You’re broke because you want to be.
That’s the title of the book that inspired me to write this post. Larry Winget’s You’re Broke Because You Want to Be is a huge eye opener and will change your life for the better.
Don’t deny it: you are broke because you want to be. You have all the power in the world to change your financial situation, yet you’re still scraping money together and living paycheck to paycheck… simply because you don’t want to change anything in your life.
I understand I’m treading sensitive territory here, with the unemployment rate and cost of living at an all-time high. I understand how extremely difficult it is for an unemployed person who spends 12 hours a day sending out job applications to build a nice little nest egg. I also understand how much getting divorced, losing a house, or being slapped with a huge hospital bill can hurt your wallet. Believe me; I understand. We all go through rough patches in life. However, your catastrophe does not give you a free pass to wallow in self-pity and dig deeper into your debt hole. Know why? Because Honest Abe once said, “I walk slowly, but I never walk backward.”
To all of you with a job — even a minimum wage job — who can’t seem to save up any money despite not going through a catastrophe of any kind, you’re very lucky and you have absolutely no excuses for not getting ahead. Just because we’re living in the age of credit card debt, high insurance rates, and $4.39 gas doesn’t mean it’s impossible to get ahead. It’s entirely possible, and the following steps will show you how.
1. Nix your excuses… NOW.
“I can’t find a job!”
“My bills are keeping me back!”
“No one has ever taught me how to get ahead!”
“I pay so much interest on my credit card/student loans/mortgage that I can’t save a cent!”
“I don’t make enough money!”
“Everything costs way too much!”
Shut up. Just shut up. Do you know who you sound like right now? This kid:
Stop crying and suit up.
I always say that there’s a way around everything, and you know what? There is a way for you to control your financial situation enough to be able to build a nice little nest egg or at least climb out of your debt hole. Deep down, you know what it takes, but you’re not doing anything simply because you don’t want to.
Give up your unlimited smartphone plan. Stop using your credit card. Trade in your brand-new Jeep for an older, smaller, and more economical car. Cut the cable cord. Get a job that you consider to be “beneath” you. Of course, you already knew all that, but you don’t want to give up your precious time, pride, or luxuries because it’s so much easier to complain, isn’t it?
Do you want to get ahead? Yes? Then stop making up excuses. Just stop it. You can’t move on to the next step unless you nip your excuses in the bud.
2. Figure out your financial picture.
This step will cause a lot of anguish, but it needs to be done. It’s time to stare the beast in the eye. If you don’t do this, you won’t be able to get ahead. My only advice to you during this step is to stay strong. As much as you’ll want to curl up in a ball on the floor and wail yourself to sleep, you can’t. Just power through it. You can do it.
First, write down every single dollar you owe. Know that $20 you borrowed from your buddy a while ago? Write it down. That $35,000 student loan you’re slowly paying off? Put the remaining balance on the list. The same goes for your mortgage, car loan, and everything you eventually need to pay off. Don’t put your groceries, utilities, or Internet bill on the list; that comes next. Once you think you have every single dollar you owe written down, add it up. The total is your debt.
Now, make a list of your monthly expenses. Groceries, utilities, Internet, gas, monthly payments, and anything else you can think of. Don’t ignore frivolous expenses like beer, cigarettes, clothes, or mini vacations. Once you have a complete list of your monthly expenses, add it all up. The total is how much money you’re spending each month. Keep this list for step #3.
Last, but definitely not least, write down your monthly income, after taxes. Take this number and follow this formula:
MONTHLY INCOME – MONTHLY EXPENSE TOTAL = YOUR FINAL INCOME
Your final income is the money you have left over each month after paying all your bills and other expenses. If this number is in the black zone (over zero), then you’re doing okay, even though you could always do better. If it’s in the red zone (a negative dollar amount), then guess what? You’re losing money. Your financial picture needs to be fixed right now.
To see your financial picture, take a piece of paper and a thick black marker and write down your debt and your final income next to each other.
This is your financial picture. Look at it. Think about it. Let it sink in. Unless your debt is lower than your final income, you’re in over your head and you need to do something about it. Now that you’ve stared the beast in the eye, you can curl up in a ball on the floor and wail yourself to sleep. Then suit up, roll up your sleeves, and tackle this problem like nobody’s business. It will be difficult and it will take some time, but it needs to be done. It will be worth it. You can do it. Trust me.
Whenever you’re ready, take a deep breath and move on to the next step.
3. Decide which monthly expenses have any future value.
You want to invest your money instead of spending it, and that means giving up all your expenses that don’t have any future value. Take that list of monthly expenses you put together and carefully determine the future value of each expense on the list. If you’re looking at an expense and no future value comes to mind, I have bad news for you: you’re simply throwing good money out of the window. To help you get started on this, here are a few common expenses you may have:
- Health insurance: You’re investing in your own health.
- Soda: Why spend good money on soda when you could easily quench your thirst for free with tap water?
- Electricity: You’re investing in your own comfort at home.
- Restaurant meals: You’re throwing money out of the window; you can easily prepare food at home for a lot less money.
- Books: You’re investing in your own knowledge, self-esteem, or value in the job market. However, you could always check out books for free from your local library.
- Gasoline: This depends. If you have absolutely no other way to get to work every day, this is a necessary expense. However, if you have access to other means of transportation, then quit kidding yourself. There’s no sense in plunking down at least $60 a week on gas when you could take the bus or ride a bicycle to work.
Be careful not to come up with frivolous justifications (i.e. “I’m buying a new outfit because I want to invest in my appearance”). Be sensible, and only focus on what’s really important – your health, comfort, and knowledge, to name a few. If it helps, make a separate list of the elements of your life that are most important to you; it might help you determine which expenses are worth keeping.
Circle all the expenses that you deem unnecessary and…
4. Give up your bad habits.
Once you have a clear idea of which expenses have future value and which ones don’t, give up the latter. Stop eating out, stop buying new clothes, stop drinking beer, stop smoking, and stop watching cable T.V., for instance.
Your bad habits are costing you a lot of money, and you’ll end up having nothing to show for it. Know that $60 you spent at the bar the other night? It disappeared forever as soon as your hangover wore off the following morning. Poof. Remember that $6 latte you bought this morning? The money vanished as soon as you emptied the cup and threw it out. Poof. Know that $100 you spend each month on cable T.V.? It flies out of the window at the end of every month. Poof. Poof. Poof. You’ll never, ever see any of that money again.
We became a society of instant gratification. Everyone wants something now. Don’t fall victim to this unhealthy mindset. Be patient, and develop the willpower to pass up your daily latte, the opportunity to buy junk on eBay, or a night out with your friends. As a result, you’ll have all that extra money sitting in your savings account until you’re ready to put it towards something important. You will be surprised at how much money you’ll save each year simply by giving up cigarettes or soda (okay, I’ll tell you: it’s $1,500 and $540, respectively!)
If you have trouble giving up your bad habits, you can try a few of the following tricks:
- Whenever you crave something, like a cigarette, a restaurant meal, or a new outfit, take the money you would spend on it and put it into your savings account, pronto. No ifs, ands, or buts. Just do it. You will look at your savings account a few months down the road and see that money, and you will be glad that you didn’t blow it on an instant gratification that has become a distant memory. The money is still yours, and it will be yours forever until you spend it on something worthwhile. That realization alone is worth more than the temporary gratification brought by a random cigarette, pair of sunglasses, or cup o’ joe you probably had a long time ago.
- Get a change jar that’s difficult to reach into and drop all of your loose change into it as soon as you get home every day. If you come across an extra $5 bill, put it in there. If you’re feeling bold, put a $20 bill in there once in a while. My parents did this when I was little. They used a 5-gallon water jug, and when it finally got full, there was enough money for us (a family of 5) to go to Disney World! Don’t hold onto the extra cash in your wallet for a candy bar or whatever else you’re jonesing for at the moment. Put it in there and don’t touch it. End of story.- Leave your credit or debit card at home. Did you know that you’re more likely to make an impulse purchase with a credit or debit card than with cash? Whenever you go out with your friends, don’t bring your credit or debit card with you. You can have fun without spending a cent! There’s absolutely nothing wrong with ordering water at a bar. It’s all about the people you’re with. You can take this a step further and refrain from bringing your credit or debit card to work. That way, you can’t succumb to the temptation of getting a Big Mac during your lunch break. If you’re worried about running into an emergency, simply stick a $20 bill into your wallet or leave it in your car. Only bring your credit or debit card when you need it.
5. Start spending your time wisely.
At this point, you will have a bare-boned budget that will help you increase your final income. That’s great, but you’re not done yet. There’s one valuable tool you haven’t utilized yet: your time.
Here’s a quick question: how many hours do you spend watching TV every week? Really think about it. The average American spends 36 hours parked in front of the TV every week. Thirty-six hours. That’s 4 hours shy of a full-time job! If you put that much time into your trusty ol’ TV (or Facebook, Pinterest, or any other useless time-sucking activity), here’s something you should know… you have no right to complain about being broke. Know why? You’re not spending your time wisely. If you’re all, “but I only watch 5 hours of TV a week”, you’re not really listening. Any time watching TV or looking at funny cat pictures on the Internet is wasted time. If you really want to get ahead, you need to use your time to better yourself.
Read a book, take a class, get a second job, write up a business plan, or do anything else that will help pave the way to financial security. Whether you aim to get a promotion at work, own a business, or increase your income with a second job, you will find the time to do it. You will be surprised at how much time frees up once you make better use of your time.
“But I need to relax sometimes!” you might say. Well, there are productive ways to relax. Instead of watching mindless TV shows like Keeping Up With the Kardashians, watch a documentary. Read a book or listen to an audiobook. Go out and network with your colleagues over a few drinks. Your time is valuable; never forget that.
The bottom line
Stop whining. Suit up. Stare the beast in the eye. Cry. Wipe away your tears. Roll up your sleeves. Take a hard look at your expenses. Give up all the useless crap in your life. Feed your savings account. Spend time to better yourself…. And find financial security. That’s all there is to it. Now get off your butt and do it!