pay off your highest-interest debt first.

5. Lack of Financial Planning

Going with the flow might work well in some areas of life, but not when it comes to personal finance. If you're broke, consider that you might lack proper financial planning.

It's easy to waste money and buy things you don't need when you don't have financial goals to work towards.

How To Fix It: With pen and paper, set some clear financial goals and then create a plan to achieve them. The plan doesn't need to be perfect; it just needs to exist. Then, you can make adjustments along the way as you gain more knowledge and experience.

6. Impulse Buying

No matter how perfectly people budget or track their spending, everyone is prone to impulse buying now and then. Some studies even show that the average impulse buy over the past few years is as high as $151! That's normal, but if you're broke, there's a chance you've been impulse-buying a little too much lately.

How To Fix It: Implement the 24-hour rule: When you feel the impulse to buy something, force yourself to wait 24 hours. You might find that you don't want that thing anymore after taking a day to think about it.

Person looking at bills and finances

7. Living Beyond Your Means

Living beyond your means is a common reason for financial struggles, leading to chronic stress and mounting debt. This occurs when your spending on both essentials and non-essentials exceeds your monthly income. It's easy to fall into this trap, especially with the temptation of credit cards and the pressure to keep up with a certain lifestyle.

How to Fix It: Begin by thoroughly assessing your financial health, taking into account all sources of income and expenses. Create a realistic budget that prioritizes essential expenses such as housing, utilities, and groceries. Identify non-essential spending that can be reduced or eliminated.

Adjusting your lifestyle to align with your income is crucial, often summarized by the phrase "act your wage. Consider implementing strategies like meal planning to save on food costs, cutting down on entertainment expenses, and shopping smarter by looking for discounts and avoiding impulse purchases. Additionally, focus on building an emergency fund to provide a financial cushion and prevent reliance on credit cards for unexpected expenses. Adopting these habits can help you live within your means and gradually improve your financial stability.

8. Not Tracking Your Spending

You read earlier about the importance of budgeting. That's true no matter who you are or how much you earn. Still, budgeting is only one side of the coin. The other side is tracking your spending, which, if you haven't been doing it, could be a reason why you're broke. You'll have no idea whether or not your budget works if you don't track where every dollar goes.

How to Fix It: Use a budgeting app or spreadsheet to track your spending, or go back to basics with a pen and paper. Budgeting isn't as time-consuming or tedious as you might think.

9. Paying High Fees and Interest Rates

Being broke isn't just because you bought too much stuff. It can also be the result of spending too much on fees and interest rates.

People sometimes overlook these costs because they might seem small at first. Still, they add up over time and cost you money that could've been spent elsewhere.

How to Fix It: Shop around for financial products with lower fees and interest rates.  Remember, you don't have to choose the first option you find. Financial service providers are competing with each other, so you can likely find one offering you a better deal.

10. Not Seeking Additional Income Opportunities

Being broke isn't just caused by spending too much money. It also happens because you don't earn enough in the first place.

Focusing on earning more at your main job is important, but so is seeking additional income opportunities through side jobs, gig work, freelancing, and more.

How to Fix It: Look for a manageable part-time job or freelancing opportunity. If you have specialized skills or knowledge, there's a client out there who's willing to pay you for them.

If not, you could always take a gig providing services to others, like delivering food, packages, or people to their destinations.

11. Ignoring Retirement Savings

Retirement might seem like it's a lifetime away, but you should never neglect saving up for it.  Doing that could be a reason you'll end up broke during a time of your life when you can't work as much as you used to, if at all.

How to Fix It: Start saving now, even if it is a nominal amount, you don't have to sacrifice your current way of life to do that. Even small but regular contributions to your retirement account will grow with time.

12. Being Unaware of Your Financial Situation

Sometimes, you're not broke because you don't know how to handle money but because you don't know what's going on.

Think of it this way: you can have all the personal finance knowledge in the world, but it won't help you if you don't keep an eye on your financial situation and apply what you know.

How to Fix It: Regularly take stock of your financial situation by reviewing your income, expenses, assets, and liabilities. Do it once a week so you'll know if your budget is working or if you need to make changes.

13. Not Investing Wisely

Investing a portion of your hard-earned money is a great idea, especially if you want to protect and build your wealth. But if you're broke, it could be that you're not investing wisely. People lose a lot of money investing in things they don't fully understand or, worse, by investing in risky schemes.

How to Fix It: Educate yourself about investing and develop a diversified investment strategy. Spread your risk across a few investments that you fully understand or at least have a professional advise you on them.

14. Falling for Sales and Marketing Tactics

Believe it or not, you could be broke because you fell for one too many sales and marketing tactics. Don't feel too bad about it. Most people fall for the same thing. Plus, the people who come up with those tactics specialize in getting people to spend money even when they don't necessarily need to.

How to Fix It: Be skeptical of marketing tactics and sales pitches, and investigate anything you might spend your money on. You can do that quickly just by reading online reviews on the product or service before deciding.

15. Keeping Up with the Joneses

It's natural to compare our lives to those of others, such as friends and family. However, that becomes a problem when we base our financial decisions on keeping up with others.

That’s especially true when comparing ourselves to people we know on social media. When people flaunt their wealth online, it causes others to feel like they’re missing out and need to catch up. Spending money based on what other people do is a surefire way to get broke and stay broke.

How to Fix It: Focus on your own financial goals and priorities, and remember that life isn't a competition. You have more important things to spend money on than impressing other people.

16. Not Negotiating for Better Deals

You might be broke because you continuously miss opportunities to cut costs. That likely happens because you don't negotiate for better deals on the products and services you pay for. A little bit of negotiating can go a long way toward reducing your pay or at least increasing the value you get for your money.

How to Fix It: Be proactive in negotiating for better deals on products and services, especially recurring expenses like insurance and phone plans. Depending on the situation, some sellers or service providers are willing to be flexible with you.

17. Failing To Plan for Large Expenses

Earlier, you read about how not saving for emergencies can cause you to go broke. That's because you're hit with a large bill you're unprepared to pay.

The same can also happen when you fail to plan for large expenses. For example, many people forget about the expensive quarterly or annual bills they have to pay and don't save up for them. If that tends to happen to you, it could be why you're broke.

How to Fix It: Anticipate large expenses and start saving for them in advance. Don't just list your weekly or monthly bills when preparing your budget. Be sure to identify the quarterly and yearly payments so you can prepare for them, too.

18. Not Taking Advantage of Discounts and Coupons

Some little costs and fees take your money away with each transaction. Similarly, you are not taking advantage of many little opportunities to cut your costs. Businesses are competitive and constantly offering discounts and coupons. Funnily enough, though, not everyone takes full advantage of them.

How to Fix It: Look for discounts and coupons before making purchases. That includes traditional cut-out paper coupons and digital ones on apps and online. It also helps to ask the business what discounts you are entitled to enjoy.

19. Overlooking Small Expenses

Every dollar counts, and that's why even the small expenses you ignore can cause you to go broke. Relatively cheap things like cups of coffee are easy to forget, but their prices add up if you buy them often enough. Think you're not wasting money on small expenses? 

Try this: spend a week tracking every single purchase that you make right when you make them. You'll probably find a bunch of small expenses that aren't reflected in your budget or when you normally track your spending.

While there’s nothing wrong with treating yourself once in a while, it’s important to identify the small expenses that happen repeatedly. Those numbers eventually add up to big ones that hurt your finances.

How to Fix It: Write down every small purchase you make before you forget about them. Alternatively, you can also look through your bills to highlight small purchases. That's a handy way to do things, especially if you used non-cash payments to buy them.

20. Not Educating Yourself About Personal Finance

Last but certainly not least, you might be broke because you don't self-educate about personal finance.

Managing your personal finances is as important as any other life skill. Not knowing how to do it right can lead to bad financial decisions and other mistakes that leave you broke.

How to Fix It: Go to your local library and get some personal finance books. Alternatively, there are countless free resources, ranging from YouTube videos to online blog articles.

You can also invest in books and courses to grow your knowledge further. Just be sure to take any information you learn online with a grain of salt. Not all of it is correct or relevant to your situation. Of course, you can also hire a licensed professional to advise you on your finances.

You’ve just explored 20 reasons you are broke in the list above. Read through them again and reflect on whether or not those reasons are affecting your personal finances. You might find that you’re broke due to a combination of them.

The next step is to solve each root cause one at a time. Be patient with the process and learn from the experience. That’s the best way to make healthier financial decisions moving forward so you won’t end up broke again.

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