10 Ways to Go Broke (Part 1 of 2)
I have given advice on how to make money, save money, make budgeting fun, and how to deal with procrastination and fear. Now, I want to share what things you’re doing now that could make you go broke. Your financial security is determined by your daily money decisions, so if you’re doing any of the following things, you might already be on the path to financial stress.
LIVING ON CREDIT CARDS
Having multiple credit cards with high or maxed out balances is abusing credit. You may feel like you have free money and start living the good life. However, this money needs to be paid back, with interest. Paying the minimum payment is not enough. You are living on the edge and may be close to a financial meltdown. You will need to lower your credit limit and start paying off your debts.
TREATING YOUR HOME EQUITY LIKE AN ATM
Are you refinancing often and taking cash out or consolidating debt? You're incurring thousands in fees and built-up interest. You are putting your wants before your needs and it will catch up with you. This will force you to pay more for your home and may hurt you when you decide to sell. If you really need something, save for it. Try to avoid impulse purchases.
LIVING PAYCHECK TO PAYCHECK
If you're always anxiously waiting for your next paycheck, you may be going broke. If you focus on today’s needs and wants, without regard for tomorrow, you may be acting on impulse. You might be getting by now, but living in the moment will catch up with you. If all of your money is going to bills and living expenses, you may need to get another job or commit to changing your lifestyle. A realistic budget will help you manage your money and help reduce your financial stress.
SPENDING MORE THAN YOU EARN
This may seem obvious, but it is so common. If you have more than one income in your household, you may think you have more money than you really do. It’s important to make sure your bills and monthly expenses are taken care of first. You need to be realistic with yourself and know what you can afford before you make frivolous purchases. You may think small purchases won’t matter, but they add up quickly and turn into big debts. Again, a budget will help you spend and save your money wisely.
YOU DON’T HAVE SAVINGS
There will always be unexpected expenses, such as major car repairs, medical bills, home repairs, etc. You may also have less income due to a job loss, reduced hours, or a pay cut. Without savings you won’t be able to deal with these things in a responsible way. You’ll have to borrow the money or put it on a credit card and increase your debt.
Stay tuned! I'll talk about 5 more ways to go broke in Part 2.