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Here’s why you feel broke…even though you make enough money?

Have you ever found yourself feeling broke, despite earning a decent income and managing your expenses?

Trust me, you’re not alone.

For some people, the reason behind feeling broke isn’t a mystery. They might recognize an income problem, in which case what they bring in isn’t enough to cover their expenses (or it’s just enough). Or, they might live in an expensive area. 

On the flip side, though, you have others who earn good money and pay a reasonable amount for housing, yet feel broke. 

So today we’re looking at possible reasons for this, and what you can do about it.

1. You haven’t adjusted your budget

Having a clear and realistic budget is essential for any personal financial plan. It doesn’t matter if you make $40,000 or $125,000 a year, everyone needs a budget to ensure their spending aligns with their income.

Budgeting is often considered “Personal Finance 101,” so if you’re someone who watches money-related videos or reads money-related blog posts, you likely already understand the importance of this.

However, one area where many people neglect is revisiting or adjusting their budget regularly. I highly recommend reviewing and adjusting the numbers periodically because your expenses can change over time.

While big expenses like mortgage payments or loan installments may remain consistent over an extended period, other costs can increase gradually due to inflation. This includes groceries, gas, clothing, transportation, and various goods.

So if your daily spending habits haven’t changed, yet you’re running out of money or finding it harder to save, it’s crucial to reevaluate your budget.

If you find that you’re spending more on food and fuel, it might need to cut back in other areas like entertainment and recreation to free up cash. Making this adjustment ensures that your spending remains within your means.

2. You have too much debt

I firmly believe that not all debt is bad.

When we talk about “bad debt,” we generally refer to debts that don’t generate income or improve our lives. With that being said, credit card debt and certain types of loans often fall into this category.

If you find yourself burdened with credit card debt and facing high minimum payments, this could explain why you’re feeling financially strained, even though you earn a decent income.

And this isn’t limited to credit cards; an expensive car payment can have the same effect.

According to some financial experts, car-related expenses should ideally account for no more than 15% to 20% of your monthly take-home pay. This includes your monthly payment, as well as expenses for gas and insurance.

To determine where you stand, I encourage you to crunch the numbers and assess your situation. If your car-related expenses exceed this recommended percentage, consider more affordable alternatives.

Likewise, if you’re dealing with credit card debt, come up with a plan to tackle it head-on. Implementing strategies such as freezing your card, refraining from adding to the balance, negotiating for lower interest rates, and paying more than the minimum required are excellent starting points on the journey to becoming debt-free.

3. You’re spending too much on conveniences

I want to clarify that I’m not suggesting you completely stop spending money on conveniences. If I said that, I’d be a hypocrite because there are certain conveniences that I personally pay for each month.

During the early days of the pandemic, my family and I began having our groceries delivered, and even now, we continue to do so.

We also occasionally opt for meal delivery services, and I take advantage of a mobile car detailer. I genuinely appreciate these conveniences, especially those that save time, and I’m willing to indulge on these before splurging on anything else.

However, it’s crucial to maintain a sense of moderation when it comes to conveniences. We all know that too much of a good thing can have negative consequences, and trying to make every aspect of your life easier comes with a cost. What’s more, expenses related to convenience can gradually increase over time, so you might not realize how much you’re spending each month.

To gain a clearer understanding, one helpful step is to review your bank statements or credit card statements and tally up all your convenient-related purchases. This also includes recurring monthly expenses or subscriptions.

Unfortunately, there aren’t specific guidelines regarding what percentage of your income is acceptable to spend on these—at least none that I could find.

However, to keep yourself on the right track, make sure that these expenses don’t make it harder to cover your essential needs, push you into debt, or hinder your ability to save money.

4. You don’t pay yourself first

One of the main reasons why someone with a good income can still feel broke is the tendency to delay saving money until the end of the month.

Many people prioritize paying bills and fun activities like entertainment, recreation, and shopping. And they only think about saving “if” there’s money left over.

Having managed my money this way in the past, I can attest that this approach is a major money saving mistake.

By the time the end of the month rolls around, there’s usually very little or nothing left to save. Consequently, extra money ends up being spent on things that don’t really matter, leaving no savings or only a minimal cushion. This creates a cycle of living paycheck to paycheck and being unable to get ahead.

To break this cycle, make saving a priority. Set a goal to build an emergency fund that covers at least three to six months’ worth of income. A survey conducted last year revealed that “32% of Americans lacked sufficient funds to handle a $400 emergency. And without cash available, people often used credit cards as a backup plan.”

To avoid this, pay yourself first and treat your savings account like a new bill and allocate a minimum of 5% to 10% of your income to it every time you get paid.