This is basically a ‘how to’ post except normally ‘how to’ articles are written in the positive rather than the negative. I thought I would change things up a bit and share with you ways that people go broke, which in turn means these are things you should most likely avoid doing. Don’t worry; you won’t find “buy avocado toast” in this list because I’m sure that’s not going to be the thing that drives people to go broke.
What you will read below are things I’ve determined based on observances I have made. Being an accountant, I am extremely analytical by nature and I am constantly analyzing people (sorry, I can’t help myself!). I like to observe people’s actions and then try to figure out the reason for those actions based on things they say, other things I’ve noticed or by just making assumptions. These are 6 ways to go broke, which I have witnessed people doing some of or all of at once.
1. Compare Yourself to Others
Living in the time of social media can be difficult. Everyone is constantly sharing everything they are doing for all the world (or their 900 Facebook friends, 1,300 Instagram followers, and 100 Snapchat friends) to see. I am a millennial, so I am not making fun. I do it too. The problem is that social media is generally where people show off their BEST self; whether it is the best selfie after 22 takes or posting the ONE time they went to an expensive restaurant. The point is social media is a façade, so comparing yourself to what you see on there creates impossible expectations to live up to. It also makes you strive for things that you cannot afford (see item 2 below).
2. Live Above Your Means
This goes hand in hand with the above. I know SO many people who follow celebrities on social media and envy their lives. This would be fine, but they go one step further in trying to buy the same things that these celebrities are wearing or decorate their house the same way or vacation in the same spots as these people. I’m not trying to imply that celebrities are not humans; they are. The issue is that celebrities have and make much more money than the average person. You shouldn’t be living the same way as them because you simply cannot afford to.
Do not charge things on your credit card if you can’t pay it off right away. Do not buy a car that costs more than your salary. Do not spend more than 28% of your income before taxes on housing payments, such as mortgage, taxes and insurance (according to Bankrate.com).
3. Care More About Your Image Than Your Financial Situation
Up there with comparing yourself to others, people are constantly doing and buying things for show. You want people to THINK you’re rich, when you’re really poor. As long as you are eating at expensive restaurants, wearing designer labels, vacationing in the best spots, then it doesn’t matter how you’re affording it because people will think you can afford it, right? Wrong. Who cares what people think of you based on the image you’re portraying? What do you get from putting on an act? A few likes on Instagram?
I realize that this post is making it sound like I hate social media, but I actually don’t. I just think posting honest things or nothing at all makes much more sense. It would make me more sad if people liked a “fake me” more than the real me. Your financial situation is no one else’s business, but make sure that you at least make it your own business.
4. Feel Entitled
I’m not entirely sure where people’s sense of entitlement comes from, but it’s pretty crazy. People will charge designer shoes on their credit card and justify it by saying “Well, I deserve these.” No. You don’t. If you cannot afford to buy them outright without taking on debt, you don’t deserve them. If you want to reward yourself for doing something, contribute to your savings account or retirement plan! Your future self will certainly deserves more than you do because your future self will have worked a lot longer and been through a lot more than you’re going through right now. You shouldn’t expect things to just be handed to you.
5. Be Impulsive
This is one of the reasons I enjoy shopping online more than shopping in person: it helps reduce my impulsiveness. When I’m in a store and I see something I like, I tend to buy it (as long as it’s reasonably priced). A majority of the time I won’t do research for price comparisons and I won’t wait before buying because I’ll most likely be too lazy to come back. When I shop online, though, I add things to my cart and then ask my husband and my friends for their opinions or I save it for later and go back to see if I still really like it.
Additionally, I always price compare online AND look at reviews. This saves me money no matter what; even if it’s just on shipping costs alone because another website offers free shipping. Being impulsive can be costly for a few reasons: 1) you think you like something and then realize you don’t like it that much, so you’re either stuck with it or have to return it (shipping fees, gas cost, temporarily being out that money, etc.) 2) by not researching ahead, you can end up purchasing something that is poor quality that you need to replace sooner than expected 3) you just don’t think about the cost and focus on your impulse.
6. Make Excuses
I can’t contribute to my savings or retirement because I have too much debt. It’s not my fault I’m in financial trouble; I didn’t have anything handed to me. I don’t need to save now because I’m young. These are all excuses people make for why they are not in good financial shape. While there may be some truth in some of these excuses, if you really want something you will make it happen. If you really don’t want to be broke, you won’t be broke.
Sure, it is tough to save money while you’re paying off debt; however, if you come up with a debt repayment plan and you keep your expenses low, you can save money, even if it is just a small amount. No amount is too little when you’re adding to your savings or retirement because compounding interest does wonders over time. Yes, it is harder to get yourself where you’d like to be financially without help, but with determination and focus on this goal you can absolutely do it. Don’t make excuses; make plans.
If you’d like to NOT go broke, I suggest the following: avoid debt, pay yourself first and never underestimate the power of compounding. Clearly, this is oversimplifying, but, combined with doing the OPPOSITE of above, it’s a good starting place.
Have you witnessed any behaviors that are leading people to go broke or will eventually do so? What advice do you have?