It’s no great statement to say that being broke sucks! The feeling of having no money and how this affects your mindset, your relationships and your general happiness. Whilst we aren’t saying all you need to be happy is money, far from it, what we are saying is that having money (or at least not having to go without nearly everything) does help life become more enjoyable and does give you options.
For those who are currently broke, there are ways out of this, it will usually take a bit of time though. So how can you get out of this? How quick can you engineer a much needed financial turnaround and what steps can you take to make sure you never return to broke town?
Below we go through some ways and ideas on how to stop being broke.
Realizing you have to make a change
It’s one thing to say you have to make a change, it’s another to genuinely want to make a change. Getting to this stage usually takes a particular event or traumatic episode to push you to the edge of change.
Financial issues usually don’t happen suddenly, rather it’s the culmination of bad habits, oblivious behavior and the occasional rash or desperate move. In the Ernest Hemingway book The Sun Also Rises, a character asked “How did you go bankrupt?” Two ways. Gradually, then suddenly.”
Some of the bad habits that can trigger the wanting to make a change for your financial situation include:
Bills piling up
We touched on being oblivious above as a trait of those in financial desperation, preferring to keep their head in the sand rather than admit or tackle their financial problems head on.
This could be with your bills piling up rather than contacting each debtor to let them know you are having money problems or calling them with a repayment date.
It could be getting a plethora of debt collector calls and leaving these to go to voicemail rather than speaking to your debtors and putting a repayment plan in place.
Relationship stress over finances
We’ve touched on financial stress being a big factor in relationship breakdowns yet many choose to take this path rather than do something about their finances and fight for their relationship. Or you could be
Tired of being broke?
Before a significant change is to be made in life usually you experience some seismic event such as the one of the examples above, a traumatic financial experience such as your card being declined when trying to pay for groceries at the supermarket or just the culmination of all of the above and you are just tired of being broke.
Closing a chapter
Once you’ve realized any of the above and you are invested in making a change then you are closing a chapter of your life, the negative and poor financial one and will be writing a new positive financial chapter, one where you are attentive to your finances, where you pay your bills on time, live within your means and your budget and look to earn more money and build your savings and investments.
So who do we do this?
Whilst you can blame others for your current financial position, the truth is in nearly all cases the buck stops with you. No one forced you to buy the designer clothes you didn’t need, no one forced you to go out drinking every week blowing hundreds of dollars every week, no one forced you to gamble your paycheck on horses or sports. Accept where you are financially, take responsibility and make a vow to yourself to change.
The longer you blame others and divert blame away from yourself, the longer it will take you longer to right your financial ship. The quicker you accept that it’s on you the quicker you can move forward and plan for financial prosperity.
As part of your change look at things like:
Transforming your relationship with money
For a lot of people who are broke or who have a difficult relationship with money these issues began when they were younger. This could have been due to arguments between parents or family members over money or the lack of it and these arguments or views around money helped form a warped view around money and arguments that it can cause.
Another reason for this could be a lack of education around finances and budgeting in a person’s formative years. Whilst we get taught (hopefully) to read, write and other essential skills growing up, many of us aren’t taught how to use and treat money, how to budget or how to invest, particularly if you come from a low socio-economic background or suburb.
Having a fragmented understanding of finances and debt, it is very easy to be seduced by the savvy advertising around loans and credit cards and before you know it you are hooked on debt and in financial trouble.
Addressing your relationship with debt and money should be one of the first things you target when looking to improve your financial situation and to get you out of being broke.
When you are broke it’s hard to have a positive mindset (particularly around money) and it’s hard to have a mindset of financial abundance. It’s easier to live in a world of despair particularly if this is all you really know about finances. It’s hard to see where the path forward is going to come from, particularly when you are getting constant overdue payment reminders or phone calls from debt collectors.
Sadly many people in this state don’t have the understanding or tools to make significant financial changes or have the education or skills to improve their income situation which (if maintaining a reasonable level of lifestyle expenses) will drastically improve your financial situation.
If you can find a way to see financial abundance (along with setting goals and putting together a suitable plan) this will go a long way to repairing your financial situation.
Creating a self growth plan
We’ll go into more detail below regarding creating financial goals and mapping out your personal financial plan however when setting goals (whether these are long term financial goals or you are setting monthly finance goals) these have to mean something important to you and have to be part of your personal lifestyle plan. You can’t be living or planning to live someone else’s life, it has to be for you.
Setting challenging yet achievable goals (both short and long term) will put you back on track not only financially but across all aspects in life such as your relationships where eventually you get to the point where you are:
Living Your Best Life
Ask yourself what is your best life? Where are you living? What is your occupation? Who are you spending your time with? What are you doing with your time? Figure out what living your best life means to you and start putting a plan together to get as close as you can to living your best life.
So how do we get to living your best life? To live the lifestyle you should be living?
Find out where you are at and where you want to go financially
To get to your planned destination, you need to know what your start point is. In the case of someone who is broke or in serious financial strife, you need to find out your starting point so we can begin to build some solid foundations.
When building a house you’d never build a slab on unstable ground, the same should be with your finances. On unstable ground, as soon as you started building walls and pillars and put the roof on, the whole structure would collapse and you would be back to square one. So start with a solid foundation (along with solid habits) that will allow you to build something that will last a long time.
What this means is you need to know exactly where you stand financially. How much money you owe, what your monthly repayments are, what the interest rate is and to who you owe the money to. Find out how much money you earn, how much tax you are paying (and eventually should be paying) and finally how much money you are spending and where you are spending this.
You want to know what your net financial position is and also whether you are currently (or can) be in a surplus or a deficit.
As part of building a solid foundation you’ll also want to review your spending, where does your money go, what financial habits are uncovered that will put your future financial prosperity in jeopardy if they aren’t dealt with now? The quicker this is outlined, the quicker you can move forward.
There are people reading this who are scared shitless about doing this exercise. These are the ones who have preferred to keep their head in the sand while letting bills pile up and their financial situation deteriorates.
Make today the last day you neglect your finances and make today the day you start your plan to become financially strong. Figure out exactly where you stand financially by completing a full financial audit regarding all of your finances.
Build stronger financial habits and set goals
Now that you have a detailed description of where you are currently financially, where do you want to go? This is your chance to dare to dream, to think big. Remember when setting your long term financial goals, do your best to do this from an abundant mindset, from your future financially successful mindset.
If you are currently broke and if you are setting future financial goals from this broke mindset it’s likely these will be very small minded reflecting your current situation. If you take action, set goals and a plan and stick to this you will likely not be broke for too long at all so take this on board and set big challenging financial goals.
Review some of your previous spending or habits and see if these give any hints as to your checkered financial journey so far? How much money were you wasting on goods or services that you didn’t need and only purchased or used to keep up with others? Review these expenses so you can put together a lean budget to live on while you are repairing your finances.
The worse your financial situation, the leaner your new budget will need to be, however remember you won’t be broke forever so take your medicine while you are saving money and repaying debt.
If your financial situation is more dire, reach out to your creditors to get some relief while you rebuild your financial situation. They may be able to reduce or defer the interest due, they may be able to reduce monthly repayments or even defer these repayments for a short period of time to help you rebuild.
Also don’t be afraid to review your larger long term expenses or repayments to see if there are better, cheaper alternatives on the market. An example of this could be a cheaper home or car loan, cheaper energy, phone or internet provider. Reach out to your current providers to see if they have better options available and if not put these expenses to market for potentially better options.
For those wanting more detail regarding putting together a budget check out previous articles on this topic.
Sticking to your new budget and financial goals helps build strong financial habits. By maintaining these habits you will get that much closer to achieving these goals and living your best life both financially and personally.
Earn more income and spend less money
Whilst we recommend that you go through your expenses with a fine tooth comb and set up a suitable budget (if you need a hand to track your expenses, popular apps include Mint, YNAB and PocketGuard. Your financial provider may also have an app or program that can help you track your budget and expenses), the major improvement in your financial situation will come about from increasing the income you earn.
This could be through your job, this could be selling unwanted items to make some money or this could be through taking up a second job or building a side hustle.
The easiest way is to approach your current employer about getting a pay rise. We’ve written about asking for a payrise previously however the main tip is to put together an argument as to why you deserve your pay rise and provided your company is in reasonable financial health, that you have been performing at a high level (and haven’t had a recent pay rise) it’s likely you will be successful.
If you aren’t successful and feel you are unappreciated at your current job then look elsewhere for a higher paying job or apply for a job promotion either in house or at another employer. If a job rise isn’t possible then look to getting your employer to pay for courses or additional education that will lead to a pay rise at your current job or with a competitor.
Alternatively look for a second job or look to start a side hustle. If you have a skill or talent, find something around this. If you don’t have this don’t worry there are plenty of 2nd jobs that you can take up that don’t rely on special skills or education requirements. Examples could be unskilled manual labor in your neighborhood through delivering food or packages or becoming a virtual assistant.
If you are talented enough this side hustle could become a successful business where you can scale, hire employees, offer other services. Who knows the income earned from this successful side hustle/business can eventually replace your current personal exertion income.
You might even be able to earn money by selling unwanted household items or even renting out these items such as your car, power tools or even parts of your house. You may even have a craft or skill that enables you to repair items or create an arts or craft project that can be sold for profit.
If you are struggling for ideas to make more money after going through your everyday life, look at what others are doing, look at your local community. Is there a pain point that you can help with, can you mimic what others are doing to make money?
Automate your finances and allocate money towards savings and investing
It’s a lot easier to keep track of your finances when they are automated rather than having to remember when each bill is due or when you need to make a repayment. Setting this up automatically will also remove a lot of stress in your life.
Having a smooth running financial machine will take a little time to set up and run. You may have found a preferred automated system that works for you, if so run with this. If you don’t have a system then we recommend a personalized automated financial hub that we have written about previously.
Essentially find a preferred financial institution and set up a transaction account where you can have all your income paid into and have direct debits to come from. Look to find an account that has unlimited debits or payments, has a linked debit card and ideally an account that pays interest.
You will also want to set up a higher interest yielding savings account to transfer your surplus income and if these accounts and debit or credit cards are linked to a points or reward system then even better. Being rewarded with free flights or household white goods or appliances is an excellent reward for doing the right thing by yourself financially.
Transfer a small amount of money into this account (if possible), contact all the organizations and companies that pay you an income (either direct or via dividends such as shares) and direct this income to be paid into this new account.
After you’ve figured out your monthly budget and large regular expenses (such as phone, electricity, etc) look to set up automated direct debits to pay as many of these larger expenses as you can.
With the linked debit card pay any other bills you can’t automate such as grocery shopping, monitoring this weekly (initially) to keep on track. Come the end of the month, go through the expenses to track that everything is working as it should and eventually your vigilance can be reduced to monthly or quarterly spending reviews.
Once this is up and running start reviewing your savings and investment goals. Look to build an emergency fund (start with 3 months of basic lifestyle expenses) then build this up and eventually branch out to investing this surplus income and savings.
Keep learning and building your financial education
Education and self growth is one of the best ways to improve your financial situation. This includes learning about different investments such as shares, property or even small businesses. The quicker you embark on this financial education the quicker you can look to build your investments with the aim to build a portfolio that will hopefully be able to replace your current personal exertion income.
Remember every successful investor across every investment class started with no education in that field! They started at the beginning and yes they may have had helping hands and great mentors and experience along their journey but they started at zero so remember that with your journey.
This could be learning from popular exponents who are successful in the areas of investing you are looking to enter. This could also be reaching out to someone local who has achieved something financially that you are looking to achieve.
We have so much information at our fingertips than at any previous time in history. Use it! When gathering your information cross check it to make sure it is valid and also if it passes your gut test. Test these sources out to see if they have plenty of runs on the board and are not living on their education.
Don’t get conned in by paying high prices for courses or seminars that will promise you all these secret investing tips. There is so much good free information available, start there first. By all means if a seminar or course is worth it and full or great quality information that is part of your education journey do it, but don’t fall for this at the beginning of your journey. There are a lot of charlatans in the financial education space, do your due diligence.
Most people have an investment preference due to upbringing or basic financial education and this is always a good start point. Learn as much as you can about your preferred investment option. Eventually you will know enough to be confident to dip your toe in the water.
Once you’ve built up your investments in this area look to branch out into other areas. An example could be for someone who is comfortable in local property to branch out into property in other states or cities. Or even from residential property to office or industrial property. You could even jump from one investment class to another, such as from property to shares.
Don’t underestimate the power of investing in a small business. This could be running it yourself or hiring a manager to run it for you. There are a lot of small businesses on the market and given the aging demographic of a lot of small business owners there will be some great bargains in the coming year.
Don’t be afraid to make an investment mistake but if you must make a mistake, make sure it’s small and has no affect on your financial wellbeing nor an affect on any of your other investments.
Once you’ve built a strong financial system and quality investments, make sure you protect your hard earned financial security. This could be in the form of insurance or it could be in the form of quality legal and estate planning advice. Make sure yours and your families financial security is protected in the event of an illness or something worse and investigate suitable income protection, life insurance and other insurance options for you and your family.
One of the most crushing financial outcomes (and one of the leading causes for personal bankruptcies in the U.S). is being significantly out of pocket for serious health issues so do you best to cover these. Don’t cheap out on paying for quality advice in these areas, a quality advisor can save you thousands down the track.
As we mentioned, being broke sucks but it doesn’t have to be that way. There is no magic pill to turn your financial situation around, however with a bit of responsibility, a bit of planning and taking action with your plan there is no reason why you need to stay broke.
Start believing in yourself and work forward with this belief. Believing in yourself is half the battle, the other half is fronting up and having a red hot go, no matter where you are starting from.
You only get out of life what you put in and if you do a thorough analysis of your current financial situation, put together some challenging and achievable financial goals, build strong financial habits and improve your financial education, there is no telling how far you will go with your financial prosperity journey.