Help! I’m Broke (6 things to do…right now!)
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Occasionally someone will message me saying, “I’m broke…what can I do to fix it?!?”
This has happened more than once, so the question is obviously on the minds of people. But there really isn’t a quick answer or a single blueprint. So the steps that one person takes “to not be broke” can be very different from the steps another person takes.
Even so, I do have some suggestions if you feel that you’re not getting ahead.
1. Figure out “why” you’re broke
I know some people will say, “It’s because I don’t have any money.”
Well obviously, lol.
The idea, though, is to go deeper and understand exactly why you don’t have any money because there are two types of broke-ness. There’s broke from an income problem, and there’s broke from a spending problem. Getting ahead involves understanding where you fall.
To figure this out, track your spending over one or two months. Go through your statements (bank and credit card) and add up how much you’ve spent. Next, separate your spending into two categories – your needs and your wants.
Needs include items like:
- rent/mortgage
- utilities
- transportation
- insurance
- minimum debt payments
- daycare expenses
These are basically any expense that isn’t a choice.
You’ll then do the same for your “wants.” This list might include eating out, shopping, subscription, hobbies, etc.
Once you’ve done the math, subtract your needs from your take-home pay. This is money after taxes and payroll deductions.
Now if you have money left after paying your needs, yet you’re still broke, this indicates a spending problem. In other words, you’re overspending in some areas (most likely on wants).
The good news is that this type of broke is easier to fix.
But if you’re in the negative (or close to the negative) after subtracting needs from your take home pay, you have an income problem – meaning your income isn’t enough or is barely enough to cover your basic needs. And unfortunately, overcoming this type of broke will require more effort (more on this later).
2. Eliminate “wants” you can live without
You have to cut back and reduce spending to get ahead (there’s really no way around this). To do this, first focus on your wants.
The reason?
Well, even if you’re overspending on needs like housing, it takes time to find cheaper alternatives. There is, however, some flexibility with wants. So take a look at each expense on your “wants” list and start eliminating items.
Now, I don’t believe in total deprivation because I feel this approach can backfire. Therefore, its okay to keep some of the things you enjoy. But you’ll need to reduce how much you spend on these.
To illustrate how you can enjoy things while saving, let’s say you’re currently spending $120 a month on subscriptions, $600 a month on a car payment, and $500 a month on eating out and other non-essentials. Reducing these expenses by only half is a savings of $610 a month or $7,300 a year.
This is all based on circumstances, of course, so you might have to cut back further.
But the point is: It’s okay to have fun – yet the fun must be reasonable to your income. To help you make sustainable changes, for every sacrifice find a free or low-cost replacement. So instead of going to dinner with your best friend every other Friday, meet for coffee instead.
3. Stop digging the hole
If you’re living above your means or if you’re drowning in credit card debt, little changes might not appear to make a difference. Also, it’s easier to continue spending when you’re already in a hole.
Just know that it’s this thinking that keeps a lot of people trap. You didn’t dig yourself into a hole overnight, so don’t expect to dig yourself out overnight. And when I say “stop digging the hole,” I’m not only referring to new debt or new spending. I’m also referring to existing obligations. You might have to find a cheaper place to live or sell an item that you’re financing.
4. Learn about money
This involves learning about savings, investing, credit, debt, and passive income, which is important because financial literacy can empower you and help you make good choices.
The more you understand about different aspects of finance, the easier it is to make informed decisions. Plus, reading and educating yourself about money keeps these topics fresh in your mind, helping you become a conscious spender.
5. Increase your income
But what if you’ve cut back as far as you can – yet you still can’t get ahead.
Sometimes – and I know this isn’t what some people want to hear – but sometimes the only fix is to increase your income.
In the past when I’ve spoken on how to save money, I’ll occasionally get a comment from a person who feels that the information didn’t help them because they only earn $800 or $1,000 a month. And I get it…
But the hard truth is this: If your income is low and there’s nothing else to cut out, frugal tips or hacks might not work for you. Getting ahead will likely involve increasing your income. This might include finding part-time work, a new job, or gaining new skills.
6. Save and invest (yes even if you’re broke)
Saving money isn’t easy when most of your money goes to bills. But even if you can’t save a lot, make an effort to save something every week. It can be only $5 or $10.
This is vital because saving money is also empowering. You’re taking control of your money and putting yourself first, and that one good decision can lead to other good decisions. Plus, a growing safety net builds confidence.
Start by transferring $5 from your checking account to your savings account every week, and take advantage of micro-saving apps like Acorns. This makes it easy to save and invest with little money. If you link a debit or credit card, Acorns will round up your purchases to the nearest dollar and invest the difference. In addition, you can set up recurring and one-time investments at anytime – starting at only $5.