Reasons Why Most People Are Broke (Must Read) (2024)

There are many levels of personal finance with the lowest levels being broke, being deeply in debt, and bankrupt.

Being bankrupt means you can no longer pay your debts and must seek the courts protection and settle with your debt collectors.

Being deeply in debt means that all your earnings go to debt payments each month with nothing left over. Being broke simply means going to zero in cash. Broke people can be, but are not necessarily bankrupt or deeply in debt, they just don’t have any money.

At what point are you considered broke?

Broke is an adjective meaning someone has completely run out of money. In personal finance it means going to a zero balance in your account. Most the time when someone is broke they have no money left and also have debt. Anyone can go broke regardless of whether they’re in the working class or a millionaire.

For an ordinary person it simply means that they have spent all their money and have none left, for a millionaire it means their business failed and they have no liquid assets to sell to raise money. Being broke is simply having no money.

Why are most people broke?

They have no financial goals

If you don’t have goals and a purpose for your money it will all just be spent haphazardly. You must have goals to not be broke so you save and invest money if you want to have anything left after spending. Identify where you want to be financially in the future, this will help your decisions and behavior line up with this vision.

They don’t save money for emergencies

If you save up three to six months of your living expenses for emergencies then you will never be broke as you will have this money sitting in your savings account. Start with one week then a month and focus on putting whatever you can away and you will never be broke.

They don’t use a budget to manage spending

The discipline to plan out where your money will go each month before it begins will cure your problem of being broke if your income is high enough to support your bills. You must have a spending plan to avoid being broke. Knowing where all your money is going is step 1 and managing it is step 2.

They don’t plan for their financial future

If you plan for your retirement and have money put into your 401k each paycheck you will never be broke as you will always have money in this account. Investing money in you retirement account or brokerage account will give you a portfolio and a chance to build up capital so your net worth will likely never be zero dollars.

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They spend more than they make

When you spend more than you make you will always be broke waiting for your next paycheck. It doesn’t matter how much you make, if you spend it all you will be broke. The inability to say no to things you can’t afford will keep you broke due to your excessive buying above your income level. If you can’t pay cash and must use debt then you can’t afford it. If you are broke you can’t afford it. Living beyond your means insures staying broke due to overspending.

They have too much debt

Even high income earners can be broke when they have excessive monthly debt payments. Having a big mortgage, new car payments, high credit card debt, along with extra payments on boats or motorcycles are a formula for being broke. Large multiple debt payments on depreciating assets will drain your money supply quickly. Houses are not assets until you sell them, in the mean time they can be large payments with unrealized value. Be careful how many payments you take on based on your income level. Payments can keep the middle class broke.

They waste too much money

People that earn a decent income but are still broke may simply be wasting too much money. It’s easy to spend money on dining out in a restaurant instead of eating at home for much less the cost. It’s easier to go to a fancy coffee shop than to make you own coffee at home. Eating out for lunch at work everyday instead of bring your own lunch can add up over a year. Little consistent acts of spending money daily on things that are overpriced and not needed can add up over time and be a drain on finances even for the middle class.

Why do most people go broke?

Most people go broke because they get themselves in too much debt. When your monthly bills and payments grow to more than your monthly income you will be perpetually broke and also in most cases continue to go deeper in debt.

Another type of broke is the lowest income earners that just can’t get ahead financially as they don’t earn enough for basic living expenses. The only way out of this trap is to increase income by getting a second job, a side hustle, a pay raise, work more hours, work overtime, or switch jobs to one that is higher paying. Increasing earnings power is the only way up and out of this type of being broke.

People who were once rich that go broke usually do so because they took on too much risk, debt, and/or leverage and when a deal, business, or the economy goes against them they lose everything.

How can I stop being broke?

There are a few simple ways to turn around your personal finances and stop being broke.

  • Stop spending more than you make.
  • Budget your monthly earnings to have money left over.
  • Increase your earnings through higher pay or working more hours.
  • Start acquiring assets.
  • Stop acquiring more debt.
  • Save up an emergency fund.

You will stop being broke when having money is more important than having fun or buying new things. If you take your career seriously and put in the effort to move up in earnings power and manage your personal finances with a budget then the odds are in your favor that you will never be broke.

Habeeb Mahmood

Reasons Why Most People Are Broke (Must Read) (2024)

FAQs

Reasons Why Most People Are Broke (Must Read)? ›

Experts Explain Why People Go Broke

It could be a medical catastrophe that involves large medical bills. It could be poor decision-making with credit, credit card abuse being one of the most challenging. It could be due to a lost job or a poor economy,” said Dr.

Why are so many people broke? ›

Experts Explain Why People Go Broke

It could be a medical catastrophe that involves large medical bills. It could be poor decision-making with credit, credit card abuse being one of the most challenging. It could be due to a lost job or a poor economy,” said Dr.

Why am I so broke all the time? ›

High expenses: If you have recently had a significant increase in expenses, such as medical bills, unexpected repairs, or other financial obligations, this can leave you feeling like you have less money than you'd like. Income issues: A decrease in income or job loss can lead to feelings of being broke.

How do people stay broke? ›

Many people who stay broke do so because they live beyond their means, which is spending more than they earn each month. This is an unsustainable habit that often leads to debt and financial hardship.

What to do when financially broke? ›

In this article:
  1. Identify the problem.
  2. Make a budget to help you resolve your financial problems.
  3. Lower your expenses.
  4. Pay in cash.
  5. Stop taking on debt to avoid aggravating your financial problems.
  6. Avoid buying new.
  7. Meet with your advisor to discuss your financial problems.
  8. Increase your income.
Jan 29, 2024

Why are so many people financially struggling? ›

After inflation, high interest rates, unattainable housing prices and other economic factors, 50 percent of U.S. adults say their overall personal financial situation is worse than it was in November 2020, according to October 2023 Bankrate polling.

What makes people go broke? ›

Common reasons that people file for bankruptcy include loss of income, high medical expenses, an unaffordable mortgage, spending beyond their means, or lending money to loved ones. Often, bankruptcy is a result of several of these factors combined.

What is the 50 30 20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What are the mental effects of being broke? ›

There's a strong link between debt and poor mental health. People with debt are more likely to face common mental health issues, such as prolonged stress, depression, and anxiety. Debt can affect your physical well-being, too. This is especially true if the stigma of debt is keeping you from asking for help.

Why do I always have no money? ›

If you don't have a budget or if your budget is not a good one, then this can be a big reason for why you have no money. A good and realistic budget can help a person and/or a family manage their money better. Yes, a simple piece of paper where you jot down your budget can actually do this.

How do most millionaires go broke? ›

According to Entrepreneur, not having a budget is a common way that millionaires end up broke. These soon-not-to-be millionaires don't go over their bank statements or monthly bills to make sure that there aren't any unauthorized transactions or that they weren't overcharged.

Is it hard to live in the USA? ›

United States is a country with high taxes and low wages. Thus, you can't survive in this country without government assistance.

How to stop being poor? ›

Here, some ideas for how to get out of poverty:
  1. Getting a Sound Education. ...
  2. Having a Close Mentor. ...
  3. Working With Well-Informed Organizations. ...
  4. Utilizing Community and Government Resources. ...
  5. Changing Your Money Mindset. ...
  6. Setting Financial Goals. ...
  7. Cutting Expenses and Spending Wisely. ...
  8. Paying Down Your Debt.
Aug 30, 2022

What is living paycheck to paycheck? ›

Key Takeaways. "Paycheck to paycheck" is an informal expression describing someone's inability to pay for living expenses if they lost their income. People living paycheck to paycheck are sometimes referred to as the working poor. Living paycheck to paycheck can occur at all different income levels.

How can I get money if I'm struggling? ›

Facing financial hardship
  • Food assistance. ...
  • Unemployment benefits. ...
  • Welfare benefits or Temporary Assistance for Needy Families (TANF) ...
  • Emergency housing assistance. ...
  • Rental assistance. ...
  • Help with utility bills. ...
  • Government home repair assistance programs.

Why am I always skint? ›

If you are constantly skint, it's likely that the main reasons is you and the things you've done, the way you're living and decisions you've taken. Until you take responsibility and own the problem, you simply can't take control of the situation. Until you take control, you can't make it change.

How many people have less than $1,000 saved? ›

Key Takeaways. More than one in four Americans (28%) have savings below $1,000.

Do most millionaires go broke? ›

Rich people often find themselves poor after making bad financial decisions. According to a blog by renowned penny stock investor Timothy Sykes, the average millionaire goes bankrupt at least 3.5 times. The reasons rich people go broke are not all that different than the reasons anyone goes broke.

Why are so many millionaires unhappy? ›

However, Norlander explained that with wealth comes a different set of challenges. For one, it often puts you in different social circles, and it might mean you spend less time with certain friends because they don't have the means to enjoy a similar lifestyle. That can lead to feelings of guilt or loneliness.

How much money is considered broke? ›

In general, people considered having only $878 available either in cash or a bank account to mean they were bankrupt.

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