7 Money Mistakes That Will Keep You Broke

money mistakes that will make you broke

Money is one of the topics that most people shy away from. If you want to create a tense atmosphere in a room, just bring up any topic that has to do with finances.

If this topic also makes you feel uncomfortable, you’re not alone. 

In fact, 77 percent of adults worry about money every day. Many people feel finances control their lives or they’re not even sure whether they have enough money for retirement. 

Fortunately, you can stop worrying about money. Most of the worries you have about money are tied to some money mistakes. So in this article, I’ll show you some of the money mistakes that keep people broke. I’ll show you how to avoid these mistakes so that you can stop worrying about money. 

Relying only on a paycheck for money

The first money mistake that many people make is relying only on a paycheck for money. While there is nothing wrong with doing a 9-5 job, you must realize that jobs are not designed to make you rich. If you want to understand what I’m saying, just take a look at the list of the richest people in the world. None of them got there by depending only on a paycheck. 

Another reason why you cannot depend on a paycheck to become rich is that there is a limit to how much you can earn. Every organization has a fixed salary structure and sometimes you may be required to work for many years to make more money. 

And sometimes, an increase in your average rates does not always translate to an increase in your overall take-home pay. For example, in 2021, the average hourly wages rose by 4.7 percent by when adjusted for inflation, the overall wages fell by about 2.4 percent on average for all workers. 

But not everyone is going to become an entrepreneur or a business owner, so what should you do to become rich with a 9-5 job? 

  1. Get another job that pays you more money if possible. 
  2. Start keeping aside a portion of your income every month to start a side hustle. 
  3. Learn how to invest and grow your money. 

Saving every penny you make 

sick piggy bank
Image source

Another money mistake that keeps most people broke is that they think they are going to become rich by saving more money. While it is important to save money, the truth is that no one ever becomes rich this way. The interest rate that most banks offer is lesser than the rate of inflation. In other words, the longer you keep your money in the bank, the more valueless it becomes. 

So if you want to avoid being broke, what you should do instead is to keep enough money in your savings account for emergencies. Once you have your emergency savings, which is about 6 times your monthly expenses, you should learn how to invest your money to make it grow.

Here is a quick example of how much money grows when you save it versus when you invest it. 

Let’s assume you started saving $1,000 every month at age 20, you’ll have just $600,000 in the bank by the time you turn 70. Although this looks like a lot of money, you’ll see the difference if you incested instead. 

Now let’s say you only invested $100 every month at a 10 percent interest rate from age 20. Maybe you even got tired of investing when you turned 40 but you decided to leave the money until you became 70. How much do you think you’ll have in your investment account? 

$1,211,036.50! 

So you see that it is easier to achieve financial freedom by investing rather than saving money.  

Always looking for quick money schemes

quick money schemes

The desire to suddenly become wealthy has kept many people poor and wretched. 

Quick money schemes come in the form of gambling, lottery, Ponzi, and many disguises. And the sad thing is that they are everywhere you look. From your friends at work to your social media and even emails. 

Quick money schemes often promise outrageous returns on investment even when you cannot pinpoint where exactly the money is coming from. They will usually pay a few people the promised amount as social proof but after gathering enough money from investors, they disappear into thin air. 

Here are some of the things to look out for to know if an investment is a type of quick money scheme: 

  1. They promise high returns with low risk. 
  2. They put pressure on you to invest immediately.
  3. They have only been in existence for a short time. 
  4. Most of these schemes require you to do nothing. 

Lack of financial literacy  

I’ve met quite a few people who believe that they have nothing else to learn about money. Unfortunately, these are the type of people who are just one step away from financial disaster. 

One of the habits of some of the richest people in the world is that they read every day. When you meet people like Elon Musk, Warren Buffet, or Bill Gates and ask them what is their biggest secret, they’ll probably tell you that they read every day. 

The world is evolving and some of the information you have some few years back may no longer be relevant today. Therefore, they make sure that they read every day, listen to audio courses, or attend seminars. 

Lack of proper financial planning

Another money mistake that I see people make often is that they lack proper financial planning and fail to set money goals. Many people are going about their finances blindly hoping to become rich someday. 

Unfortunately, it doesn’t work that way. 

Before you receive your paycheck, you must have a budget of how you are going to spend the money. In the budget, you must allocate how much will go to your savings account, how much you want to invest and how much you will be left with to spend. 

Also, you must a goal of how much money you want to make within a specific period. For instance, you can have a goal of making $50,000 in a year or whatever amount you are comfortable with. 

You can also read this article on how to set goals and achieve them.

Only spending time with other broke people 

You are a reflection of the closest people you spend most of your time with. If you spend time with 5 lazy people, you’ll soon become the sixth. In the same way, if you spend time with 5 broke people you’ll soon become the sixth. So if you don’t want to become brake, make sure you’re not only keeping company with broke people. 

The reason for this is not far-fetched. Humans are social beings and we learn from interactions. If you make friends with broke people you will end up doing what they do. You’ll buy things on credit, you’ll be lazy at work, you’ll give excuses and above all, you’ll be broke. 

However, when you spend your time with other rich people, you’ll do things that they do that give them money. You’ll learn how to manage your money and control spending. So check your 5 closest friends today, if they are not better than you, then you need to make new friends immediately. 

Hoping to be lucky 

One last money mistake I’ll talk about in this video is that becoming rich is not luck. Many people make the mistake of thinking that it only takes luck to become rich. Well, we’ve seen a few individuals who won the lottery and their lives change. But the statistics of people who lose money on the same scheme have shown that this is not the most viable method of becoming rich. 

The only definition of luck that I agree with is from Seneca, “Luck is what happens when preparation meets opportunity.”

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