You’re broke because of a simple reason.
You know that feeling that you get when your paycheck arrives at the end of the month?
You feel like you can buy anything in the world, so you go on a shopping spree and buy that new iPad or that new gaming chair you’ve always wanted. At the end of the month, you’re back to where you started:
you’re broke.
So what do you do? You promise yourself that you’ll make better financial decisions when your next paycheck comes. When that fateful day comes though, you fall right back into your old patterns again.
If you’ve ever been in this situation before then you’re not alone.
4 out of 5 Americans are broke
A report by CareerBuilder shows that nearly 80% of Americans work paycheck to paycheck. That means 4 out of 5 people in America have almost nothing left over after paying for their gas, utilities, and water.
Like most Americans, I grew up never learning about how money works.
I grew up thinking that it was normal to work, get paid, spend, and wait until I get paid again.
I noticed that I had a problem when my bank account always ended up less than $100 at the end of every month.
The reason that I was broke all the time wasn’t because of some outside factor like the economy.
I was broke simply because I was constantly falling for the classic money traps.
I’m much more financially stable now because I fixed my spending habits, and I want to help you fix yours as well.
Here are the three reasons why you’re broke all the time and how you can fix it.
1) Keeping up with the Joneses will keep you broke
You know that awesome feeling when you buy a new iPhone? You feel like everyone at work had it except you and now you’re part of the elite circle. Better yet, you just bought the premium iPhone 11 Max Pro with not two but three cameras this time. You feel like you’re on the top of the world.
Two days later, you see that one of your co-workers bought the new AirPod Pro, which supposedly has a noise canceling feature. You look at your own AirPod of three years and feel slightly inferior to your co-worker. You curse at your AirPod, and proceed to check out the AirPod Pro on Apple.com.
Great luck! The Apple Store near your house has one in stock. At night before you head back home, you stop by the store and purchase your new AirPod Pro. You’re now a part of the elite of the elite circle this time.
A day later though, you see an ad for the new Apple Watch, and all your co-workers immediately go into a frenzy and place a pre-order for it.
You want it too, but you realize that you have no more money left.
You start crying quietly, unsure if you’re sad because of your bank account or that you’re out of the elite circle, again.
Lifestyle Inflation
If this scenario sounds familiar to you, then you are participating in something called a lifestyle inflation. Lifestyle inflation is when you spend more money than you have to inflate your lifestyle.
There’s a couple of reasons why you participate in lifestyle inflation. The first reason is to make people feel jealous that you’re living a luxurious life and own all these luxurious items. The second reason is because you constantly compare yourself to other people and can’t stand the feeling of having lesser than them.
The problem with these situations is that there is no limit to lifestyle inflation. You’ll always find someone who is richer than you, smarter than you, and better looking than you. The more you compare yourself to them, the more you drag yourself into an hellish cycle of buying and spending until your bank account dries up.
Here is the thing about lifestyle inflation: nobody really cares about what you have. Everyone is too busy with their own lives that they don’t care if you’re living some grandiose lifestyle filled with yachts and cigars.
As Dave Ramsey once said: “We buy things we don’t need with money we don’t have to impress people we don’t like.”
So instead of buying things to impress people, focus on saving money for things that you actually care about.
2) You’ll go broke if you don’t start investing
When you get your paycheck, what’s the first thing that goes out of your bank? If I can guess, it’s probably your rent, phone bill, utilities, food, Netflix subscriptions, and any loans that you might have. Once you pay them off, you’re probably looking at your last $300 and saying, “screw it, I want to buy something nice for myself” so you go ahead and buy that new iPad that you’ve been eyeing.
The mistake here is that you’re throwing away your money every time you do this. Sure, we all have bills to pay, but that extra leftover money can be spent on investing in an asset.
What’s an asset?
An asset is something that can make money for you. For example, if you have a garden full of strawberries, you can sell strawberries to make money. Therefore your garden is an asset. Pretty much anything that has value or can be sold is considered an asset.
One of the biggest assets that you can own is a stock.
When you buy a stock, let’s say Apple, then the value of your stock grows as long as Apple grows. As the pie gets bigger, each slice gets bigger with it. So if you invested a $100 in Apple in 1980, you would have about $67,564 today (as long as you don’t sell it). Essentially, you just earned 6,700 times more money by doing nothing.
When you can figure out which stock to buy, you’ll eventually have a valuable asset that can make you money while you sleep.
Warren Buffett’s favorite investment strategy
I’m not saying that you shouldn’t have Starbucks coffee anymore or buy things that you want. Life is short and you should enjoy it. However, if you want to use your money more wisely, then I highly suggest investing whatever money you have on an asset like a stock.
If you want to learn more about stocks, there are plenty of blogs and videos out there that go into this deeper.
If you’re a new investor, I suggest reading a book called “The Intelligent Investor” by Benjamin Graham.
This book is considered to be the holy grail of investing in the financial world. It provides a timeless, no nonsense approach to investing.
Warren Buffett, the richest man in the world, says that this book taught him how to invest.
He’s might be a little bit biased since Graham was his professor in college; however, Buffett pretty much hasn’t changed his investment strategy since the first day he read this book.
3) You make impulse purchases all the time
Let’s say you just came out of the gym after a long and hard work out. You’re looking forward to driving back home as your dinner of chicken breast and spinach awaits you. Once you pull up at the stoplight however, you see a McDonald’s on your right. Immediately, your stomach begins to growl and your eyes focus intensely on those yellow arches.
Suddenly, your mind comes up with all kinds of justification as to why you should eat McDonald’s today:
“You just had a hard workout, go treat yourself, pal.”
“One meal won’t kill your gains. There’s always tomorrow.”
“When will you ever have McDonalds again?? What if a meteor strikes the earth tomorrow?? Just GO FOR IT!”
As soon as the stoplight turns green, you find yourself turning your car into the McDonald’s drive-thru and proceed to order a Big Mac meal.
Your brain is your worst enemy when it comes to impulse purchases
If you’ve ever experienced this before, chances are that you’re human.
As humans, we purchase things solely based on how we feel. So when you pull up to the stoplight and see a McDonald’s sign, immediately your mind starts racing and you can’t stop thinking about that fat and juicy Big Mac burger.
We justify our rationale in all kinds of ways. That’s because our desire for those things lights up the survival switch in our brains, which causes us to think that we need them to survive.
You might think that one impulse buy doesn’t do any harm. The opposite is true, however, since late your impulse buys will begin to snowball to bigger and more expensive purchases.
The key to not being broke is to avoid impulse purchases.
How to avoid buying things impulsively
One of the best ways to avoid impulse buys is to figure out what product or category triggers your impulsive purchases.
For me, it’s food. I spent a lot of money eating out all the time that I eventually became broke at the end of every month. I knew that this was going to be a problem later on in my life so I decided that I would cook at home from now on. To make sure that I followed through, I made a calendar of what I was going to eat every day so that I wouldn’t fall off the track.
After about a month, the schedule became so routine that I actually forgot about eating anything else other than what was on my calendar. I still went out and ate every weekend, but having this calendar helped me save a lot of money on the weekdays.
If the thing that triggers you is technology or clothes, try to determine where those ads might be coming from. You can use Adblock on Youtube to help you stay motivated. You can also unsubscribe to Youtube channels that review the kind of products that you might impulsively buy.
I’m not trying to say that you should avoid your favorite niche completely. There’s nothing wrong about liking shoes or clothes, much like there’s nothing wrong about eating McDonald’s once in a while.
The key is be aware that you can be easily triggered by these ads or products. Once you can train yourself to become aware, you can catch yourself whenever you feel the urge to make a purchase and question if it’s the best thing to do.
Originally published at https://peekingbuddha.com on October 5, 2020.
